April 16, 2002	Tuesday	Safar 2, 1423

KARACHI, April 15: People encashed around $233 million special US dollar bonds between October 2001-February 2002 as they got a chance to earn 5 per cent premium on redemption of three-year bonds into rupees.

Bankers say net outstanding amount of the bonds fell to $1.153 billion at end-February 2002 from $1.386 billion at end-September 2001. They say $233 million is the sum total of the encashment of all the three types of bonds i.e. of three-year, five-year and seven-year maturity but cannot give the breakup.

The bankers say the holders of the bonds preferred to redeem the bonds instead of rolling them over also because of the falling LIBOR (London inter-bank offered rates) during the said period as the rates of profits on these bonds are linked with LIBOR.

Some bankers say as the stock markets and real estate markets have been bullish for some time it has afforded the holders of dollar bonds a chance to reinvest the rupee equivalent of these bonds into stocks and real estate.

The pace of encashment picked up after the events of September 11 that eventually led to faster inflow of foreign exchange, which in turn brought official and open market exchange rates almost at par. “When the spread between inter-bank and open market rates was as high as Rs2-3 per dollar before September 11 people encashed these bonds to make investment in foreign currencies,” said a foreign banker.

He said when the spread started falling after September 11 the holders of the bonds redeemed the same in rupees to earn five per cent premium.

On August 11, 2001 (exactly one month before the September 11 terror attacks on the US soil) Pakistan had sought voluntary roll-over of more than $900 million worth of three-year special dollar bonds. The country had also offered a 5 per cent bonus on redemption of these bonds into rupees. The twin moves were aimed at deferring the country’s foreign exchange liabilities as it was yet to seek foreign debt rescheduling and was far behind winning an IMF-backed $1.3 billion poverty reduction and growth facility: the foreign exchange reserves were also not as large as they are now. At that time the reserves stood at $3.2 billion whereas it is now at more than $5.2 billion.

Bankers say as foreign exchange inflows picked up in the wake of September 11 events thereby eliminating the huge gap between official and open market exchange rates, people stopped redeeming the bonds to buy dollars from kerb. The holders of these bonds rather found it more profitable to redeem these bonds on maturity in rupee and get 5 per cent premium.

Late last month the government stopped the sale of special US dollar bonds against cash payment in dollars to reduce its liability of foreign exchange. It also decided to stop paying the 5 per cent rupee redemption bonus to those who wanted to encash these bonds into rupees.

Until now there were three sources of financing the purchase of these bonds: (i) frozen foreign curre