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Public sector entities allowed to invest surplus funds in non-government securities

ISLAMABAD (November 19 2002) : The government has allowed the public sector entities to invest surplus funds in the non-government securities, Term Finance Certificates (TFCs) and shares, up to 20 percent of total funds under management, official sources told Business Recorder here on Monday.

This relaxation, however, would not be available to those public sector enterprises and autonomous bodies that have statutory restrictions on investment in non-government securities. The corporate entities, holding trust funds such as pension, benevolent and insurance funds would formulate investment policies through their own boards, sources added.

They said that Finance Ministry had modified its office memorandum issued on July 21, 2001, and had withdrawn the order of August 27, 2002 to facilitate the public sector entities.

According to these sources , the government has also issued eligibility criteria for non-government entities interested to invest in securities, TFCs and shares.

The criteria are as under:

i) Non-government debt instruments should have a major rating category of 'A' and above.

ii) Public listed shares/units should have a total return comprising the dividend paid and appreciation in value, which exceeds the average six months Treasury Bill (TB) rate for the last three years. The formula for the calculation of the total return would be provided by the Securities and Exchange Commission of Pakistan (SECP) from time to time.

iii) Initial Public Offerings (IPOs) of shares of existing companies should have a track record of their profitability at least equal to the average of 20 best performing companies on Karachi Stock Exchange(KSE).

iv) Total investment in debt instruments of a company not to exceed 10 percent of the total size of funds managed by the public sector entity, whichever is lower.

v) Total investment in the shares of a company not to exceed 5 percent of the paid up capital of that company or 5 percent of the total funds managed by the public sector entity, whichever is lower, and

vi) Investment in shares of Greenfield projects/companies would not be eligible.

Public sector has been advised that before making any investment under this policy, it would be necessary for the public sector entities to set up in-house professional treasury management functions, sources said, adding that they need to have an Investment Company(IC) with defined investment approval authority.

Transactions above the approval authority of the IC would be subject to approval of the Board of Directors or an equivalent forum. The IC should be assisted by an Investment Management Unit (IMU) employing qualified staff with at least 3-5 years experience of managing investment in debt/equity instruments. However, it would be necessary for the public sector enterprises to use the services of professional fund managers approved by SECP.

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