KARACHI: Agha Steel Industries Ltd has decided to exercise the call option on the Rs5 billion Islamic bond that it issued at the end of 2018, the steelmaker said in a regulatory filing on Wednesday.

A call option lets a borrower redeem its bond — or Sukuk in the case of Agha Steel — before its maturity date.

In other words, the bond issuer pays off the debt earlier than planned through the call option.

A company may choose to exercise this option because of either a better liquidity position or its belief that it’ll be able to re-borrow the required funds at a lower interest rate.

“We’re in the process of signing agreements with the investors today,” the company said in the stock filing.

The Rs5bn Sukuk included a Rs1bn green-shoe option, which is the over-allotment provision allowing the borrower to raise additional funds at the same rate if the public demand exceeds expectations.

The debt instrument was privately placed and then listed on the stock exchange in 2019 for a period of six years, including a grace period of two years.

The steel maker issued the Islamic bond to settle its existing long-term debts and finance a portion of the costs associated with the BMR (balancing, modernisation and repla­cement) and commissioning of a new rolling mill unit.

The instrument, which carried a profit of three-month Karachi Interbank Offered Rate (Kibor) plus 80 basis points a year, was redeemable in 16 equal instalments from January 2022 to October 2025.

At the end of December 2022, the latest period for which detailed financial accounts of the company are available, its outstanding borrowing against the Sukuk certificates stood at Rs3.7bn.

In its April report on the debt instrument, VIS Cre­dit Rating Company pla­ced it in the category of “Rating Watch — Deve­loping” on account of the steel maker’s intention to exercise the call option for the full prepayment of the outstanding amount.

The principal instalment due in April 2023 remained outstanding, the rating agency said, adding that it should be a part of the early repayment amount expected to be settled through the call option.

“The company is in the process of arranging funds for early repayment of outstanding Sukuk. VIS will continue to monitor developments in this regard,” it said.

Published in Dawn, July 6th, 2023

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Rushed legislation
Updated 06 Nov, 2024

Rushed legislation

For all its stress on "supremacy of parliament", the ruling coalition has wasted no opportunity to reiterate where its allegiances truly lie.
Jail reform policy
06 Nov, 2024

Jail reform policy

THE state is making a fresh attempt to improve conditions in Pakistan’s penitentiaries by developing a national...
BISP overhaul
06 Nov, 2024

BISP overhaul

IT has emerged that the spouses of over 28,500 Sindh government employees have been illicitly benefiting from BISP....
Smog hazard
Updated 05 Nov, 2024

Smog hazard

The catastrophe unfolding in Lahore is a product of authorities’ repeated failure to recognise environmental impact of rapid urbanisation.
Monetary policy
05 Nov, 2024

Monetary policy

IN an aggressive move, the State Bank on Monday reduced its key policy rate by a hefty 250bps to 15pc. This is the...
Cultural power
05 Nov, 2024

Cultural power

AS vital modes of communication, art and culture have the power to overcome social and international barriers....