Pakistan has raised $3 billion through a dual-tranche Eurobond, with the government securing the financing ahead of a $3 billion repayment to Saudi Arabia.

The transaction, completed on Thursday, covers bonds with maturities of five and a half years and 10 years, carrying face-value interest rates of 7.5 percent and 7.9 percent, respectively.

A Finance Ministry official told a private media outlet that the borrowing will be used to repay the Saudi debt. Pakistan had obtained $3 billion from Saudi Arabia in April for three months to repay a debt owed to the United Arab Emirates (UAE). Saudi Arabia later extended the arrangement for another three months, with the extension due to end next month.

Finance Minister Muhammad Aurangzeb described the Eurobond issuance as a “positive development”, saying it reflected renewed confidence among international investors in Pakistan’s economy and its future direction.

Speaking at the “High-Level Dialogues on Taxation for Fiscal Sustainability”, organised by the Asian Development Bank (ADB) in collaboration with the government, Aurangzeb said that the transaction marked the “single largest” bond issuance in Pakistan’s history.

“Let me start by talking about a positive development which has happened overnight where Pakistan as a sovereign has printed a $3 billion bond,” he said.

The Finance Ministry said that the transaction attracted nearly $6 billion in orders from institutional investors across global markets, almost twice the amount Pakistan raised.

Aurangzeb said that the pricing of both tranches was also encouraging and stressed that the government did not treat the borrowing as an ad-hoc exercise. “This is not an ad-hoc trade,” he said, adding that the government was following the same approach on external financing that it had adopted domestically to reduce rollover risks, extend maturities and carry out liability-management operations.

Aurangzeb said that the strategy focuses on replacing expensive short-term debt with longer-term financing and reducing rollover risks. “It’s all about repaying short-term expensive debt, extending our maturities, reducing our rollover risk, so it’s very much part of the deliberate strategy,” he added.

The Finance Ministry said that Pakistan raised $1.75 billion through the five-and-a-half-year Eurobond at a 7.5 percent coupon rate and another $1.25 billion through the 10-year bond at a 7.9 percent coupon rate.

The rates are higher than those Pakistan secured on comparable Eurobonds in 2021. However, the ministry said that the comparison needs to account for the difference in global interest rates.

US Treasury rates for comparable five- and 10-year bonds were around one percent and 1.64 percent in 2021, while current rates range between 4.55 percent and 4.8 percent, increasing Pakistan’s overall borrowing cost to around eight percent.

The ministry also said that the transaction also marked Pakistan’s largest-ever single international bond offering, addressing a comparison with the $3.5 billion raised through Eurobonds in 2021.

A Finance Ministry spokesman said that the 2021 amount came through two separate offerings. Pakistan initially issued $2.5 billion in April 2021 and reopened the bonds in July for another $1 billion. The spokesman added that the $3.5 billion figure therefore represented two separate offerings rather than one transaction.

The transaction comes as Pakistan faces external financing requirements during the fiscal year. The $3 billion raised through the Eurobond is less than half of the $7.1 billion trade deficit recorded during July and August.

Pakistan currently owes $8 billion to Saudi Arabia, of which $5 billion has already been rolled over until December 2028. The rollover has reduced Pakistan’s gross external financing requirements for the fiscal year to $21.5 billion.

Pakistan also repaid a $1.3 billion Chinese commercial loan in July, which reduced its foreign exchange reserves to $17 billion. State Bank of Pakistan (SBP) Governor Jameel Ahmad had said in July that he expected China to refinance the $1.3 billion by early August.