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UBL to float securitised terms finance certificates worth Rs 990 million

KARACHI (March 28 2003) : The country's corporate world to see first listing of Asset Back Securitisation paper in form of Terms Finance Certificate to be floated by United Bank Limited in association with Paktel Ltd worth Rs 990 million soon.

One can derive a great deal of encouragement from the pace of growth at which financial instruments that are new in this part of world are introduced for the investors.

National Savings schemes for the general public and Government Securities for the financial institution are no longer attractive due to the continual reduction in the rate of return on these schemes.

As the investment avenues available are falling short, introduction of innovative instruments is what is the need of the day, said Iffat Zehra, head of research at IP Securities.

In the recent past, TFC offered to general investors have been offered with varied characteristics and provisions.

But the upcoming TFC issue of Rs 840 million issued by Securetel (with Paktel as the originator) is unique in the sense that it is the first ever public listed instrument to be issued under the SECP's Asset Backed Securitisation (ABS) Rule, Iffat said.

The TFC issuer-SPV Limited is a non-bankruptcy remote special purpose vehicle which has been incorporated under the Companies (ABS) Rules, 1999 as a subsidiary of United Executors and Trustees Company Ltd, which is wholly owned by UBL.

Subject to the completion of legal formalities, the ownership of the SPV is to be transferred to Investcap.

The SPV will purchase a portion of Paktel Ltd (the originator) receivables through issuance of TFCs.

The TFCs will be securitised against the receivables purchased by SPV and the proceeds of the TFC issue will be utilised by SPV to pay to Paktel the sale price for purchased receivables.

Paktel in turn will utilise the proceeds for retiring partly its existing loans of UBL of Rs 750 million and Pak Kuwait Investment Company's Rs 240 million.

Paktel Limited (PTL), the originator of this transaction, has over 98 percent of the PTL shares held by Luxembourg-based Milicom International Cellular (MIC) S.A, which has 18 cellular operating in 17 countries, including PTL, which suffered huge exchange losses till FY01, due to foreign currency borrowings, a significant portion of which has been paid off through internal cash generation and short-term loans.

This has led to high reliance on short-term borrowings.

PTL has, therefore, decided to issue medium-term securitised TFCs to rationalise its capital structure and to correct the imbalance in asset liability maturity profile.

Although majority of the concerns and questions arising that the investor might have been addressed in the prospectus.

However, in line with the true essence to the process of securitisation, the risk is mitigated on account that the investment by the TFC holders will be in securities issued by SPV and not in Paktel.

Thus TFC holders are not largely dependent on the financial performance of Paktel.

Further, this is a future flow securitisation and is not backed by cash flow generated from an existing pool of assets but rather by cash flows from assets that will be generated in the future.

The significant scope for growth in the market size, which is untapped due to the network capacity constraints of the mobile operators plus the concerted marketing efforts carried on by Paktel for network expansion, is expected to ensure growth in the cash flows in the future.

This 'A' rated TFC carrying an IRR of 11.79 percent for the three-year period with a spread of 2 percent over the discount rate and a modified duration of 2.76 is pretty attractive for investors looking for alternative means of investments.

The tenor of the paper is three years. The rate of profit would be State Bank of Pakistan Discount Rate (7.5 percent) plus 200 basis points with a cap of 16 percent and floor of 12 percent for the first year and 11.5 percent for the last two years.

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