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KARACHI, June 17: The Balochistan government on Monday retired before time Rs1 billion bank credit raised through its long-term provincial bonds. Senior bankers said the credit was secured at a high rate of 16 per cent and the provincial government pre-paid it to cut its cost of borrowing.
They said the Balochistan government made premature payment to state-run National Bank and Habib Bank and privatized Muslim Commercial Bank and United Bank — redeeming the bonds sold to them years earlier. Some bonds were due to mature later this year and some were to mature in 2006. Bankers said Balochistan government retired the debt raised in 1993 and afterwards through its State Bank account.
The provincial government is presenting this week its budget for 2003-04 and premature retirement of its domestic debt would give it more fiscal space through cut in its borrowing cost.
Low interest rate environment is encouraging both federal as well as provincial governments to retire expensive bank loans before time. State-run organizations are also following suit.
KESC: Senior bankers say the ministry of finance has indicated that Karachi Electric Supply Corporation may also retire before time its short-term loans of Rs9 billion by the end of this month. They say the loans were to mature sometime next year.
They say the power utility had raised these loans of up to one year maturity from four banks namely (i) National Bank (ii) Habib Bank (iii) United Bank and (iv) Allied Bank at 10 per cent.
It is not clear if the power utility will be retiring its debt through its own resources or the federal government will help it in this task as part of its plan to prepare it for privatization. The IMF has been consistent in its demand to improve the balance sheet of KESC to make it viable for privatization. In the past the government has poured billions into KESC by way of converting its debts into equity.
Senior bankers say state-run Pakistan Steel is also due to reschedule Rs9.4 billion early next month. They say the steel manufacturing plant will be paying back the loan to five major commercial banks before time and re-secure fresh loans at lower rates. The banks that will be getting back the PS loans are state-run National Bank and Habib Bank and privatized United Bank, Muslim Commercial Bank and Allied Bank. Senior bankers say if PS insists on retiring Rs9.4 billion loan in one-go without making any arrangement to re-secure fresh loans at new rates that will create problems for the banks as they have already been wallowing in excess liquidity.
“Chances are that Pakistan Steel will rather be rescheduling its bank loan,” head of credit division of one of the five banks told Dawn. “They will retire the debt secured at a high rate and renegotiate the terms of loans and try to re-secure them at lower rates.”
