The stability in T-bill cut-off yields in the last three auctions pretty much explains the fact that yields have maxed out vis-à-vis the policy rate of 10 percent. Despite the exhausted yields, the recent T-bill auction conducted on January 22 was oversubscribed by a huge margin with an offer-to-target ratio of 1.64 as against 0.53 in the auction conducted before the recent monetary policy.
The reason for healthy participation was excess liquidity, since for the last two auctions the market had been rolling-over the maturing amount, or even less than that, in anticipation of a rate-hike in Januarys monetary policy. But that hike never happened.
While surplus liquidity drew the desired participation-enabling the government to raise Rs733 billion against the target of Rs450 billion-the status quo in policy rate prevented any change in the auction dynamics. Market participation remained heavily skewed towards 3-month papers, accounting for over 86 percent of the offered and accepted amount, while the 6-month and 12-month papers bit the dust.
The onus of budgetary borrowing that was shifted to the central bank in 1Q FY14 has returned back to the commercial banks since 2Q FY14. But the roll-over risk still prevails. Bear in mind, over Rs2.2 trillion of T-bills are maturing in less than 84 days.
With the next monetary policy due in the end of March, the upcoming T-bill auctions are bound to meet the similar fate, i.e. bias towards 3-month papers, leaving the government exposed to high cost of funds.
Had the central bank raised the policy-rate by 50 basis points, which, owing to reasons already discussed in this column before, was recommended by most market participants surveyed by BR-Research, 6-month papers would have become investors favorite choice. Perhaps there are bigger challenges ahead than improving the maturity profile of government debt?
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Market Treasury bill Auctions, 22 Jan, 2014
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Rs(mn)
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Auction Target 450,000
Amount Maturing on Auction Date 674,401
Auction Participation 738,680
Accepted Amount 733,680
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Cut-off yields (%)
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3-month 9.9564%
6-month 9.9791%
12-month 9.9900%
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Source: SBP
Other corporate results
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Mirza Sugar Mills Limited
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Rs(mn) 1Q-FY14 1Q-FY13 Chg
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Sales - net 21.0 40.4 -48%
Cost of sales 26.3 61.7 -57%
Gross profit -5.3 -21.3 -75%
Operating profit -12.3 -36.6 -66%
Profit before tax -12.3 -36.6 -66%
Profit after tax -12.3 -36.6 -66%
EPS (Rs) - basic -0.87 -2.60
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Source: KSE notice
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Pangrio Sugar Mills Limited
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Rs(mn) 1Q-FY14 1Q-FY13 Chg
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Sales - net 0.0 41.3 -100%
Cost of sales 6.7 69.0 -90%
Gross profit -6.7 -27.7 -76%
Operating profit -10.8 -36.9 -71%
Profit before tax -11.1 -36.2 -69%
Profit after tax -11.1 -36.2 -69%
EPS (Rs) - basic -1.03 -3.33
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Source: KSE notice
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Hinopak Motors Limited
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Rs(mn) 9M-FY13 9M-FY12 Chg
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Sales - net 6132 5395 14%
Cost of sales 5232 4810 9%
Gross profit 900 585 54%
Other income 91 60 52%
Operating profit 585 301 95%
Profit before tax 597 31 1797%
Profit after tax 398 20 1862%
EPS (Rs) - basic 32.13 1.64
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Source: KSE notice
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