DAILY LATEST NEWS UPDATE: 06.03.2012

SBP, SECP working on corporate debt market

KARACHI: State Bank Governor Yaseen Anwar said on Monday that a joint task force of SBP and Securities and Exchange Commission of Pakistan (SECP) had been set up to draft a framework for establishing a vibrant corporate debt market.
Delivering his key-note address at a conference on ‘Long-Term Debt Financing Issues and Challenges for Pakistan’, organised by the Institute of Business Management (IoBM), he outlined the tasks of this joint task force.
“I believe that we need to develop an alternative avenue of intermediation: corporate debt market.
These markets will allow the channelling of funds directly from savers to the private sector matching the demand for funds for long-term investments with the supply of long term savings,” he said.
He said the existence of a functioning private bond market serves both borrowers by broadening access to funding, and by lowering borrowing costs as well as savers.
“In Pakistan’s case in particular, it would provide savers with an alternative to bank deposits. It has long been recognised that the presence of such markets is a significant source of competition for the banking system,” he added.
“It is a matter of concern, and indicative of potential, that the size of the listed corporate debt market in Pakistan stands at less than one per cent of GDP,” he said, adding that corporate debt market can enhance financial stability by mitigating rollover interest risk for borrowers.
The SBP and SECP would make joint effort to develop guidelines for shelf registration of corporate debt, collaboration with credit rating agencies to streamline the issuer and instrument rating process and coordination with provincial authorities on rationalisation of stamp duty on transfer and issuance of corporate debt Instruments.
The joint effort will also collaborate with FBR and GoP to rationalise tax treatment of corporate debt instruments, encourage the development of corporate debt market, it is essential that taxation issues are addressed in an appropriate manner and communicated to the stakeholders and develop standards for valuation of corporate debt instruments.
Mr Anwar said that these initiatives were of utmost importance to be above to move from a purely banking loans market towards a vibrant debt capital markets. “This will not only facilitate providing diversified investment avenues for various stakeholders, but will also help in improving saving ratios of the country and enable borrowers to raise efficiently price financing for crucial infrastructure projects,” he said.
He pointed out that in most countries, the government as the largest issuer of debt securities provides the volume required for a liquid secondary market.
In Pakistan, however, PIBs are unable to serve this for two reasons. Firstly, the market is not sufficiently liquid, and secondly, there is no benchmark for private bonds that are issued for a tenor of between 5 and 8 years since PIBs are only available in maturities of 5 and 10 years.
He suggested that the process for primary issuance of corporate debt should be simpler one and fast track; so that a corporate could raise funds quickly when conditions are favourable for debt issuance.

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MOHAMMED SALEEM MANSOORI