MUSHTAQ GHUMMAN
ISLAMABAD: The government has decided to extend sovereign guarantee of Rs 12.2 billion to the National Investment Trust Limited (NITL) against a loan taken from state enterprises to stabilise stock market in 2008, instead of paying it back to financiers, sources close to Finance Minister told Business Recorder. NITL on the advice of Government of Pakistan (GoP) launched NIT State Enterprise Fund (NIT-SEF) in January 2009 to support the stock market at the time when there was a massive selling pressure from local as well as foreign investors. It was envisaged that the total size of the fund would be Rs 20 billion, which would be financed by financial institutions backed by government guarantee.
The fund would make investment in stocks of eight listed companies namely Oil and Gas and Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO), National Bank of Pakistan (NBP), Pakistan Telecommunication Limited (PTCL), Sui Northern Gas Pipeline (SNGPL), Sui Southern Gas Company Limited (SSGCL) and Kot Addu Power Company (Kapco) wherein the GoP has substantial shareholding.
The prime minister on October 22, 2008 approved issuance of sovereign guarantee for an amount of Rs 20 billion. The guarantee will be for the principal and interest payable on the Repurchase Agreement (REPO) amount at maturity which will not exceed 3 years. The GoP accordingly issued guarantee for NIT-SEF in favour of NBP, SLIC, Employees Old Age Benefits Institution (EOBI) and syndicate of banks led by the NBP for a period of three years.
Out of Rs 20 billion, Rs.17.20 billion has so far been drawn by NIT from aforementioned Organisations.
According to sources, the fund has played a significant role in stabilising the stock market and succeeded in achieving its objective. The KSE-100 index is now trading around 14500 which was hovering around 6,000 level at the start of this fund. Further, the fund has achieved a splendid return of 161.58 percent (since inception till May 8, 2012) thereby outperforming its benchmark by a significant margin of 21.34 percent.
NIT has retired Rs.5 billion to EOBI in March, 2012. To pay off the debt in full, NIT now requires Rs.12.20 billion in cash which can be generated through sale of shares acquired by NIT under NIT-SEF. However, this strategy may create panic among market participants and trigger distressed selling plunging the market into another crisis. NIT has now proposed to extend the sovereign guarantee provided to them in 2008 against the outstanding balance of Rs 12.20 billion for a period of two years effective from January 1, 2012.
The sources said, the proposal was earlier submitted to the Cabinet Division for placing it before the ECC for its consideration. The Cabinet Division advised that since the original sovereign guarantee amounting to Rs 20 billion was issued with the approval of the prime minister on 22nd October, 2008, Rule 5(4) of the Rules of Business, 1973 provides that no decision of policy taken by the prime minister will be varied, reversed or infringed without consulting the prime minister. As such, the proposal may be placed before the prime minister for consideration and decision.
The proposal was accordingly submitted to the prime minister for approval of the proposed extension in GoP sovereign guarantee of Rs 12.20 billion for NIT-SEF Fund for another two years on the existing terms and conditions. The Prime Minister has advised that the matter may be placed before the ECC for decision.
Accordingly, Finance Ministry has proposed that the GoP sovereign guarantee for Rs 12.20 billion to the financiers of NIT-SEF, i.e. NBP, SLIC and Syndicate Banks may be extended for another two years effective from January 01, 2012 on existing terms and conditions. NIT during this period shall retire this entire fund gradually without causing any detrimental effect on the stock value of OGDCL, PPL, PSO, NBP, PTCL, SNGPL, SSGCL, KAPCO and NIT.