Rs 90 billion TFCs to be enlisted in KSE
Sunday, 30 August 2009
KARACHI, Aug 29 : The government would issue Term Finance Certificates of Rs90 billion to pay off the circular debt, according to a decision taken at a high-level meeting between banks and government officials Friday, according to DawnCom.
Official sources said that the meeting with top bankers was held in Karachi to finalise a mechanism for launching the second episode of TFCs related to circular debt.
Sources said the rate on TFCs will be Kibor (Karachi Inter-Bank Offered Rate) plus one per cent which looks below expectation of the bankers who were sighting a rate of 1.5 to two per cent over Kibor.
However, sources maintained that the agreement would be finalised after government's approval for terms of conditions of the new TFCs. The government is expected to give approval in a couple of days.
Unlike previous launch of TFCs for circular debt, it has been decided that this time TFCs would be enlisted in the Karachi Stock Exchange and would be opened for buying from Sept one to Dec 31, said the sources.
Despite frequent calls, banks were not ready to reply. Sources said banks were not happy with the rate offered for TFCs.
The previous TFCs which were sponsored by a consortium of 10 commercial banks got a return of 1.75 per cent plus Kibor.
Analysts said the enlisting of TFCs in stock exchange would provide an opportunity to corporate sector other than banks to buy TFCs. It would also be helpful for selling TFCs in a short time period.
Sources said like previous TFCs the new TFCs would have maturity of five years.
The amount of Rs90 billion for new TFCs is not much higher than the previous Rs80 billion TFCs, but unlike the previous exercise, no consortium was formed to buy the entire TFCs.
The banks have ample liquidity to absorb the huge circular debt bound as these are still in a difficult situation because of repulsive mood of the private sector.
The private sector during the last one-and-a-half month of the new fiscal year did not come to banks for borrowing. Instead a net amount of Rs69 billion was retired.
The previous year witnessed the same situation as net borrowing was negative (Rs6 billions were retired) which substantially reduced the banking industry's income.
'Despite lower than expected rate on TFCs, it is a good opportunity for banks to use their excess liquidity,' said an analyst.
The circular debt for which TFCs would be launched, hit badly the oil supplying companies, refineries and power producing companies, but the PSO was the worst hit.
Sources said the debt of PSO rose to Rs95 billion while it got Rs42 billion when TFCs of Rs80 billion were launched in the last days of March.
The PSO reportedly raised Rs15 billion through banks and government on Friday to avoid default for a week.
PSO imports fuel and it has a share of over 80 per cent while it is the biggest retailer in the country.
The short supply of fuel was one of the main reasons for low power production while circular debt also played a key role to jam the supply system of running capital.
Official sources said that the meeting with top bankers was held in Karachi to finalise a mechanism for launching the second episode of TFCs related to circular debt.
Sources said the rate on TFCs will be Kibor (Karachi Inter-Bank Offered Rate) plus one per cent which looks below expectation of the bankers who were sighting a rate of 1.5 to two per cent over Kibor.
However, sources maintained that the agreement would be finalised after government's approval for terms of conditions of the new TFCs. The government is expected to give approval in a couple of days.
Unlike previous launch of TFCs for circular debt, it has been decided that this time TFCs would be enlisted in the Karachi Stock Exchange and would be opened for buying from Sept one to Dec 31, said the sources.
Despite frequent calls, banks were not ready to reply. Sources said banks were not happy with the rate offered for TFCs.
The previous TFCs which were sponsored by a consortium of 10 commercial banks got a return of 1.75 per cent plus Kibor.
Analysts said the enlisting of TFCs in stock exchange would provide an opportunity to corporate sector other than banks to buy TFCs. It would also be helpful for selling TFCs in a short time period.
Sources said like previous TFCs the new TFCs would have maturity of five years.
The amount of Rs90 billion for new TFCs is not much higher than the previous Rs80 billion TFCs, but unlike the previous exercise, no consortium was formed to buy the entire TFCs.
The banks have ample liquidity to absorb the huge circular debt bound as these are still in a difficult situation because of repulsive mood of the private sector.
The private sector during the last one-and-a-half month of the new fiscal year did not come to banks for borrowing. Instead a net amount of Rs69 billion was retired.
The previous year witnessed the same situation as net borrowing was negative (Rs6 billions were retired) which substantially reduced the banking industry's income.
'Despite lower than expected rate on TFCs, it is a good opportunity for banks to use their excess liquidity,' said an analyst.
The circular debt for which TFCs would be launched, hit badly the oil supplying companies, refineries and power producing companies, but the PSO was the worst hit.
Sources said the debt of PSO rose to Rs95 billion while it got Rs42 billion when TFCs of Rs80 billion were launched in the last days of March.
The PSO reportedly raised Rs15 billion through banks and government on Friday to avoid default for a week.
PSO imports fuel and it has a share of over 80 per cent while it is the biggest retailer in the country.
The short supply of fuel was one of the main reasons for low power production while circular debt also played a key role to jam the supply system of running capital.