KARACHI, Dec 22: A total of 14 companies offered Term Finance Certificates (TFCs) worth Rs16.8 billion at the Karachi Stock Exchange during 2005, which was the highest number of corporate debt instruments issued in 10 years.

The Corporate debt market is slowly and gradually developing in Pakistan. Companies are trying to raise debt through TFCs. The current year was relatively better in this regard as the number of Initial Public Offerings (IPOs) of TFCs during this calendar year was the highest since 1995.

A report prepared by JS Capital Markets Limited stated that after a sluggish trend witnessed during 2004, TFCs primary market once again gained momentum during the year 2005, since 14 new TFCs were brought for IPOs at the local stock market as compared to only 6 IPOs during 2004. With the issue of the 2005 TFCS, the size of listed corporate bond market is now Rs45.5bn. But, analysts maintain that compared to equity market, debt market is still quite small. Corporate bonds constitute just 1.7 per cent of the total market capitalization of the KSE.

The TFCs mode of borrowing is still in its infancy in Pakistan and the total outstanding corporate debt is only 2.6j per cent of commercial banks’ outstanding advances, analysts say, adding that it was for that reason that hardly, any activity of corporate bonds was witnessed in the secondary market. “One peculiar thing about the TFCs issued during 2005, was that 6 out of 14 TFCs were made by the commercial banks”, the JS Capital Market report noted. The reason, that TFCs offerings were made by commercial banks, was to strengthen their Tier II capital. With 8 per cent capital adequacy ratio requirement for banks, the issue of TFCs helped banks to meet this requirement in the sense that TFCs are treated as subordinate debt in their books, the analyst said and added that the share of TFCs in interest bearing liabilities of commercial banks is only 0.7 per cent.

The report mentions that in all issues of TFCs during 2005, Kibor was used as a base rate according to the directives of State Bank of Pakistan dated January 21, 2004. The range of spreads over Kibor was 150bps to 375bps. Before 2005, most of the issuers used SBP discount rate or PIBs as a base rate. The names of companies/banks that issued TFCs during 2005— their date of issue and the amount (Rs in million) offered were as follows: 1) Chanda Oil & Gas Securitization Co. Ltd- 16-Feb-05- Rs1,000 2) Askari Commercial Bank Ltd— 4-Feb-05—Rs1,500 3) Prime Commercial Bank Ltd— 10-Feb-05—Rs800 4) United Bank Limited—-TFC 2—15-Mar-05—Rs2,000 5) Hira Textile Mills Limited— 17-Mar-05—Rs250 6) Naimat Basal Oil & Gas Sec— 12-Apr-05—Rs1,200 7) Soneri Bank Limited TFC 1—5-May-05—Rs1,200 8) Telecard Limted TFC 1—27-May-05—Rs2,400 9) Al Zamin Modaraba— 31-May-05—Rs275 10) Azgard—20-Sep-05—Rs2,000 11) Jahangir Siddiqui & Co. Ltd.(3rd Issue)—30-Sep-05—Rs500 12) Askari Commercial Bank Ltd (2nd Issue)— 31-Oct-05—Rs1,500 13) Trust Leasing & investment Bank— 15-Nov-05— Rs1,000 and 14) Bank AlFalah Ltd. (3rd Issue)—25-Nov-05—Rs1,200.

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