KARACHI (January 27 2003) : Three companies belonging to spinning sector would float terms finance certificates worth Rs 1 billion aimed at paying off expensive debts and restructuring their balance sheets.
The three issues of Term Finance Certificates (TFCs) from the spinning sector with almost similar structure and purpose would be from Gulistan Group of Companies (GGC).
All the three companies viz Gulistan Textile, Gulshan Spinning, and Paramount Spinning Mills Limited would be offering 20 percent of the total size of their TFC listed at Lahore Stock Exchange to the general public on January 29 and 30, 2003.
These three TFCs would add another Rs 1 billion to the total size of the corporate debt market.
There is not much to differentiate between these three TFCs, except for the fact that Paramount is rated 'A+', unlike Gulistan and Gulshan which are rated 'A' by JCR-VIS, and is offering a slight lower return at 10.9 percent as compared to 11 percent by the other two.
However, the modified duration measuring the change in the value of an instrument in response to a change in interest rates also comes out to be the same for all the three issues ie 2.98, said Iffat Zehra, head of research at IP Securities.
The additional feature of a call option is also incorporated in all these three issues and is exercisable only after 18 months from the issue date.
The purpose of the group of companies is to utilise the proceeds of the TFC issue to restructure the balance sheet of the company by paying off a short-term loan acquired from United Bank Limited carrying a mark-up rate of 12.50 percent per annum and acquired on November 2002.
The return for the subscriber of the TFC holder is lower as compared to the recent issues by the leasing sector.
However, since the issues have a fairly greater size and a large amount of public offering, the allotted portion would be marketable units and therefore might attract secondary market activity to a limited extent.
Moreover since every new issue expected to be offered at a lower yield and prices of the outstanding bonds are expected to rise, investment in TFCs having a higher modified duration becomes more attractive for investors interested in entering the secondary market of these bonds.
Gulistan Spinning and Gulshan Spinning will float TFC worth Rs 400 million and Paramount Spinning Ltd Rs 200 million.
Tenor of all these TFCs would be of five years. Gulistan and Gulshan pre-IPO stood around Rs 320 million each while both will offer Rs 80 million each for general public while Paramount's pre-IPO is Rs 160 million and Rs 40 million for general public.
The profit rate would be base rate plus 2.25 percent, 2.25 percent and 2.00 percent respectively. Base rate is discount rate.
The floor of terms finance certificates is 11 percent each and the cap is 17 percent each.