KARACHI: The State Bank of Pakistan (SBP) on Friday amended instructions regarding Floating Rate Pakistan Investment Bonds (also know as PFLs) and now profit of PFLs may be offered monthly, quarterly and semi-annual as decided by the Finance Division.

Government of Pakistan (GoP) vide it notification dated bases October 14, 2020 has made amendment in the Pakistan Investment Bonds Rules, 2000. In this context, the instructions regarding Floating Rate Pakistan Investment Bonds (PFLs) issued by State Bank of Pakistan have been amended.

As pr amended announced by SBP, only Primary Dealers (PDs) of government securities (MTBs & PIBs) will be eligible to participate in the competitive auctions and submit Non-Competitive Bids (NCBs) on behalf of eligible investors.

Under the Coupon Payment Frequency, PFLs may be offered as quarterly coupon paying bonds; semi-annual coupon paying bonds; and monthly coupon paying bonds, as decided by the Finance Division.

Currently to government is planning to issue PFLs with quarterly and semi-annual coupon payment frequency. As per details, for Quarterly Coupon Paying Bonds, the coupon rate will be equal to the weighted average yield of the 3-month Market Treasury Bills (MTBs) as determined in the latest 3-month MTB auction held prior to the floating rate PIBs' auction or resetting of coupon and the coupon will be paid quarterly.

The coupon may be reset either on quarterly basis or on the day of settlement of each auction of 3-month MTBs during the life of the bond (i.e. fortnightly), as may be announced by the State Bank of Pakistan through the auction calendar.

While, in case the auction of 3-month MTBs applicable for initial coupon determination or resetting thereafter is either rejected or there is no participation from the market, the average of 3-month (i.e. 61-90 days) PKRV applicable for last five working days prior to the PFL auction or the day on which coupon is due to be reset, as the case may be, will be used as an alternate coupon rate.

For semi-annual Coupon Paying Bonds, the coupon rate will be equal to the weighted average yield of the 6-month Market Treasury Bills (MTBs) as determined in the latest successful 6-month MTB auction held prior to the floating rate PIBs' auction and/or the start of the coupon period.

In case the latest held auction of 6-month MTBs is either rejected or there is no participation from the market, the average of 6-month (i.e. 121- 180 days) PKRV applicable for last five working days prior to the PFL auction or before the start of the coupon period will be used as an alternate coupon rate. The coupon will be paid and reset semi-annually, according to the procedure explained above.

According to SBP, separate instructions will be issued for coupon determination, payment and resetting of monthly coupon paying bonds when the Finance Division decides to issue such bonds.

The Floating Rate PIBs will be issued through multiple price competitive bidding auction process conducted by State Bank of Pakistan. Primary Dealers will be required to place competitive bids in terms of price (up to four decimal points). Minimum bid size will be PKR 100,000 and in multiples thereof. Primary Dealers will be free to place multiple bids.

Auction will be conducted using Bloomberg online module. In case there is internet connectivity or any other technical issue, PD may submit bids manually. Re-opening auctions of Floating Rate PIBs will be conducted as per the same rules and procedures as the first/original auctions, as stated above.

Coupon rate on Floating Rate PIBs offered in re-opening auctions will be the same as determined in the first auction of respective issue of the bond and reset at the start of each reset period. The successful bidders will make the settlement on the date of settlement at the amount calculated as per accepted price plus accrued interest for the number of days lapsed since the start of the coupon period on the basis of the respective coupon rate.

The bids may be accepted either in full or on pro-rata volume basis and the participation in the auction through NCBs will also be as per the procedure described in the same circular.

All other rules and regulations applicable to PIBs with fixed rate coupon will also be applicable on floating rate PIBs (e.g. SLR eligibility, securities classification and use of securities for liquidity management). Bids can be rejected without assigning any reason thereof and the fresh instructions will be applicable to the floating rate PIBs issued after October 16, 2020.

Copyright Business Recorder, 2020