First-ever floating rate PIB auction fetches Rs 20 billion

The federal government Wednesday borrowed over Rs 20 billion through the sale of first-ever floating rate Pakistan Investment Bonds. The federal government, in the second week of this month, launched Pakistan Investment Bonds (PIBs) with floating rate coupon under Pakistan Investment Bonds Rules, 2000 to improve the debt profile and meet the rising financial needs.
Previously, financial institutions were reluctant to park liquidity in fixed rate PIBs as the rate of return was not attractive due to lower key policy rate. Financial institutions were preferring short-term government papers owing to low margin on long-term Investment papers.
Therefore, the federal government decided to launch floating rate PIBs in order to attract financial institutions and meet its required financial needs.
The coupon rate on the floating rate PIBs will be equal to the benchmark rate plus/minus. The benchmark rate would be the weighted average yield of the 6-month MTBs as determined in the latest successful 6-month MTBs auction held prior to the floating rate PIBs auction and/or the start of the coupon period.
The first auction for the sale of 10-year floating rate PIBs was held on Wednesday and bids were invited by State Bank of Pakistan (SBP) through designated Primary Dealers.
Overall, the SBP received bids amounting to Rs 174.055 billion at a rate ranging from 30 to 125 basis points (bps) higher than the benchmark. Out of received bids, the federal government accepted bids amounting to Rs 20.825 billion at a cut off margin of 50 basis points over the benchmark. The coupon will be paid and reset semi-annually and the floating rate PIBs will be issued at face value through uniform price competitive bidding auction process conducted by the SBP.
Primary Dealers were required to place bids as margin over/under the benchmark rate. Margin has to be specified in terms of bps over/under the benchmark rate. Minimum bid size was Rs 100,000 and in multiples thereof. Primary Dealers were free to place multiple bids.
The cut-off margin over the benchmark rate (at and below which GoP decides to accept all bids) will apply equally to all accepted bids. This margin will remain fixed over the entire tenor of the floating rate PIB.
According to the SBP, all other rules and regulations applicable to PIBs with fixed rate coupon are also applicable on floating rate PIBs (eg, SLR eligibility, securities classification and use of securities for liquidity management).