KARACHI, Sept 26: Financial analysts and top decision makers in the single largest institutional investor in the country with over Rs92 billion at stake, State Life Insurance Corporation (Slic), consider current drop in banks’ rates and those of government securities a temporary phase and expect an upswing in foreseeable future.

“Look at the money market where rate has escalated beyond 6 per cent on Thursday ahead of the floatation of government bonds due on October 4,” a top official of the Slic told Dawn on Friday. The Slic team is confident that bank rates will go up.

A meeting of this correspondent with Slic Chairman Rasul Baksh Baloch and his team of senior management on Wednesday to find out if any alternative investment strategy was being considered in the wake of falling bank rates and those of government securities revealed that a hard look was given at the current investment portfolio but it was decided to make only “slight shifts here and there”. By and large the Slic investment portfolio will remain unchanged.

“The investments of Slic are governed under Insurance Ordinance 2000, Insurance Rules 2001 and SRO (309)(k) of 1970,” the Slic Chairman explained who pointed out that under these rules his Corporation can invest in government securities, term finance certificates, equities, real estate and temporary parking of funds in the banks. The rules have fixed ratios of investments in these areas and hence there is very little room for making any major shift.

While the Slic management anticipate an upswing in banks’ rates and government securities they are also sure that these rates will never go up to 14 and 15 per cent as was the case only a few years ago. “These rates may hover around 7 or 8 per cent,” one of the executives expects. “We will make changes in investment portfolio on long term basis,” Muhammad Latif one of the Executive Directors of Slic said.

One of the possibility of investment shift for Slic in foreseeable future is a move towards corporate sector. There is some optimism that leading multinationals and Pakistani companies may float term certificates in coming months. The Slic has invested a small amount in TFCs floated by a few leasing companies.

The fund-starved House Building Finance Corporation (HBFC) also approached the Slic for a Rs500 million line of credit recently. “We are looking at their proposal,” the Slic Chairman said but refused to give any firm answer. “Let us know the details,” he remarked.

About a year ago the Slic was considering a scheme of provident fund investment of about 1,200 government and private companies. But it appears that Slic did not get an encouraging response from the companies and had to eventually drop this idea.

It is doubtful if Slic would go for investment in the government bonds on October 4. None of the senior executives was ready to offer any positive answer to this question.

Slic’s earnings are definitely going to drop in 2003, which the officials believe will not be ‘too much’ and would not impact much on the returns being offered to about two million policyholders in form of annual and interim bonuses and profits.

The Corporation earned Rs11.21 billion income from the investment during 2002 a rise of more than 22 per cent over Rs9.10 billion profit earned in 2001. About 1.8 million policyholders were given over Rs6 billion bonus.

Till end-August this year Slic’s total investment was about Rs92 billion. Bulk of the amount Rs49.5 billion was stuck up with PIB’s with 10 years maturity. Carrying a rate of 11 to 14 per cent these bonds will mature between 2010 and 2012 and provide an adequate cover for next decade. Another investment of Rs15.5 billion is said to be in special bonds. More than Rs5 billion are stuck up with defence and regular income certificates which have started maturing.

Slic is considered to be one of the leading investors in stock market. Till end August it invested Rs8.4 billion in quoted equities. Market value of these stocks was estimated at around Rs22 billion then.

Real estate is another area where Slic has big stake. The book value of real estate is hardly Rs3 billion but a survey found market value of this property at about Rs13 billion. This is one area where Slic officials are reluctant to involve. “Either you buy or sell property and no matter how transparent the process is, the deal is bound to generate a lot of controversy,” an official remarked.