KARACHI, Dec 24: Six term finance certificates (TFCs) have been listed at stock exchanges this year, which in terms of numbers look poor as compared to 15 TFCs that made their initial public offerings (IPOs) in 2003.

The TFCs entered the market during the year 2004 included those issued by Union Bank, Bank Al Habib, Trust Leasing, UBL, Alfalah and Jahangir Siddiqui & Co. The first four TFCs sought listing at the Karachi Stock Exchange and the last two at Lahore and Islamabad stock exchanges.

The year 2002 was the year of awakening of the TFC market when a huge number of TFCs raised money from the stock market. Going by the number, the TFCs issued this year are the lowest number in the last four years.

In a report on TFC issues during 2004, Faisal Jiwani, analyst at Invest capital, observed that it was on account of low interest rates in the first half of 2004 that only one TFC turned to the stock market, that of Union Bank.

In the first half of the previous year, 10 TFCs had sought listing on the stock exchanges and six in the same period of the preceding year (2002). However, during the second half of the year, five more TFCs were listed, matching the number of TFCs issued during the same period of 2003.

All six TFCs were issued by the financial sector. "Interestingly, the amount of capital raised through the listed TFCs during 2004 is almost equal to money raised through TFCs in 2003, although the number of TFCs issued differs," said the analyst.

He pointed out that the TFCs worth Rs6.23 billion were issued during 2004 as compared to Rs6.28bn issued in 2003, showing a slight decline of 0.8 per cent. Interest rates remained on the lower side during the first half of the year 2004 and then began to rise in the second half.

The low interest rate scenario encouraged corporates to borrow directly from banks, but due to rising interest rates TFCs have once again become lucrative option for borrowers.

According to the Invest Cap analyst, banks and leasing companies had issued TFCs for two reasons. The first reason is to facilitate the long-term lending by locking in rates, and the second is to increase their tier two capital and hence improve their capital adequacy ratio, which will allow them to further enhance their lending portfolio.

At about the close of the current year, the listed corporate debt market size stands at Rs32.1bn compared to Rs30.2bn at the end of December 2003, showing an increase of 6.3 per cent.

Despite the growth in the bond market (government bond and unlisted TFCs) in the last few years, the size of listed TFC market in Pakistan is still very small as compared to the size of listed equity market.

At present the listed TFC market is only two per cent of the listed equity market. Last year, this ratio was around 3.3 per cent and has declined due to an expansion in the equity market which was caused by rising share prices and listing of some large state-owned entities.

The two biggest equity offerings made by the Privatization Commission from the government holdings were those of Oil and Gas Development Company and Pakistan Petroleum Limited.

For shares in PPL, a record number of 757,000 investors applied, which was the highest ever. Other equities were offered by 14 companies, which were quite a good number considering that only 15 companies had entered the equity market to raise funds in the previous four years combined.