Issuer: Power Holding Limited
Guarantor: Government of Pakistan
Size: PRe239 billion across three tranches
Banks: HBL, Allied Bank, National Bank of Pakistan, Meezan Bank and UBL (mandated lead advisers and arrangers)
Date: June 2023
Pakistan’s energy sector has been caught for years in a vicious cycle of debt, which every so often threatens to develop into a full-blown crisis.
At its core, deep structural and operational inefficiencies in the sector cause a cascading cycle of non-payments throughout the energy supply chain, creating a phenomenon called circular debt, or the perpetual accumulation of debt owed to power-generating companies.
Pakistan’s banks must step in often to avert a debt crisis, and last year, a group of local lenders did just that, arranging a PRe239 billion ($850 million) multi-tranche debt financing across Islamic and conventional formats for Power Holding Limited, a government-owned company established with the aim of reducing power-sector liabilities through borrowings from financial institutions.
Pakistan’s banks must step in often to avert a debt crisis, and last year, a group of local lenders did just that
The financing – the largest so far in the country’s power sector – was split across three tranches (PRe115 billion; PRe110 billion; and PRe14 billion) with the proceeds used to fund the repayment of the liabilities of several distribution companies, mitigating the debilitating effects of circular debt on the entire energy chain.
All facilities, from a group of 16 lenders in total, were backed by an unconditional and irrevocable guarantee from the Pakistan government.
Coordinating between all stakeholders, which included the ministry of finance and other government departments, under some time pressure, was one of the biggest challenges in putting the financing in place. However, the mandated lead advisory banks, deftly navigated these pressures, successfully achieving financial close in a quick timeframe.
For this success, together with size and complexity of the financing, it is Asia’s best Islamic local-currency deal.
