Pakistan Water and Power Development Authority drew an enthusiastic response to the country's first offshore green bond, in the latest sign of growing demand for sustainable emerging markets investments.
The wholly government-owned issuer (B3/B–/B–) priced the US$500m 10-year Reg S notes at par to yield 7.5%, inside initial price thoughts of low 8% area and the tight end of the revised guidance of 7.5%–7.625%.
The offering benefited from strong demand from Asian investors looking for yield, and was further boosted by its ESG and development finance angles.
The senior unsecured bond was covered more than four times with books coming in at around US$2.2bn at the final price.
"We are seeing more EM green bond funds being set up and these portfolios are moving to the higher-yielding end, given that the IG space is very crowded," said a banker at one of the leads.
WAPDA's dollar debut follows a US$2.5bn sovereign offering at the end of March that marked Pakistan's return to the international capital markets for the first time since 2017.
The country reached an agreement with the IMF in February to put its reforms back on track and free up the next instalment of a US$6bn programme put in place after a balance-of-payments crisis in 2019. It is also participating in the World Bank-led debt service suspension initiative.
WAPDA is Pakistan's hydropower generation and water resources development authority, and plays an integral role in providing public services and executing public infrastructure development. The power sector has been a significant constraint on growth in Pakistan over the past decade, resulting in frequent scheduled power outages and affecting the country's economic development, according to Moody's.
WAPDA is also the country's largest supplier of hydroelectric power, accounting for 96% of the hydroelectric power generation capacity as of June last year. The company expects hydroelectric power to make up 50% of Pakistan's total electricity in 2030, up from 25% last year.
The new issue, which was also the first offshore corporate bond offering from Pakistan, has expected ratings of B–/B– (S&P/Fitch), in line with the sovereign. The bonds were trading slightly higher on the first trading day on Friday at 100.5 for a yield of 7.43%. Pakistan sovereign's 2031s were also trading up on the back of the WAPDA deal, from 104.125 on Thursday to 104.625 on Friday, according to a trader.
Bankers estimated around 20% to 30% of the order book came from Asia. Final deal statistics were not available at the time of writing.
"We had very early bookbuild momentum because of the captive Asian demand," said a second banker on the deal.
Books opened around 1pm Hong Kong time and orders had reached US$2.8bn by 7pm, with demand supported by the green label and by accounts that follow JP Morgan's Emerging Market Bond Index, according to leads.
"There aren't as many green assets out there with a good yield and development purposes," said a third banker.
Competitive pricing
Bankers on the deal put WAPDA's bonds around 70bp back of the Pakistan sovereign. Pakistan's 7.375% 2031s were bid at 104.12 for a yield of around 6.8% on Thursday when WAPDA's new notes were priced, according to Tradeweb.
One of the leads estimated that Pakistan's state-owned enterprises should pay around 50bp–150bp over the sovereign.
"The coupon of WAPDA's new bonds is very close to the sovereign's, giving confidence for the authority to come back to the international bond market, as well as other state-owned enterprises in Pakistan and even some local banks to tap the market," said the third lead.
Proceeds will be used to finance and/or refinance eligible green projects as defined in the company's green bond framework, for which Sustainalytics provided a second party opinion. The eligible green projects include hydropower and wind power electricity generation plants.
Moody's warned, however, that WAPDA has a weak financial profile because of sizable capital spending on hydropower capacity expansion and delays in collecting revenues. This leaves it with limited financial flexibility after servicing interest payments, without considering the government support, the rating agency said.
JP Morgan was global coordinator as well as green structuring and development finance structuring agent. It was also a joint bookrunner with Deutsche Bank and Standard Chartered Bank. Habib Bank was a co-manager.