KARACHI, March 26: Term Finance Certificates (TFC) worth Rs840 million are to go on offer on Thursday, which is understood to be the first ever public listed instrument to be issued under the Companies’ Asset Backed Securitization (ABS) Rules, 1999.

The TFC issuer — Securetel SPV Limited — is a non bankruptcy remote special purpose vehicle (SPV), incorporated under the Companies (ABS) Rules, 1999.

According to the ‘transaction brief’ mentioned in the abridged prospectus published on March 20, the SPV would purchase a portion of receivables of Paktel Limited (the originator), through issuance of TFCs. The TFCs would be securitized against the receivables purchased by SPV and the proceeds of the TFC issue would be issued by SPV to pay to Paktel the sale price for purchased receivables. Paktel in turn will utilize the proceeds for retiring partly its existing loans of United Bank Limited of Rs750 million and Pak Kuwait Investment Company’s Rs240 million.

Nearly 99 per cent shares in Paktel — the originator of the transaction — are held by the Luxembourg based Millicom International Cellular S.A, which is said to own 18 cellular operations in 17 countries. Head of Research at IP Securities, Iffat Zehra Mankani commented that it was encouraging to note the pace of growth at which financial instruments that were new in this part of the world were being introduced. Analyst said that with the falling rate of returns on National Savings Schemes for general public and Government Securities for the financial institutions, investment avenues were falling short and the introduction of innovative instruments was needed.

The analyst noted that Paktel had suffered huge exchange losses till the financial year 2001, due to foreign currency borrowings, a significant portion of which had been paid off through internal cash generation and short-term loans. This had led to high reliance on short-term borrowings. Paktel had therefore decided to issue medium term securitized TFCs to rationalize its capital structure and to correct imbalance in asset liability maturity profile.

The ‘mitigants’ part of the Prospectus listed among others the following: The purpose of securitization was to segregate the operational performance of a company from its financial performance. The risk was on the operational performance of Paktel rather than on its financial performance; the investment by the TFC holders would be in securities issued by SPV and not in Paktel. Thus the TFC holders would not largely be dependent on the financial performance of Paktel; the transaction was a future flow transaction, because it was not backed by cash flows generated by an existing pool of assets, but rather by cash flows from assets that would be generated in the future.

The prospectus noted that the future flow transactions were dependent on the ability of the company to produce a good or provide a service, and thus derived their strengths from segregating its performance from the overall financial profile of the company. By separating operational from financial performance such transactions offered a less risky investment alternative.

According to other details noted in the prospectus, of the total sum of Rs840 million, TFCs worth Rs640 million would be offered as pre-IPO and Rs200 million in IPO. The TFC is rated “A” (single A) by PACRA, is for 3 year tenor and carries profit at SBP discount rate plus 200 bps with a cap of 16 per cent and floor of 12 per cent for the first year and 11.5 per cent for the last two years.