KARACHI, May 21: Pak-Arab Refinery Company (Parco) is confident that its planned pre-payment of $355 million foreign loan next month will be through smoothly without making an adverse impact on exchange rates.

"We are quite confident that the State Bank will arrange foreign exchange for our $355 million debt pre-payment and it will not hit the exchange rates," said Parco Managing Director Shahid K. Hak.

Mr Hak did not answer in a clear 'yes or no' when asked if his company has been informed by the SBP that it will have to do dollar-rupee swap with the banks before pre-paying the external debt.

"The preferred arrangement will be that the central bank does provide foreign exchange for this purpose and we are confident they can do this," he said when reached by Dawn over telephone.

Banking sources say the central bank is looking for ways to facilitate the $355 million pre-payment of foreign debt of Parco in such a manner that it does not hit the exchange rates. Some of them say it is persuading four local and one foreign banks to enter into dollar-rupee swap with Parco to help it pre-pay foreign debt in June.

They say the central bank has also asked Parco to work out the details of the swap, but no official word was available from Parco on this issue. Sources at the company only said "some proposals are under consideration" but refused to share details.

A syndicate of five banks signed an agreement earlier this month to give Parco Rs20.5bn loan - the largest syndicated loan so far - to help it repay $355m foreign debt ahead of schedule. The banks were: National Bank, Habib Bank, United Bank, Muslim Commercial Bank and Standard Chartered.

Parco had obtained $600 million foreign currency loan from Japan to finance the construction of $886 million mid-country refinery. It had put in $200 million as equity and generated $86 million in local currency from Pakistani market. With the $355 million pre-payment in the first week of June, Parco will clear its entire $600 million Japanese loan as it has already made part payment of the loan.

No official word was available from the State Bank on the proposed dollar-rupee swap arrangement between Parco and the banks. But sources close to the central bank confirmed that SBP's exchange and debt department was working on it. "Nothing is final. But we are working on it," said an official who declined to be named.