KARACHI, June 4: Pak-Arab Refinery Company (Parco) repaid $387 million to an international lender seven years ahead of schedule, thus clearing a $600 million foreign loan it obtained for the construction of its refinery at Multan.

"The transaction is through," said a senior Parco official. He said Parco had repaid $350 million Japanese loan that included $25 million opportunity cost charged by the lender to make up for the loss it would incur due to early retirement of the loan.

The official said the payment of the remaining $37 million had fallen due as per the scheduled instalment of principal plus loan. "Even if we would not have been retiring the loan ahead of schedule we would have to make this payment," said the official on the condition of anonymity.

Treasurer of one of the banks involved in the prepayment also confirmed that Parco had prepaid $387 million to Japan Bank for International Cooperation (JBIC). Parco had obtained $600 million loan from JBIC for constructing a refinery at Multan that started operations four years ago. With the $387 million prepayment on Friday Parco has cleared this $600 million.

"Our total foreign loan now stands cleared," Parco Managing Director Dr Shahid K. Hak told Dawn. "This is a landmark transaction," he boasted, adding that prepayment of a huge foreign loan by Parco had reinforced a better image of Pakistan created by prepayment of $1.17 billion Asian Development Bank loans by the government earlier this year.

Parco did not have to buy dollars from the market to prepay its foreign loan. Instead it raised ready dollars from five banks through a rupee-dollar swap for up to four months and used the same for the prepayment. The banks that did the swap were: National Bank, United Bank, Habib Bank, United Bank and Standard Chartered.

Incidentally the same banks had lent Rs20.5 billion to Parco last month at Karachi Inter-bank offered rate of six-months plus 25 basis points. Parco used this very syndicated loan in its rupee-dollar swap with these banks.

Bankers said they charged 10 paisa premium on the swap that means effectively they not only employed dollar funds at six-months Kibor plus 25bps, but also earned a premium over and above this rate. This makes the economics of this deal heavily tilted in favour of the banks.

But Dr Shahid Hak claimed that his company would still save a billion rupees by prepaying the JBIC loan that carried a fixed interest rate of around 7.3 per cent. The rate at which Parco has entered into a dollar-rupee swap with the banks would change every six months.