KARACHI, March 31: The total amount of listed Term Finance Certificates (TFCs) is understood to have touched Rs28 billion by the end of third-quarter of the current financial year, on Monday.

Never mind the absence of new equity listings at the stock markets, the corporate debt market in Pakistan is booming. Already in the nine months since July 2002, as many as 18 Term Finance Certificates have been floated by corporates to raise Rs9.5 billion. By contrast, 22 TFCs valued at Rs14 billion had hit the market in the preceding three years combined.

Declining interest rates and steep rise in stock prices appear to have prompted both institutions and individual investors to look around for new investment avenues.

After remaining inactive during Q2-FY03 when just three new issues worth Rs2.2 billion were launched in the primary corporate bond market — as against eight issues worth Rs4.6 billion in Q1 of the year, the third quarter has again witnessed rapid growth in the new issues.

Seven new TFCs of the value of Rs2.7 billion had entered the capital market during Q3-FY03 including the TFCs worth Rs840 million which went on offer on Thursday last by Securetel. That marked the first ever public listed instrument to be issued under the Companies’ Asset Backed Securitization (ABS) Rules, 1999.

Of the seven new TFCs issued in Q3 ended March 31, largest share in terms of size was by three textile companies: Gulistan Textile, Gulshan Spinning and Paramount Spinning, which together offered a billion rupees worth of TFCs on January 30, this year. Three leasing companies: Security Leasing; KASB Leasing and Paramount Leasing floated corporate bonds of the aggregate value of Rs824 million.

All TFC issues offered during Q3 had been rated at ‘A’ category and the coupon rate also ranged between a decent 11-12 per cent concurrent with their tenor. Almost all issues had been heavily oversubscribed, including the latest by Securetel, though its final figures are yet to be announced.

In its Q2 Report, SBP had commented that the domestic debt market was expected to be one of the focal points in the second phase of the ADB-funded capital market development programme, particularly with respect to increase in market depth and introduction of new instruments.

“As far as size of the bond market is concerned”, says Iffat Zehra Mankani, head of research at IP Securities, “it is far smaller than those of many developed nations”. But she adds that the speed of growth in such short span of time, fuels enthusiasm about the large demand gap and depicts the hidden potential of the market. “We expect the growth in outstanding debt market would compel augmentation in the size of the secondary market of TFCs as well”, hopes Ms. Mankani.

According to the analyst, several new TFC issues are in the pipeline, which are expected to hit the market in coming months. These include offers from Ittehad Chemicals, Pacific Leasing, Union Leasing and Hussain Mills.

New equity offerings have almost dried up. Even in the memorable bull market of 2002, sponsors were curiously loathe to seize the opportunity to raise cash through new Initial Public Offering (IPOs). In the last six years, only 14 companies have come up to raise Rs6 billion in fresh equity. Market experts suggest that companies may be finding the cost of funds to be cheaper in borrowings from banks, rather than raising money through the stock market. The gradual closing of gap between tax rates applicable on listed and unlisted companies and the increasing demands placed on corporates by the otherwise laudable code of corporate governance, are being counted as other reasons for keeping sponsors away from the primary equity market.