Businessmen propose bond swap for circular debt

ISLAMABAD: With total circular debt close to Rs1.7 trillion, the government is considering to introduce swap bonds to re-profile short- and medium-term payables into long-term coupons having up to 25 years of maturity, reported Dawn.

The proposal has come from leading businessman Mian Mohammad Mansha who had a meeting with Finance Adviser Dr Abdul Hafeez Shaikh here on Thursday. Another power sector player Muhamamd Saleem Shahzad was also part of the meeting attended by Secretary Finance Naveed Kamran Baloch, State Bank of Pakistan Governor Dr Reza Baqir, Federal Board of Revenue Chairman Shabbar Zaidi and Special Secretary Finance Omar Hamid Khan, claimed the report.

Mansha is a key player in the sector with interests in at least four independent power producers (IPPs) and a leading shareholder in MCB.

Sources quoted in the report said the businessman gave a presentation to the participants to re-profile the circular debt that was mostly payable at present on short-term basis (fresh flow) and the medium-term (stock of circular debt parked with Power Holding Private Ltd – PHPL). The government team was proposed that the flows and existing bonds could be extended to 25 years through bond swap at relatively higher returns.

This should ease immediate payment problems and the need for issuance of sovereign guarantees. The bond swap proposal is in addition to an ongoing exercise to raise about Rs200 billion worth of Sukuk from local commercial banks.

According to the report, the government had launched Rs200 billion Sukuk for the power sector at Kibor plus 80 basis points when Kibor rate ranged 10-12 percent and has now reached 12-13 percent. The proposed long-term swap would need relatively higher return while the authorities expect long-term coupons to result in a better yield curve.

An official statement said Shaikh presided over a meeting on outstanding payables to IPPs and the planned launch of Sukuk and swap. Various recommendations aimed at reducing the circular debt, payments to IPPs and launch of swap were also discussed.

Since there was no representation from the Ministry of Energy, it was decided that all matters including debt and bond swapping should be examined in detail in consultation with the Power Division and consensus proposals should be finalised for consideration of the Economic Coordination Committee (ECC) of the Cabinet within two weeks, the report claimed. 

The country’s total circular debt was currently inching up towards Rs1.7 trillion with active circular debt in excess of Rs860 billion as of September end, the report claimed.  There is another debt stock of about Rs812 billion being financed through various surcharges in the consumer tariff.