Narrative
Full Description
Project narrative
On June 28, 2021, China Development Bank (CDB) signed a $1 billion term facility (loan) agreement with the State Bank of Pakistan to shore up the country’s foreign exchange reserves (captured via Record ID#92618). The loan agreement was later presented to Pakistan's Cabinet on December 8, 2021 and approved on December 21, 2021. The loan originally carried the following borrowing terms: an interest rate of 12-month LIBOR plus a 3% margin, a 2-year grace period, and a 2-year maturity (final maturity date: June 28, 2023). However, on April 28, 2023, CDB and the State Bank of Pakistan signed an amended version of the term facility (loan) agreement that reset the loan's base reference rate from LIBOR to SOFR. The loan fully disbursed and it was repaid ahead of schedule (on or around June 10, 2023). The lender agreed to waive the prepayment penalty that is typically charged when a borrower decides to repay ahead of schedule. Then, on June 16, 2023, China Development Bank signed a $1 billion rollover term facility (loan) agreement with the State Bank of Pakistan to shore up the country’s foreign exchange reserves (as captured via Record ID#97840). The borrowing terms included a 3-year maturity and an interest rate of overnight SOFR plus a 2% margin.
Staff comments
1. According to an April 4, 2023 report from the National Assembly of Pakistan, ‘[a]ll of Chinese commercial bank maturities during FY23 will be rolled over. Chinese authorities have assured the rollover of SAFE deposits, refinancing of bank loans and increase in the SWAP line from RMB 30 billion to RMB 40 billion. Government has recently received US$ 700 mn from CDB and further inflows are in pipeline from ICBC.’ See https://na.gov.pk/uploads/documents/questions/642d26d720755_869.pdf 2. June 30, 2023 marked the cessation of the USD LIBOR panel. SOFR then became the dominant interest rate benchmark for USD-denominated borrowings. 3. AidData has estimated the all-in interest rate (7.06%) by adding 2% to average daily SOFR in June 2023 (5.06%). 5.06% is based on the average of daily SOFR rates throughout the month of June 2023. 4. For the time being, AidData assumes that the same maturity (2 years) and grace period (2 years) that applied to the 2021 borrowing also applied to the 2023 borrowing. This issue warrants further investigation. 5. The Government of Pakistan's loan identification number for the $1 billion CDB borrowing in 2023 is CDB13062023. See https://www.ead.gov.pk/SiteImage/Misc/files/2023/Report-June-2023.pdf