.

1- KESC PRIVATIZATION
2- KESC REDUCED SECURITY DEPOSIT RATE
3-
FAST GROWING MARKET OF TFCS
4- DEBT RESCHEDULING WITH JAPAN
5- PAKISTAN'S FOREX RESERVES
6- ESTABLISHMENT OF AN ECN?
7- NEW RULES FOR NBFC
8- SDK CHAINS REAL TIME PILLERS

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FAST GROWING MARKET OF TFCS

The issuers are making the best use of prevailing surplus market liquidity

 

By SHABBIR H. KAZMI
Apr 07 - 13, 2003

 

 

The exceptional growth of the debt market confirms the perception that investors are desperately in search of financial products offering attractive return. This belief is substantiated by the large number of Term Finance Certificates (TFCs) issued during last 15 months and the overwhelming response received from the investors. However, some analysts believe that in the declining interest rate environment the corporates may once again revert back to borrowing from financial institutions.

According to Iffat Zehra Mankani of IP Securities, during the first quarter of current financial year seven corporates issued TFCs amounting to over Rs 2.6 billion. All the issues enjoy 'A' rating and the coupon rate also ranges between 11 to 12 per cent. Almost all the issues were oversubscribed. There seems to be a huge gap in demand and supply. As far as the size of the bonds market in Pakistan is concerned, it is much smaller than those of many developed countries. However, the way it has registered growth in a short span of time depicts the potential of this market.

Some analysts believe that in the declining interest rate environment corportaes may once again revert back to traditional mode of resource mobilization, borrowing from financial institutions. Even at present the quality borrowers are able to solicit funds from banks at rates lower than the return paid to TFCs holders. However, some analysts also believe that banks are normally reluctant to extend medium-term financing, mainly due to mismatch of demand and supply of funds. Therefore, the boom is expected to continue for a longer period. The growing secondary market of TFCs also hints towards a vibrant bonds market.

At present 50 TFCs are listed at local stock exchanges. These have been issued by public limited companies. Only one private limited company, Engro Asahi, has issued TFCs so far. Among the listed TFCs, leasing companies have the largest shares. Lately some commercial banks have also issued TFCs to improve upon their capital adequacy ratio. Only one state-owned enterprise, Sui Southern Gas Company, has issued TFCs to finance its capital expenditure programme.

Among the listed TFCs, the issues amounting to one billion rupee and above are by Sui Southern Gas Company (Rs 2.250 billion), Dewan Salman Fibre (Rs 1.8 billion), ICI Pakistan (Rs 1.6 billion), Pak Arab Refinery (Rs 2.5 billion), Engro Chemical Pakistan (Rs 1.0 billion) and Muslim Commercial Bank (Rs 1.6 billion). The seven TFCs issues issued in the past have been redeemed completely. Four more issues are in the pipeline.

 

 

According to an analyst the secondary market of TFCs in Pakistan has not developed fully. The main reason for this is that bulk of the issue is through private placement. Mainly financial institutions and large pension and retirement funds actively participate in Pre-IPOs. Since these TFCs are considered less risky and also offer attractive return these institutions hardly sell their holdings.

OUTLOOK

Analysts have two opinions regarding the future growth of TFCs market in the country. Most of them believe that quantum of future issues is largely dependent on the interest rate movement and demand for funds. As more and more banks are entering the consumer financing business and actively extending loans to agriculture sector they may be less inclined to committing medium-term funds for project financing. Therefore, corporates will be obliged to issue TFCs to meet their need for medium-term fund requirement.

It is worth noting that some textile mills have also exercised this option for mobilizing funds. The general perception is that textile mills do not enjoy enviable credit rating. However, it is also true that the sponsors of some of textile mills have been constantly upgrading their facilities to achieve greater value addition.

It is also expected that some of modarabas will also issuing TFCs shortly. However, the TFCs to be issued by modarabas will not be identical to the TFCs floated by the corporates. The TFCs to be issued by modarabas will be based on Islamic injunctions.

Listed TFCs

 

Issue Size
(Rs in mln)

Gatron Industries

250

FIB (Inter Bank ) 1

300

Dewan Salman Fibres Ltd 1

700

NDLC

330

Pak Ind. Leasing Corp 1

250

Paramount Leasing

250

Atlas Lease I

200

Network Leasing

100

Al-Noor Sugar Mills

200

Pak Ind. Leasing Corp II

325

ORIX Leasing

700

Shakarganj Mills

250

Sui Souther Gas Corp.ll

1000

Engro Asahi

500

Dewan Salman Fibres Ltd II

1800

ICI Pakistan Limited

1600

Atlas Lease II

100

Packages Limited II

700

Gulistan Textlie

300

Dawood Leasing

250

First Int. Inv Bank II

100

Nishat Mills Limited

600

Engro Chemicais

500

CresLease

250

Security Leasing Corp.

200

Reliance Weaving Mills Ltd.

150

Union Leasing Limited

250

Pak Arab Refinery Limited

2500

Shah Murad Sugar Mills

200

Saudi Pak Leasing-II

400

SSGC-III

1250

Sitara Chemicals'

360

Engro Chemicals -II

1000

Maple Leaf Cement

225

Dawood Leasing -II

250

Orix Leasing - II

710

Muslim Commercial Bank

1600

Cres Lease - II

250

Shakarganj Mills

200

World Call Communications

350

Quetta Textile Mills

750

Bank Alfalah

650

Union Bank

750

Security Leasing Corp. II

299

KASB Leasing

200

Gulistan Textile II

400

Gulshan Spinning

400

Paramount Spinning

200

Paramount Leasing II

325

Securetel

840

Total

26,264

Source: IP Securities