KARACHI, Feb 26: National Discounting Services Ltd and Taurus Securities Ltd (TSL), both subsidiaries of the National Bank of Pakistan, have joined hands to develop a secondary debt market by offering market-making service in corporate Term Finance Certificates. To quote Karim Hatim, NDSL CEO, there is no window for sale and purchase of TFCs through the stock exchanges for individuals, pension and provident funds and the market has to be made liquid for transactions.

With a portfolio of Rs120-125 million, the NDSL will quote continuous bid (buy) and offer (sell) prices for a range of TFCs. The corporate debt market has grown rapidly over the last one year as an increasing number of companies are resorting to debt financing. By the end of December 27, 2001, companies floated TFCs to the tune of Rs14.5 billion. Another nine companies have issued or are in the process of issuing TFCs amounting to Rs5 billion. Last year’s flotation touched Rs12 billion.

The debt market has a vast potential to develop and would be given an impetus with the development of a secondary market.

NDSL CEO says the service will target small investors by restricting the bid and offer quote to relatively small trading volumes and to only “A” rated TCFs.

Karim Hatim hopes the service would be launched through the KATS trading system at Karachi Stock Exchange in about a week or so, and will be subsequently extended to all the three stock exchanges.

Currently, the majority of TFCs are subscribed by financial institutions followed by cash-rich corporates besides small investments made by provident and pension funds.

The SECP has approved the market-making service in principle and the modalities and mechanism will be finalized in the next few days incorporating the rules and regulations prescribed by the stock exchanges and the regulatory framework for trading in corporate debt.

Indicative bid and offer prices will be published daily in the newspapers for each TFC issue. Actual dealing prices and quantities will be put through stock exchanges’ trading screens.

The price will be determined according to current yields, which in turn will follow the underlying interest rate structure.

NDSL officials say that the service will be available for TFCs settled through the electronic Central Depositary System as well as those settled in physical form.

Though the service will be conducted through Taurus Securities Ltd, the investors would be free to enter bid and offer trades through the broker of their choice.

NDSL and TSL view the TFC market as an alternative to National Saving Schemes (NSS) and bank deposits as it would offer “a highly viable yield.” Karim Hatim says the debt stocks are less volatile than equity scrips.

The corporate debt market is minuscule when compared to the size of the NSS and bank deposits. As of year-end 2001, the amount outstanding in TFCs was Rs14.5 billion, in fixed bank deposits Rs341 billion and Rs758 billion in NSS, says NDSL and adds that it illustrates the enormous growth potential for the corporate debt market if it is to become a widely accessible and traded financial asset.