Standard & Poor's will assign a rating, expected to be in the `single-B' category, to Pakistan's new Eurobond after the exchange offer closes next month.

The Islamic Republic's foreign currency issuer credit rating remains at `SD' (selective default), pending completion of the proposed bond exchange and ratification by bank creditors of a restructuring of US$ 988 million in foreign currency loans in default since July 1998. Standard & Poor's defines default to include instances where either scheduled debt service is not paid on the due date, or an exchange offer of new debt contains terms less favorable than the original issues.

The downgrade of Pakistan's Eurobond ratings consequently reflects the distressed nature of the exchangeoffer announced by the government. Pakistan proposes to exchange a new Eurobond, with a coupon of 10 per cent, maturing December 13, 2005, for existing bonds carrying coupons of 6.0 per cent, 11.5 per cent, and Libor plus 3.95 per cent, maturing between December 1999 and February 2002.