The country's debt market will see appearance of as much as three term finance certificates (TFCs) in the first two months of the new fiscal year because of slightly higher interest rates.
Bank Al-Habib and Trust Leasing Co have planned to sell corporate bonds, commonly known as 'term finance certificates'.
Bank Al-Habib plans to sell Rs 1.15 billion TFCs to financial institutions and other banks, while it would raise Rs 200 million from the general public.
Trust Leasing has already sold Rs 300 million to banks and other institutions, and would raise Rs 75 million from general public.
These companies have planned to raise general public subscription Al Habib from June 15, and Trust Leasing from June 16.
United Bank Ltd also plans to sell terms finance certificates worth Rs 2.5 billion soon. Of this Rs 2 billion is expected to be raise through investment companies while in case of surplus demand the bank would utilise the green-shoe option of Rs 500 million.
Bank Al-Habib and Trust Leasing Co rates of return have been linked to Karachi Interbank Offered Rate (KIBOR) for six-week tenor, whereas UBL six-monthly profit would be linked to Pakistan Investment Bonds.
The local primary corporate debt market, which had been heavily active over the last couple of years, lost its glimmer in January-June 2004 (1H2004 period). After having seen a tremendous 17 and 15 TFC IPOs during calendar years 2002 and 2003 respectively, the market saw only one listed TFC IPO in 1H2004.
Interest in borrowing through listed TFCs declined considerably owing to low interest rates, availability of cheaper banking finance, and more effort required in listing of TFCs.
The local corporate debt market came to a relative standstill, as corporates noticed the utility of direct bank financing rather than through listed TFCs. Only one TFC IPO, ie of Union Bank, was conducted during 1H2004. This TFC raised Rs 750 million for the bank, of which Rs 600 million was privately placed, while Rs 150 million was raised from the general public. The IPO was under-subscribed by Rs 44 million and the gap was filled through underwriters' funds.
Just one listing worth Rs 750 million is a far cry from the 10 TFCs worth Rs 3.7 billion issued in 1H2003, and 6 TFCs worth Rs 2.7 billion issued in 1H2002.
The listed corporate debt market size is now Rs 29.5 billion. This is slightly lower as compared to the level of Rs 30.2 billion at end-December 2003. There has been a shrinkage in the size of the listed TFC market during 1H2004, which represents a bit of a setback for the development of this market in Pakistan . Listed TFCs are now at a level of 2 percent of the total market capitalisation of the KSE, which is quite small as compared to developed markets. In terms of percentage of GDP, the TFC market is less than 1 percent.
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