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Investors show keen interest in fixed income securities

By SHABBIR H. KAZMI
Jan 17 - 23, 2000

The first tranche of Rs 330 million Term Finance Certificates (TFCs) of National Development Leasing Corporation (NDLC) was over-subscribed. The Corporation decided to retain the over-subscribed amount. While TFCs worth Rs 230 million were raised through private placement, certificates worth Rs 100 million were offered to general public. The public offer was over-subscribed by 170 per cent.

The distinctive point of the issue, which separates it from all the TFC floated in the past, is the fact that for the first time an abridged prospectus was published in the news papers. It was also for the first time any issuer opted for not getting the public issue underwritten by any institution. This clearly indicates the strength of NDLC.

The certificates offered to public were in the sets of 10 TFCs with each set having an aggregate face value of Rs 5,000 and Rs 100,000. The TFCs enjoy exemption from deduction of withholding tax and capital gains tax. NDLC expects to distribute 17 per cent per annum profit to the certificate holders. This will be payable semi-annually in arrears on a 365-day basis.

The total issue was for Rs 500 million, out of which Rs 330 million was floated in the first tranche. The issue was oversubscribed due to a number of distinctive achievements of NDLC. Some of these are, being the first and pioneer leasing company in Pakistan, being the first to float local currency certificates of investment, only leasing company allowed by the central bank to operate as an authorized foreign exchange dealer, recipient of Top 25 Companies Award of Karachi Stock Exchange and superior rating of TFCs by Pakistan Credit Rating Agency (PACRA).

THK Associates, the registrar for the issue, will maintain a register of TFC holders. The register of TFC holders will be closed for a period of 7 days prior to the redemption of each TFC. Each TFC will be redeemed on its due date through the dispatch of a crossed cheque to the registered holder of the TFC. The TFC holder will not need to physically go to the counters of any specific bank in order to have the TFC redeemed. The redemption schedule for TFCs has been announced.

NDLC was established as a joint-venture between the Asian Development Bank, International Finance Corporation, National Development Finance Corporation and local sponsors. It was incorporated in 1984 as a public limited company and it is listed at all the stock exchanges of Pakistan. NDLC is currently the third largest leasing company in terms of net investment in lease finance with a market share of approximately 12.5 per cent. as of June 30, 1998. It also has the largest equity base among leasing companies.

NDLC has a well diversified lease portfolio. The highest exposure (20%) is in the energy, oil and gas sector followed by Cement (19%), Textile (18%), sugar and allied (11%) and other sectors. The lease portfolio by type of assets is denominated by plant and machinery which accounts for approximately 90 per cent of the total lease portfolio as of June 30, 1999.

NDLC's core business is leasing. Its customer base in case of 'Big Ticket Leasing' consists mostly of corporate clients. 'General Product Leasing', introduced in 1994, caters mainly to the needs of corporate/retail clients for vehicles, computers, basic household appliances and office equipment. Long-term and short-term facilities are also available for individuals and institutional clients within the prescribed limit defined under Prudential Regulations of State Bank of Pakistan.

NDLC which has a remarkable track record faced deterioration in asset quality during last few years. It has managed to overcome most of the irritants. Even while facing deteriorating operating environment, it has been able to stem the rising trend of inflation and there are signs of improving trends in growth and other performance indicators after a noticeable decline up to June 1998.

The purpose of issuing TFCs is mainly to consolidate its position in the market place and regain top position in the leasing sector. This commitment has been endorsed by the PACRA. As it was endorsed that Company is well-positioned to benefit from any increase in industrial activity because of its long standing relationship with major local industrial groups. Keeping these factors in mind, NDLC is expected to show improvement both in performance and in asset quality as long as the current management strategy remains on track. Both the long-term and short-term were maintained by PACRA at 'A" (single A) and A1 (A one) respectively. The rating was also maintained at A+ (A plus) for the TFC issue of Rs 500 million.

(Rupees)

TOTAL ISSUE 500,000,000

FIRST TRANCHE 330,000,000

Institutional Investors

Allied Bank of Pakistan Limited

50,000,000

Askari Commercial Bank Limited

35,000,000

The Bank of Khyber

25,000,000

Pakistan Industrial Credit & Investment Corporation Limited

20,000,000

First International Investment Bank Limited

15,000,000

Pakistan Emerging Ventures Limited

15,000,000

Crescent Investment Bank Limited

10,000,000

Dawood Leasing Company Limited

10,000,000

Gulf Commercial Bank Limited

10,000,000

Metropolitan Bank Limited

10,000,000

ORIX Investment Bank Pakistan Limited

10,000,000

Pak Kuwait Investment Company (Private) Limited

10,000,000

Saudi Pak Industrial & Agricultural Investment Company (Pvt.) Limited

10,000,000

Sub-Total

230,000,000

General Public

100,000,000

Total First Tranche

330,000,000

TFC STRUCTURE AND REDEMPTION SCHEDULE

 

Dates

Redemption Value (Rs.)

Principal
(Rs.)

Expected Profit (Rs.)

Zakat @ 2.5%*
(Rs.)

Net Amount
(Rs.)

6 months

426.00

1.00

425.00

0.03

425.97

12 months

425.92

1.00

424.92

0.03

425.89

18 months

425.83

1.00

424.83

0.03

425.80

24 months

425.75

1.00

424.75

0 03

425.72

30 months

425.66

1.00

424.66

0.03

425.63

36 months

2,088.91

1,664.33

424.58

41.60

2,047.31

42 months

284.11

1 00

283.11

0.03

284.08

48 months

1,947.36

1,664.331

283.03

41.60

1,905.76

54 months

142.55

1.00

141.55

0.03

142.52

60 months

1,805.80

1,664.34

141.46

41.60

1,764.20

Total

8,397.89

5,000.00

3,397.89

125.00

8,272.89