AKD Quotidian about US-Pak Relations: Going beyond the rhetoric!

Karachi: While the KSE has taken knee jerk reactions due to the recent dip in US-Pak military relations, AKD Securities believes the market has over marginalized US support for project financing in Pakistan underscoring a disconnect between US Military and Foreign Policy.

According to AKD Securities, the Overseas Private Investment Corporation (OPIC – US DFI) mandated to mobilize private capital to advance US Foreign Policy continues to provide financing to Pakistan to the tune of over US$375mn over the last four years in various project development areas. OPIC has tapped financing in the space of natural resources, agriculture, infrastructure, power and telecommunication. For this fiscal, OPIC has committed debt financing of US$98mn for energy (LNG import project-Pakistan Gasport) and US$2Omn for infrastructure related development (Center Point office space). In AKD Securities’ view, while Pakistan’s military role faces US rhetoric, continued project assistance in Pakistan by US government-backed agencies underscores a supportive US Foreign Policy which should serve to assuage concerns over a fallout on Pakistan’s economic privileges.

OPIC assuages concerns: US-Pakistan relations have ostensibly deteriorated in 2011 undermined by US intolerance for Pakistan’s military response. Beyond the military rhetoric, US-led project support has continued where OPIC as proxy has extended US$ll8mn in project financing for CY11 in the energy and infrastructure space with US backed corporate sponsors. This follows over US$375mn extended by OPIC over the last four years (see table on next page). Supportive US foreign policy has also underscored US$3.4bn in targeted project assistance by allies and multilateral & development agencies over the last three years. Of this, multilateral finding has accounted for almost 60% of the amount while China is the biggest bilateral lender Regarding US relations, while military rhetoric may intermittently continue, consistent project support to extend the required reform process should shore up market confidence. As such, AKD Securities believes any military rhetoric should be assessed within the backdrop of overall US foreign policy. The KSE-100 Index trades at a forward PER of 6.5x where AKD Securities retains AKD Securities’ Jun’12 KSE-100 Index target of 13,750 points.

OPIC projects financing /support in Pakistan

Source: OPIC