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Rescheduling of PICIC loans

  1. Sharp decline in edible oil prices
  2. Snail's pace of privatization process
  3. Federal tax revenues
  4. Rescheduling of PICIC loans
  5. Islamic stock market indices

Rescheduling Plan, envisaging full payments of current debt servicing liability, has been proposed

Special Correspondent, Islamabad
Sep 06, 1999

During 1980, a sum of Rs 9947.50 million was lent to Pakistan Industrial Credit and Investment Corporation (PICIC), which was repayable during 1984-2007. PICIC had been regular in repayments up to 1993-94 but thereafter the recoveries by PICIC from their clients were not adequate to service the annual debt liabilities towards government which resulted into accumulation of overdues. Factors leading to overdues situation were stated to be the major exposure in the textile sector; due to persistent recession in the textile industry liberal rescheduling of loans were allowed to various textile units; and, law and order situation in the country, particularly in Karachi, slowed down the recovery by PICIC from its borrowers.

Due to these constraints, financial position of PICIC became precarious and it suffered operating losses of Rs 280 million for the first time in 1994-95 and of Rs 1094 million in 1995-96. PICIC has now embarked upon a concerted effort to recover stuck up loans. Its financial performance has taken a new turn. In 1997-98 it resumed servicing of its debt by paying Rs 1100 million in that year. However, as of June 30, 1998 their outstanding liability of overdues was Rs 4473.92 million (Rs 2018.87 million principal and Rs 2455.05 million interest).

According to sources, PICIC has proposed a 'Rescheduling Plan' which envisages full payments of current debt servicing liability while the overdue amount will be without interest through installments. (Rescheduling Plan is given in the Table) The Plan does not involve any write off/waiver except for exemption from additional interest on overdue amount. However, the net present value of the over payments will be less than Rs 4474 million. Sources say PICIC has submitted that this is the amount which their projected cash flows can support. PICIC has further undertaken that if their financial performance improves further due to capital gains in the sale of their stocks, they will further accelerate repayment of overdues. They have already deposited a sum of Rs 1375.240 million during the financial year 1998-99.

According to PICIC,, loan recovery is the only source of cash inflow from where debt repayment to Government of Pakistan can be made. In view of limitations due to stuck-up advances of around 66 per cent it is beyond PICIC's capacity to clear overdues and hence back-loaded. Capital market has remained bearish for the fourth year in succession. Besides, a turn-around in near future is not in sight and hence capital gain has not been envisaged in cash flow projections. Domestic/external resources available from GOP and State Bank of Pakistan have fully been exhausted and there is no prospect of availability of relent loans from GOP in near future. PICIC, is therefore planning to negotiate lines of credit with local and foreign institutions besides raising funds from international market on issuance of papers. In order to effectively mobilize these sources of funds and revitalize PICIC, credit rating is also being planned. To achieve these objectives it is necessary to improve financial position which includes resumption of repayment of relent loans to GOP on rescheduling basis. It is for this reason the GOP is being requested to help revitalize PICIC to be able to restart its core business of long term industrial financing on its own strength and financial position as PICIC was incorporated with the sole objective of long term project financing being its main business

Table for PICIC Story

Year Current
1998-99 844.497 528.083 0.000 1372.581
1999-2000 736.291 400.171 63.538 1200.000
2000-2001 690.516 318.343 191.141 1200.000
2001-2002 642.056 241.726 316.218 1200.000
2002-2003 593.383 176.045 430.570 1200.000
2003-2004 514.593 107.626 409.135 1031.354
2004-2005 454.064 51.959 493.977 1000.000
2005-2006 375.875 5.286 618.838 1000.000
2006-2007 34.998 1.437 963.566 1000.000
2007-2008 13.061 0.000 986.939 1000.000
Total 4899.336 1830.676 4473.922 11203.935