Govt mulls issuing interest-bearing bonds to reduce circular debt

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ISLAMABAD: The Finance Division has been mulling to issue interest-bearing bonds to reduce the power sector’s circular debt, Pakistan Today has learnt.

Sources privy to the matter disclosed that the finance ministry has been considering a proposal which was floated by leading businessman Mian Mohammad Mansha during a meeting with Finance Advisor Dr Abdul Hafeez Shaikh last week.

Another power sector player, Shahzad Saleem, 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.

As per details, the businessman gave a presentation to the participants to re-profile the circular debt that was mostly payable at present on a 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.

Meanwhile, talking to this scribe, Nishat Chunian Power Limited chief executive officer confirmed that a proposal regarding issuance of bonds was brought forward primarily to bring reforms in the overall power sector of the country. He, however, said the Finance Division has called a meeting tomorrow (Thursday) to discuss measures pertaining to the amicable solution of circular debt.

Upon contact, the finance ministry spokesman hinted against the issuance of any new bond. “There are proposals but they haven’t been finalised as yet.”

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