The commencement of government bond trading on local bourses would help improve the corporate bonds market and unlock the pool of liquidity, benefiting the issuers, and reducing financing costs. This was stated by Dr Tariq Hassan, Chairman, Securities and Exchange Commission of Pakistan (SECP), at the closing ceremony of Askari Commercial Bank's term finance certificates worth Rs 1.5 billion, arranged and advised by United Bank Ltd, Pak Oman Investment Company and Crosby Asset Management Ltd, who also acted as arrangers and advisers for the TFC issue.
Tariq said that over the past few years, Pakistan's corporate debt market has undergone a number of regulatory developments. Debt securities have been listed on the exchanges; two credit rating agencies have been established to analyze and rank issuers from risk perspective. More recently, SECP has permitted companies, including insurance companies, body corporate and all corporations governed by special enactment, to invest in TFCs as pre-IPO investors.
He said that the issue regarding listing of Pakistan Investment Bonds (PIBs) has also been taken up with the State Bank of Pakistan. Having the PIBs listed on the exchanges would make the price discovery mechanism more efficient and would help promoting and adding debt to the debt market.
He said that institutional investors are making long term investments in TFCs and holding till maturity which is causing lack of liquidity in the debt market due to which the common investors ie general public, lose out on making secondary investment in such investments.
He said that the absence of market makers in corporate debt securities has also constrained secondary market activity. The concept of market maker needs to be introduced so as to make the debt market more liquid. This would also help in creating efficient pricing mechanism for instruments and result in development of secondary market for TFCs.
"Corporate bond markets can help borrowers reduce their financing costs in two ways: first, they would facilitate bank disintermediation by allowing direct access to investors and removing the middle man and related costs. Second, by issuing corporate bonds, entities are in a better position to tailor their asset and liability profiles, and reduce the risk of maturity and currency mismatch on their balance sheet", Hassan said.
Adnan Afaq, executive vice-president of Askari Commercial Bank in his address of welcome said Askari Bank had joined the group of banks which have successfully raised Tier II capital from the public by issuing TFCs of Rs 1.5 billion.
"Strong winds of prosperity are blowing...it's spring time. Those of us who have lived through the gloomy days since 1998 may find it difficult to find the brilliant horizon. The hotels are booked; airlines are packed and foreign enquiries are on the rise", he said. "I am not surprised that credit expansion is 36 percent over last year despite increasing interest rates."
Kalim ur Rahamn, chief executive officer of Askari Commercial Bank, said that performance of the bank last year was highly commendable and allowed it to enter the capital market. "The response was overwhelming and we successfully sold our TFC to several financial institutions and some of the non-banking financial institutions."
The profit after tax recorded a tremendous growth of 74 percent to Rs 1.923 billion and as the private sector is growing steadily and credit has crossed the set target, the bank would improved its performance in the current year.
General Masud Parvez, Chairman of Askari Bank, thanked all participants, arrangers and advisers to make the Rs 1.5 billion TFCs a successful venture and help deepening and widening the country's capital market.
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