KARACHI, Nov 3: The holders of the three-year special dollar bonds can roll over the same for seven years at a higher profit.

They got this option through a State Bank circular issued to all banks on Saturday. The circular said the federal government had notified this decision late last month.

The circular says the holders of the three-year dollar bonds would get a return of six-month LIBOR (London inter-bank offered rate) plus 2 per cent if they rolled over the same for seven years.

Earlier on August 11 the SBP had allowed the holders of the three-year bonds to roll over the same for another three-year at six-month LIBOR plus two per cent. Earlier the return on these bonds was six-month LIBOR plus 1 per cent.

This means there is no additional incentive for those who roll over the three-year bonds for seven years instead of three years.

SBP officials say the permission given to the holders of the three-year bonds for a seven-year rollover is in addition to the package offered to them in August. Under that package the holders were free to redeem these bonds into dollars or to roll them over for another three-years at a higher profit.

Besides they were also allowed to redeem the bonds into rupees at a five per cent bonus.

That is investors were to get the rupee equivalent of the face value of these bonds plus five per cent of this amount as bonus. Before the announcement of this package the investors were getting only the rupee equivalent of these bonds on premature redemption.

When the package was offered the stock of three-year US dollar bonds stood above $900 million.

No official figures are available but senior bankers say most investors have rolled over the bonds instead of redeeming them into dollars or rupees since August 11.

The incentives put in place for seeking voluntary rollover of the bonds is apparently aimed at deferring the country’s foreign exchange liabilities. In the recent past the government has also sought rollover of institutional foreign currency deposits placed with the SBP by friendly countries as well as banks operating in Pakistan.

In August 1998 Pakistan had introduced dollar bonds for five, seven and ten years so that those unwilling to convert their frozen foreign currency deposits into rupees could buy these bonds out of the same. Earlier in May that year the country had frozen about $11 billion worth of foreign currency deposits to avoid default on payment after going nuclear. In November 1998 the government cut the tenures of the bonds to three years, five years and seven years.

At the end of last month the total stock of three, five and seven year bonds stood around $1.4 billion. Bankers say three- year bonds accounted for over $900 million.