Pak-Oman Investment Company to arrange four new TFCs worth Rs 1.5 billion

KARACHI (January 13 2003) : The Pak-Oman Investment Company is likely to advise and arrange as many as four new term finance certificate issues within the first quarter of 2003, increasing its presence in the debt market.

Pak-Oman would help float TFCs for development financial institutions, leasing companies and the industrial sector.

Ayesha Aziz, head of Investment banking department at Pak-Oman Investment Company, said that Saudi Pak Industrial Company and Pak Libya Holding Company were expected to float TFCs worth Rs 500 million each, where returns would be as much as 8 to 9 percent a year, having a tenor of five years.

Ittehad Chemicals and Network Leasing will float TFCs worth Rs 250 million each, also for five years.

The floor of Ittehad Chemicals is 11 percent and for Network Leasing 11.50 percent, while both these are capped at 15 percent.

Ayesha said that following the prudent policies of the State Bank of Pakistan, the interest rates across the entire spectrum of fixed income securities have fallen considerably.

She said that the trading activity in listed term finance certificates on the stock exchange is negligible and most of the trades are executed through over-the-counter (OTC) market.

She said market players have to create awareness among retail investors as the TFCs market has shown tremendous growth in the last few years as compared to new equity listings at the Karachi Stock Exchange.

“TFCs are one of the best tools for generating funds from an issuer's perspective, and the investor can earn a rate of return on the bonds that is higher than risk-free/ NSS rates.”

Borrowers and lenders are brought together without unnecessary intermediation costs. Investors can select TFCs that meet their risk appetite and can limit their risk by opting for TFCs that are issued by highly rated companies.

An approved rating agency rates each listed TFC issue and quantifies the level of risk for investors.

Most TFCs are fully secured and an independent financial institution acts as trustee to monitor the security on behalf of investors.

She pointed out that several new listed TFCs are in the pipeline and about a billion rupees worth are expected to hit the bond market soon.

Most of the issues' amount is picked up by financial institutions for their own books reducing the available stock in the market.

Pak Oman commenced its operation in February 2002 with a capital base of Rs 1.5 billion.

Since then, the balance sheet footing of the company has crossed Rs 5.0 billion.

Total disbursement made by the company exceeded Rs 1.0 billion, diversified in the Textiles, Telecommunications, Infrastructure, Chemical & Fertiliser, Pharmaceuticals, and Food sectors.

Pak Oman is also building up its own TFC portfolio with the objective of trading rather than passive investment. A new desk is also being established to handle TFC sale and purchase activity with retail investors for small amounts.

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