Business

ECC members oppose new benchmark loan rate

Published

1 month ago

October 19, 2023

Admin

ISLAMABAD:

Amid opposition from Chinese sponsors to Pakistan’s plans to adopt a new benchmark rate for IPP loans, the economic managers have raised serious objections to the proposal submitted by the Power Division for revising the borrowing rate.

The Power Division had called for a transition from the London Inter-bank Offered Rate (Libor) to the Secured Overnight Financing Rate (SOFR) for loans that would be secured from multilateral donors for power projects.

It was informed that Chinese sponsors of power projects including their lenders were of the view that due to various reasons including the registration process, they were only allowed to opt for the Daily Simple SOFR over SOFR that was not negotiable.

Sources told The Express Tribune that the matter was taken up in a meeting of the Economic Coordination Committee (ECC) held last month.

During discussions, the committee observed that such proposals should not discriminate against borrowers and their financial implications should be taken into account through a suitable simulation.

It was observed that the summary should clearly delineate whether there would be savings or otherwise as a result of adopting SOFR.

The ECC noted that exceptions in the case of Chinese contracts had not been mentioned in the proposal. It was also observed that there was no mention in the summary as to which type of SOFR would be preferred and why.

It was stressed that the impact of the proposed change should be analysed on contracts with the independent power producers (IPPs) and energy tariffs.

The ECC considered the summary submitted by the Power Division titled “Transition from London Inter-bank Offered Rate to Secured Overnight Financing Rate” and directed the division to submit a revised summary after incorporating financial implications of the shift.

Read Decision on borrowing cost put off

For that purpose, it was suggested, the Power Division should conduct a financial analysis based on simulation for the previous year.

The ECC further directed the Power Division to explicitly mention in the summary that the Credit Adjustment Spread (CAS) was only applicable to the legacy contracts/ loans and not to the future contracts.

It gave the directive to mention Chinese exception in terms of SOFR while submitting the proposal for approval and also mention that SOFR instruments should be aligned with the tenors agreed in legacy contracts.

The Power Division informed the meeting that IPPs and Independent Transaction Company (ITC) had obtained financing from various international financial institutions including the development finance institutions (DFIs) and commercial banks based on Libor. Accordingly, the same benchmark was reflected in project documents including financing documents, tariff determinations, implementation agreements, power purchase agreements and transmission service agreements.

However, due to manipulation by several financial institutions and weaknesses in oversight, the UK’s Financial Conduct Authority announced that Libor would cease to be applied as a benchmark for financial transactions after December 2021 and would no longer be available for quoting after June 2023.

The US Federal Reserve’s Alternative Reference Rate Committee selected SOFR, a robust benchmark and risk-free rate backed by the US Treasury as collateral, to replace Libor for both legacy and new contracts. Accordingly, several IPPs together with their lenders approached the Private Power and Infrastructure Board (PPIB) and other stakeholders like the SBP, Finance Division, CPPA-G and Nepra for transition from Libor to SOFR.

Published in The Express Tribune, October 19^th, 2023.

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Related Topics:benchmark ECC loan members oppose rate

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Business

PSX crosses 60,000 points milestone

Published

5 mins ago

November 28, 2023

Admin

Segregation of client assets is critical as brokers have been penalised for using client money illegally. PHOTO: AFP

KARACHI:

The Pakistan Stock Exchange (PSX) smoothly crossed the psychological barrier of 60,000 points during the early trading hours of Tuesday.

The gains came due to rich individuals and institutional investors making significant new investments in expectation of deep cuts in interest rates and the availability of stocks at low prices.

The PSX benchmark KSE-100 Index hit a new all-time high level of 60,745 points, rising by 1.56% or 934 points before mid-day from Monday’s close at 59,811 points. Penny stocks were the volume leader in the rally including textile, technology, food, bank and steel stocks.

Speaking to The Express Tribune, Arif Habib Limited Head of Research Tahir Abbas said: “The high expectation for a deep 7% cut in the key policy rate (interest rate) by the State Bank of Pakistan over the one-year agreed investors to take new possessions”.

“The central bank is expected to cut its key policy rate to 15% by December 2024 from record high 22% at present…ahead of a potential deceleration in inflation reading next year,” he added

Abbas mentioned that the interest rate cut expectations have made rich individuals and institutional investors relocate their investments to the stock market from fixed-income instruments these days.

Topline Securities CEO Muhammad Sohail said in a comment on X (formerly Twitter) that the PSX is breaking records and the development is “still not surprising.”

The market has gained 50% in only five months to over 60,000 points from 40,000 points. “This is the fastest 50% rise in a few months after 2004,” he wrote.

Read PSX hits fresh record, nears 60k milestone

“When you have an unbelievably low valuation, a price-to-earnings ratio of 3-4%, such recovery is not at all surprising,” Sohail further commented.

Abbas further said the listed companies have booked record high growth in profit of 46% in the first nine months ending September 2023 and added that “accordingly, dividend payments by them rose robustly by 42% in the same period. This is another factor that has attracted new investment at PSX”.

The market is expecting foreign currency inflows worth around $1.5-2 billion from multilateral creditors like the World Bank and Asian Development Bank soon after the IMF executive board approves the release of its second tranche of $700 million to Pakistan in December 2023.

This is another factor for the record-buying spree at PSX.

He anticipated the market reaching 75,000-80,000 points by the end of December 2024 considering all goes well including political stability in the country, economic growth, and global commodity prices remaining stable.

“The next six months seem stable at least”, he maintained.

Business

Completion of key projects increases water storage

Published

1 hour ago

November 28, 2023

Admin

LAHORE:

The completion of eight ongoing water and hydropower projects by Water and Power Development Authority (WAPDA) is set to significantly enhance Pakistan’s water storage capacity and hydel power generation. The carry-over water capacity in the country will increase from 30 to 45 days, with an additional 9.7 MAF water storage.

During a visit to WAPDA House, a delegation from PAF Air War College Karachi, led by Air Commodore Raja Imran Asghar, received a comprehensive briefing. The delegation comprised officers from Pakistan and allied nations.

Read: Water projects presented to Turkish consultants

The delegation learned about the climate change threats and water security challenges faced by Pakistan. WAPDA’s ongoing projects, such as Diamer Basha Dam, Mohmand Dam, and others, were highlighted as crucial for the water, food, and energy security of the country.

Published in The Express Tribune, November 28^th, 2023.

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Business

Pakistan, China forge textile ties

Published

2 hours ago

November 28, 2023

Admin

SUZHOU:

A Pakistani delegation, led by Hussain Haider, Pakistan’s Consul General in Shanghai, visited Shengze Oriental Textile City in Suzhou, China, and met with representatives from local textile enterprises.

During the meeting, Haider introduced the trade and investment environment of Pakistan and China, with a particular focus on the preferential policies available to Chinese investors in Pakistan. “Currently, Pakistan’s textile exports to China mainly consist of cotton yarn, apparel, cotton fabrics, and home textiles, with cotton yarn accounting for 73% of the total,” he stated.

Expressing a strong desire for deep cooperation with Shengze’s silk and textile industry cluster, he extended an invitation to Shengze’s enterprises to visit Pakistan and gain first-hand knowledge of the trade and investment policies.

Shengze is renowned for its robust silk and textile industry with a rich history. To gain insights into the dynamics of the textile sector and explore potential collaborations, the delegation toured several textile enterprises in Shengze Oriental Textile City and reached preliminary cooperation intentions. Haider said, “We hope to further communicate and connect with Shengze Oriental Textile City. We sincerely invite Shengze’s enterprises to invest and establish factories in Pakistan, aiming to achieve mutual benefits and contribute to the deepening of China-Pakistan cooperation.”

Read: Chinese manufacturers to help textile industry

Agro-forestry Economy

The third Science and Technology Exchange Conference on China-Pakistan Tropical Arid Non-wood Forest is being held both online and offline from November 26 to 28 in Zhengzhou, China, and Gwadar, Pakistan, simultaneously.

The exchange conference aims to showcase achievements and research progress of both nations in the field of economic forestry. It also seeks to facilitate academic exchanges of woody medicinal herbs and active substances between China and Pakistan.

The event, co-hosted by the Chinese Society of Forestry (CSF) and Central South University of Forestry and Technology (CSUFT), drew over 220 officials, scholars, students, and business representatives from both countries.

In 2021, CSUFT, China Overseas Port Holding Company, and Yulin Holdings collaborated to establish an Engineering Research Centre for Tropical Arid Non-wood Forest.

THE ARTICLE ORIGINALLY APPEARED ON THE CHINA ECONOMIC NET

Published in The Express Tribune, November 28^th, 2023.

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