20000313

Financial sector to float Rs 1 bn TFCs

HARIS ZAMIR

KARACHI: The capital market would soon see a floating of Rs 1,000 million worth of Terms Finance Certificates (TFCs) mostly from the financial sector as the government has eased several regulations.

Rs 600 million worth of TFCs have already been offered to financial institutions and general public and with the relaxation the market expects another Rs 1 billion inflow of new debt instrument.

The confidence of the investors' has improved substantially during last couple of months. The rating of these TFCs has become a confidence booster and owing to health financial balance sheet they have to potential to payback with interest. At present seven issues are being traded at the stock market which have transacted above their issue value of Rs 5,000 per TFC. Sui Southern Gas is floating Rs 5,080, ICI Rs 5,110, Gatron Industries Rs 5,125, Saudi Pak Leasing Rs 5,150, Dewan Salman Fibre Rs 5,200, Pilcorp Rs 5,000 and Sigma Leasing Rs 5,000. The issue of Paramount Leasing worth Rs 250 million, is expected to be floated soon, of which Rs 200 million has been offered to financial institutions and Rs 50 million to general public.

According to an official, recent developments have contributed towards improving the prospects for issue of TFCs which include the outcome of efforts of Securities and Exchange Commission of Pakistan, which set up a number of committees under the chairmanship of M. Khalil Mian, chairman of policy board of SECP.

The recommendations of the sub-committees are under active consideration of SECP with some major recommendations have already been implemented. These include facilitating the issue of TFCs by streamlining the procedures. More importantly, the issuance cost has been reduced through cut in listing fees, brokerage commission and commission payable to bankers.

The permission to publish the prospectus in an abridged form rather than in full is yet another cost reducing measure. The withdrawal of withholding tax on return on TFCs for institutional investors has also helped in reducing the effective cost.

It is estimated that the cumulative reduction in issuance cost is around 150 basis points. Simultaneously, the general decline in interest rates has now made it possible for the companies to target TFC coupon rate at around 15 percent as long as the instrument enjoys a high investment grade rating. At this rate, it has now become beneficial to raise long term funds through TFCs both for substitution of existing long term loans and for mobilising additional resources for investment.

In the case of financial sector Ñ principal leasing companies Ñ a number of TFCs have been planned and preliminary work (including rating) completed. The total amount of TFCs likely to be issued in the next six months exceeds Rs 1 billion.

In the case of the manufacturing sector, options are being evaluated and no major TFC issue has been planned for the time being because of inertia in undertaking new investment or even major plans for modernisation and balancing. This, in turn, is linked to the revival of investor confidence, the sings of which are likely to emerge only with tangible improvement in the macroeconomic environment.