ISLAMABAD: The government has notified changes in existing buyback programme and enhanced its scope from existing “buyback programme” to “buyback & exchange programme” as per international best practices.
The Finance Division issued notification which stated that buyback and exchange of government securities is an important contemporary tool of a country’s debt management strategy and especially has gained more attention in the prevailing economic challenging conditions to achieve pro-active debt management targets i.e., utilisation of surplus cash, removal of illiquid and expensive debt securities (off the run issues) to direct market liquidity into newer issuances (on the run issues) for improvement in system liquidity, for fiscal account management of ongoing financial year through re-profiling of debt maturities etc.
By repurchasing its own outstanding securities from the market before they mature, the government aims to reduce its liabilities and strengthens its fiscal position.
Primary auction for GDS will also be held on PSX
The process involves using either government funds to buyback these bonds/securities (which stands retired) and transpires to decrease the overall outstanding debt (simple buyback strategy), or, exchange the securities of specific maturity with another security of a different maturity (buyback and exchange strategy) to manage cash positions and address refinancing or rollover risks, by creation of maturity pockets at longer-end of the debt profile.
It stated; With approval of competent authority, subject program’s scope has been enhanced from existing “Buyback Program” to “Buyback & Exchange Program” as per international best practices To provide flexibility and in line with market practices, following eligibility criteria and auction criteria has been approved (as replacement to previous criteria):
Eligibility criteria: Any maturity securities issued by the GoP is eligible for buyback.DMO can execute either Buyback transaction or Buyback & Exchange transaction (partial or full). All transactions must be executed near the market prices.(execution must be plus/minus 100 bps from the last day benchmark prices)
Auction criteria: Special auctions can be conducted, as deemed necessary by DMO, through competitive bidding process against pre-auction announced targets.
The notification issued in October 2021, buyback of government securities enables the issuer to retire a portion of its outstanding debt before its maturity. These transactions are categorised as liability management operations.
Copyright Business Recorder, 2024
Comments