Even if the economic managers somehow manage to accelerate the current, rather persisting, three percent economic growth, the country’s financial market would fall short of providing the required liquidity to finance big projects, especially, those related to infrastructure development.
This is because of the absence of a strong debt capital and equity market in Pakistan.
This wakeup call was made by Atif Bajwa, Chief Executive Officer of Bank Alfalah Limited (BAFL), while announcing the launch of 5th rated, unsecured, subordinated and listed Term Finance Certificates (TFCs) at the Karachi Stock Exchange (KSE) Thursday.
Through fresh TFCs, the bank would be raising Rs 5 billion of which Rs 3.750 billion would be raised from institutions and Rs 1.250 billion through Initial Public Offering (IPO) to be commenced on the Karachi bourse from Feb 19-20. The Rs 1.25 billion IPO would be issued as an 8-year floating rate instrument sans any floor or cap.
BAFL’s treasury group head Ali Sultan was happy to reveal that by December 28 last year the institutional investors, mostly from non-banking sector, had oversubscribed the Rs 3.750 billion TFCs. “We, however, have engaged certain banks to play as market makers,” he said.
Arif Habib Limited would be working as a listing agent or market maker for the certificates the credit spread for which has been set at KIBOR+1.25, lower than the bank’s previous four TFCs.
While Ali Sultan attributed this decrease in spread to the investors’ increased confidence in the bank, Arif Habib, the chairman of Arif Habib Group, boasted about his weight as a listing agent behind the offer. The business tycoon said the Rs300 million reserves to support the secondary market would woo individual investors. Besides these Rs300 million reserves, Sultan added, his side would make available a financial backup of up to Rs 1 billion to hedge against market risks.
The move is aimed at improving the BAFL’s Capital Adequacy Ratio (CAR) that, Bajwa said, was the only negative head on the bank’s balance sheet because its increased advances that, compared to industry’s 3-4 percent, had grown by 9 percent up to September 2012. “A well-developed and vibrant corporate debt market plays a pivotal role in the economic development of a country,” he said.
Earlier, dwelling on his bank’s key achievements, BAFL CEO Atif Bajwa told the well-attended investor briefing that in the absence of a supportive debt capital and equity market most of the country’s leading banks were unable to keep pace with 6-7 percent economic growth that would require them to finance big projects related mostly to infrastructure development. “We would have to see how we can further bolster our capital. As if the economy started growing at 6-7 percent most of our banks would have no liquidity to cater the need,” the BAFL chief executive said.
Later, he told Pakistan Today that the banks would find it difficult to provide fiancés if they fronted a couple of projects each valuing Rs 12 billion. “We need to establish the debt capital and equity market to enable our financial sector to cater that growing demand,” Bajwa explained.
In his speech, he said a number of steps were underway to reduce “intelligently” the operational cost of Bank Alfalah the countrywide branch network of which had increased from three in 1997 to 471.
BAFL’s Ali Sultan said the proceeds of the TFC issue shall be eligible for BAFL’s Tier-II Supplementary Capital as per the guidelines set by the State Bank.
