KARACHI, Sept 25: Big news for small savers — for individuals: they can buy long-term Pakistan Investment Bonds from next month, but they will have to be an account-holder of one of the 11 primary dealers — or the banks and other institutions that sell government securities. These are: National Bank, Habib Bank, United Bank, Union Bank, Bank Al Falah, Standard Chartered Bank, Citibank, ABN Amro, American Express, Pak Oman Investment Bank and Jahangir Siddiqui & Co Ltd.
The individuals interested in buying PIBs will have to keep in mind that they can buy these bonds of not less than Rs100,000 and not more than Rs10 million. More importantly they will have to be ready to pay money for the bonds they cannot see or touch or hold in hands. The reason: these bonds are scripless i.e. they do not exist physically — and are traded electronically.
Whereas the State Bank decision to impose a ceiling of Rs10 million on direct PIB purchases by retail institutional investors has confused many a banker. Central bankers say the confusion is uncalled for. The SBP on Wednesday said retail institutional investors can buy PIBs of a particular tenure worth not more than Rs10 million. Earlier it had said that all retail institutional investors combined would be allowed to buy up to 10 per cent of the total amount of PIBs targeted for selling in a single auction direct from the SBP.
“The ceiling of Rs10 million means you need 250 bids from the retail institutional investors in the next auction to ensure that these investors get 10 per cent of the total target amount,” said a local banker. Since the target set for the next auction of PIBs is Rs25 billion the SBP should accommodate Rs2.5 billion bids from retail institutional investors. And since it has now imposed a ceiling of Rs10 million on such bids 250 bids are needed to ensure that retail institutional investors get 10 per cent of the total amount of PIBs that will be sold in the next auction. “It is confusing to say the least,” said treasurer of a local banker.
The term retail institutional investors refer to the investors other than banks/development financial institutions and non-bank financial institutions. The term chiefly covers provident fund/ pension fund managers and small state-run and private companies that want to make investment in PIBs. “But I think it does not apply on individual savers — Tom, Dick and Harry,” said treasurer at a big local bank.
“If the SBP really wants to allow individual investors to buy PIBs the limit of Rs10 million makes sense. Otherwise it does not,” he said. “We never stopped individuals from buying PIBs in the first place,” retorted a senior central banker when asked by Dawn if individuals also qualify as buyers of Pakistan Investment Bonds.
An official of the Ministry of Finance also told Dawn by telephone from Islamabad that individuals had always been welcome to buy PIBs. But both the central banker and the official of ministry admitted that from December 2000 — when these bonds were launched — till to date they have never heard of any individual buying PIBs.
Head of one of the primary dealer banks also said by imposing the Rs10 million limit on non-competitive bids for PIBs the SBP is apparently encouraging not only retail institutional buyers, but also individuals to invest in PIBs.
WHY NOT EARLIER: But the question is if individual buyers were allowed to buy PIBs in the past why did they not go for it and why did the primary dealers not encourage them?
A State Bank press release attempts to answer this question: “Previously the retail investors were unable to access PIBs as they were not aware of its pricing mechanism.”
The release issued here on Thursday said the option of non-competitive bid would provide “a great opportunity to retail investors to invest in PIBs.”
