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Loans in lieu of circular debt to be replaced by TFCs of around PKR 150 billion – Alfalah Securities Limited

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by January 19, 2012 Brokerage

Karachi: It has been decided between the banks and the ministry of finance to replace around PKR 145 to 150 billion of loans, provided to the government-owned power companies in lieu of circular debt on government guarantees with long-term investment bonds / Term finance certificates (TFCs).

According to Alfalah Securities Limited, the government is expected to issue these TFCs against the circular debt by the end of this month which will be for a period of 5 years with an expected mark-up rate of KIBOR plus 1.5 to 2%.

The conversion of loans to investment bonds will improve the credit risk of banks and will be positive for the banks namely HBL, NBP, ABL, UBL and MCB. We believe, since it would be a replacement of prior loans with fresh TFCs, the power companies will have some saving on the payment obligation of banks which is expected to be diverted to the energy chain related to the circular debt thus easing off some liquidity crunch of the oil chain.

We see it again a temporary resolution of the issue and unless power thefts and defaults on payments by major consumers and government are resolved, the circular debt would again pile up. The circular debt is expected to rise further as the government would be requiring funds for populist measures due to the election year approaching.


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