KARACHI, April 19: The State Bank has announced to sell Rs40 billion long-term Pakistan Investment Bonds in April and May 2004. The central bank may announce to sell more of these bonds if the government so desires.
The sale of long-term bonds will help the government increase its borrowing from non-bank sources and enable it to reduce its bank borrowing. The government is supposed to keep bank borrowing at Rs15 billion during this fiscal year ending in June. But that is not an easy task as the government has already borrowed Rs66 billion from banks in a little less than nine months__between July 1, 2003 and March 27, 2004.
When corporates and non-bank entities invest in PIBs this constitutes non-bank borrowing of the government. But when banks buy and hold PIBs this is regarded as bank borrowing of the government.
That is why the SBP has been persuading banks to offload their holdings of PIBs onto the non-bank buyers like insurance companies and provident and pension funds of state-run or private sector entities. Senior officials of SBP including Head of Treasury Mr Zafar M. Shaikh told a meeting of primary dealers on Monday to ensure that the largest chunk of Rs40 billion PIBs are sold to non-bank entities.
Primary dealers are the banks and other financial institutions that sell PIBs on behalf of the central bank. These are eleven in number and include such big names as (i) National Bank (ii) Habib Bank (iii) United Bank (iv) Citibank (v) ABN Amro and (vi) Standard Chartered etc.
Mr Shaikh told the meeting that a decision about selling 15- year and 20-year bonds would be taken before the end of this month. Sources close to the meeting said he made this remark when the participants pointed out that corporates and non-bank entities particularly insurance companies had more interest in 15-20 year PIBs than in PIBs of shorter tenures.
The SBP announcement said the central bank would sell Rs25 billion bonds by the end of this month and Rs15 billion bonds by the end of May. The tenure-wise targets show that in April the SBP would sell Rs15 billion 10-year bonds; Rs7 billion five-year bonds and Rs3 billion three-year bonds. In May, it would sell Rs10 billion 10-year PIBs; Rs3 billion five-year PIBs and Rs2 billion three-year PIBs.
The rationale for targeting higher sales of 10-year bonds is that corporates and non-bank entities have more interest in them than in five-year and three-year bonds.
Senior bankers say that five-year and three-year bonds are generally bought by the banks themselves which are frustrated at low yields of treasury bills. "If one-year T-bill is yielding two per cent it is but natural for us to invest in three-year and five-year PIBs that offer 4-5 per cent return," said treasurer of a local bank.
In the last auction held in December 2003, the weighted average yield was around four per cent on three-year bonds and around five per cent on five-year bonds against their coupon rates of six and seven per cent respectively. The average yield on ten-year bonds was at 6.21 per cent against its coupon rate of eight per cent.
The SBP announcement says that in the auctions to be held in April and May 2004 the coupon rates on all the three tenures of PIBs would remain unchanged. The auction of Rs25 billion bonds will be held on April 28 and that of Rs15 billion on May 28.
