The Bond

Market

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Table of Content
Bonds...................................................................................................................................3
How Bonds Work..............................................................................................................3
Characteristics of Bonds...................................................................................................3
Bond Market.....................................................................................................................3
Types of Bonds....................................................................................................................4
Government Bonds...........................................................................................................4
Zero Coupon bonds.......................................................................................................4
Municipal Bonds...............................................................................................................4
Corporate Bonds...............................................................................................................5
Varieties of Corporate Bonds.........................................................................................5
Bonds in Pakistan................................................................................................................6
Explanation & Types of Government Bonds.......................................................................6
Market Treasury Bills.......................................................................................................6
Pakistan Investment Bonds...............................................................................................7
Federal Investment Bonds................................................................................................8
US Special Dollar Bonds..................................................................................................8
National Saving Bonds.....................................................................................................9
Sukuk Bonds...................................................................................................................10
Corporate Bonds................................................................................................................10
Overview of Pakistan's Corporate Bond Market...............................................................11
Commercial Paper:.........................................................................................................11
Wapda Bonds..................................................................................................................11
Term Finance Certificate................................................................................................13
Conclusion of Corporate Bonds.........................................................................................13
Primary Dealers of Bonds..................................................................................................14
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Role of Credit Rating Agencies.........................................................................................14

The Bond Market

Bonds
A bond is a debt investment in which an investor loans money to an entity (typically corporate or
governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.
Bonds are used by companies, municipalities, states and sovereign governments to raise money and
finance a variety of projects and activities. Owners of bonds are debt holders, or creditors, of the issuer.
How Bonds Work
When companies or other entities need to raise money to finance new projects, maintain ongoing
operations, or refinance existing and other debts, they may issue bonds directly to investors instead of
obtaining loans from a bank. The indebted entity issues a bond that contractually states the interest
rate that will be paid and the time at which the loaned funds must be return.
The issuance price of a bond is typically set at par, usually100 or 1,000 face values per
individual bond. The actual market price of a bond depends on a number of factors including the credit
quality of the issuer, the length of time until expiration, and the coupon rate compared to the general
interest rate environment at the time.
Characteristics of Bonds
Most bonds share some common basic characteristics including:

Face value is the money amount the bond will be worth at its maturity, and is also the reference
amount the bond issuer uses when calculating interest payments.

Coupon rate is the rate of interest the bond issuer will pay on the face value of the bond,
expressed as a percentage.

Coupon dates are the dates on which the bond issuer will make interest payments. Typical
intervals are annual or semi-annual coupon payments.

Maturity date is the date on which the bond will mature and the bond issuer will pay the bond
holder the face value of the bond.

Issue price is the price at which the bond issuer originally sells the bonds.

Bond Market
The bond market is the environment in which the issuance and trading of debt securities occurs. The
bond market primarily includes government-issued securities and corporate debt securities, and
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facilitates the transfer of capital from savers to the issuers or organizations requiring capital for
government projects, business expansions and ongoing operations.
Most trading in the bond market occurs over-the-counter, through organized electronic trading
networks, and is composed of the primary market (through which debt securities are issued and sold by
borrowers to lenders) and the secondary market (through which investors buy and sell previously issued
debt securities amongst themselves). Although the stock market often commands more media attention,
the bond market is actually many times bigger and is vital to the ongoing operation of the public
and private sector.

Types of Bonds
There are three main categories of bonds.

Corporate bonds are issued by companies.

Municipal bonds are issued by states and municipalities. Municipal bonds can offer tax-free
coupon income for residents of those municipalities.

Treasury bonds, note and bill issued by Government.

Government Bonds
A government bond is a bond issued by a national government, generally with a promise to pay
periodic interest payments and to repay the face value on the maturity date. Government bonds are
usually denominated in the country's own currency. Another term similar to government bond is
"sovereign bond". It also issues treasury notes, bills and bonds

Bills - debt securities maturing in less than one year.

Notes - debt securities maturing in one to 10 years.
Bonds - debt securities maturing in more than 10 years.

Zero Coupon bonds

Zero-coupon bonds do not pay out regular coupon payments, and instead are issued at a discount and
their market price eventually converges to face value upon maturity. The discount a zero-coupon bond
sells for will be equivalent to the yield of a similar coupon bond.

Do not pay interest

Sold at deep discount from par value
Value increases over time
Subject to tremendous price volatility as interest rates fluctuate
Interest must be reported as it is accrued for tax purposes even though no interest is actually
received

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Treasury strips are zero-coupon bonds created from treasury securities

Municipal Bonds
A municipal bond is a debt security issued by a state, municipality or county to finance its capital
expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes,
especially if you live in the state in which the bond is issued.
Cities don't go bankrupt that often, but it can happen. The major advantage to municipal is that the
returns are free from federal tax. Furthermore, local governments will sometimes make their debt nontaxable for residents, thus making some municipal bonds completely tax free. Because of these tax
savings, the yield on a municipal is usually lower than that of a taxable bond. Depending on your
personal situation, a municipal can be a great investment on an after-tax basis.
Corporate Bonds
A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons
such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term
debt instruments, with maturity of at least one year.
A company can issue bonds just as it can issue stock. Large corporations have a lot of flexibility as
to how much debt they can issue: the limit is whatever the market will bear. Generally, a short-term
corporate bond is less than five years; intermediate is five to 12 years, and long term is over 12 years.
Corporate bonds are characterized by higher yields because there is a higher risk of a company
defaulting than a government. The upside is that they can also be the most rewarding fixed-income
investments because of the risk the investor must take on. The company's credit quality is very
important: the higher the quality, the lower the interest rate the investor receives.
Other variations on corporate bonds include convertible bonds, which the holder can convert into
stock, and callable bonds, which allow the company to redeem an issue prior to maturity.
Varieties of Corporate Bonds
1) Secures bonds have specific assets of the issuer pledged as collateral for the bonds a bond can be
secures by real estate or other assets.
2) Unsecured bonds are issued against the general credit of the borrower; they are also called
debenture bonds

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3) Convertible bonds are debt instruments with an embedded call option that allows bondholders to
convert their debt into stock (equity) at some point if the share price rises to a sufficiently high
level to make such a conversion attractive.
4) Callable bonds, meaning that the company can call back the bonds from debt holders if interest
rates drop sufficiently. These bonds typically trade at a premium to non-callable bonds debt due
to the risk of being called away and also due to their relative scarcity in today's bond market.
Other bonds are potable, meaning that creditors can put the bond back to the issuer if interest
rates rise sufficiently.

Bonds in Pakistan
The bond market in Pakistan is comprised of debt and debt like securities issued by
a) The Government
b) Corporations
c) Corporate entities.
As of June 30th, 2015, the size of the Pakistans bond market was approximately Rs. 1,892
billion equivalent to USD 33billion. The bond market is clearly dominated by the Government, which
accounted for Rs.1,852 billion (or 98%) of total bonds outstanding as of June 30th, 2015 followed by
corporate entities Rs. 25 billion (1.32%) and statutory bodies Rs.15billion (0.79%).

Explanation & Types of Government Bonds

Government bond is a debt security loaned by a government to assist government spending, most
often issued in the countrys local interest. The various types of Government bonds issued by the Govt.
of Pakistan are as follows:
1)
2)
3)
4)
5)

Pakistan Investment Bonds

Market Treasury bill
US Special Dollar Bonds
National Saving Bonds
Sukuk

Market Treasury Bills

Features

Issuer: Government of Pakistan

Issued in accordance with Public Debt Act 1944
Denomination: issued in multiples of PKR 50,000
Tenors 3 ,6 and 12 months
MTBs are issued in a script less (without physical form)
Auction schedule: Regular auctions of MTBs are held on fortnightly basis. A quarterly schedule
is published by SBP at the beginning of each quarter.

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 Income Tax: income Tax will be deducted as per existing law

Zakat: No compulsory deduction of zakat at source
Custodian: ultimate custodian is the SBP, but banks maintain these securities in the investor
Portfolio of Securities (IPS) Accounts on behalf of their customers
Investor can find out the latest auction yields of 3,6 and 12 months tenors in the auction.

Benefits
Guaranteed Repayment: The repayment of face value is guaranteed by the Government of
Pakistan
Higher Returns: These securities provide higher returns to the investor, as compared to most
bank deposits.
Accepted as collateral: MTBs are acceptable by the banks as collateral.
Liquidity: Highly liquid and tradable in the secondary market.
Easy Process of Investment: Local and foreign investors can easily invest in the MTBs by
opening an IPS account in any bank offering these services. In addition to IPS accounts foreign
investors also have to open a special Convertible Rupee Account (SCRA) with any Authorized
Dealer in Pakistan.
As at end June 2003, outstanding amount in MTBs was Rs 516.268 billion (USD 8.901bn) including
MTBs created for replenishment of Govt. cash balances with SBP.
Pakistan Investment Bonds
After the suspension of auctions of the long term Federal Investment Bonds (FIBs) in June 1998,
there was no long term marketable government security that could meet the investment needs of
institutional investors. Therefore, in order to develop the longer end of the Government debt market for
creating a benchmark yield curve and to boost the corporate debt market, the Government decided to
launch Pakistan Investment Bonds in December 2000. These bonds have the following features:
Features

Issuer: Government of Pakistan

Issued in accordance with Public Debt Act 1944
Denomination :issued in multiples of PKR 100,000
Tenors: 3 ,5,10 and 20 months
Coupon Payment: Fixed & Semi annual
PIBs are issued in a script less (without physical form)
Auction schedule: A quarterly schedule is published by SBP at the beginning of each quarter.
Income Tax: income Tax will be deducted as per existing law
Zakat: No compulsory deduction of zakat at source
Custodian: ultimate custodian is the SBP, but banks maintain these securities in the investor
Portfolio of Securities (IPS) Accounts on behalf of their customers

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 Investor can find out the latest auction yields of 3,5,10 and 20 years PIBs
Benefits
Guaranteed Repayment: The repayment of face value at maturity and periodic coupon payments
are guaranteed by the Government of Pakistan
Higher Returns: These securities provide higher returns to the investor , as compared to most
bank deposits.
Accepted as collateral: PIBs are acceptable by the banks as collateral.
Liquidity: Highly liquid and tradable in the secondary market.
Easy Process of Investment: Local and foreign investors can easily invest in the PIBs by
opening an IPS account in any bank offering these services. In addition to IPS accounts foreign
investors also have to open a special Convertible Rupee Account (SCRA) with any Authorized
Dealer in Pakistan.
Investment for medium term to long term: These securities offer investors with maturity periods
from 3years to 20 years
At end June, 2003 outstanding amount under PIB was Rs. 228.665 bn. Equivalent to USD 3.94 billions
Federal Investment Bonds
This is a long-term debt obligation issued by the government started during nationalization. These
were issued for various purposes such as for banks nationalization, petroleum, shipping, vegetable oil,
Shahnawaz Bhutto Sugar Mills, Heavy Mechanical Complex, and land reforms etc.
This is a long term (3, 5 & 10 years maturity) debt obligation issued by the government from
June 1991,
A risk free investment to the bond holders at premium interest rates was fixed as 13%, 14% and
15% depending on the maturity of the bond.
Interest payments on FIB are made through interest warrants.
Income tax on interest amount is deducted at 20%.
Purchased by individuals, institutions and corporate bodies including banks irrespective of their
residential status
Can be traded freely in the countrys secondary market. The settlement is normally through a
book entry system through Subsidiary General Ledger Accounts (SGLA) maintained by banks
with State Bank of Pakistan (SBP). Physical delivery could be affected if required.
Profit is taxable at 20%
US Special Dollar Bonds
Characteristics of FCAs
1. FCAs will continue to remain subject to the limitation on withdrawal in foreign exchange except in
the exempted categories. However, as announced before, the deposit holders are at liberty to convert
them in rupees at the State Bank's official buying rate.
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2. In addition to the above the holders of these accounts will be permitted to purchase U.S.Dollar
Savings Bonds of the Government of Pakistan against the outstanding balances in their Foreign
Currency Accounts. These Bonds will be for the tenure of 5, 7 and 10 years and will bear profit as per
the details given below:5 years

6 months' LIBOR

7 years

6 month's LIBOR plus 1%

10 years

6 month's LIBOR plus 2%

The Bonds will be issued in the denomination of US$ 100, US$ 1,000, US$ 10,000 and US$ 100,000.
3. The amounts of profit on the Bonds will be payable to the residents in Pakistan rupees at the State
Bank's official buying rate. The payment of profit to the non-residents will be in US Dollars. The profit
will be paid to the holders at half-yearly intervals. The principal amount would be payable both to
residents and non-residents in US Dollar.
4. These Bonds will be issued by the Authorized Dealers on behalf of the Government.
5. The Bonds will be transferable by endorsement and delivery tradable in the market.
6. Bonds can be used as collateral for obtaining loans in Pakistan.
7. Bonds shall not be cashable in dollar before the date of maturity. The holders of the Bonds will,
however, be free to cash the bonds in rupees any time before the maturity date at the then prevailing
official exchange rate.
8. The foreign currency bonds and the proceeds thereof, shall be exempt from levy of Wealth Tax for a
period of six years and shall enjoy immunity from divulging the source of foreign exchange.
9. The investments made in these Bonds and profit earned thereon shall be exempt from Income Tax and
deduction of Zakat.
10. There shall be no maximum limit for the purchase of these bonds.
11. The face value of the Bonds shall be in cashable on maturity in US Dollars.
13. The Bonds will be registered bonds and in case of their issue to the non-residents, their export will
be allowed.
Sukuk Bonds
Features
Government of Pakistan security
Issued in accordance with public act 1944
Denomination: issued in multiples of PKR 100,000
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Tenors: 3 years
coupon payment : flouting and semi annual
GOP Ijara sukuk are issued in a Scrip Less (without physical) form
The Auction follows the Uniform based system, where all the bids accepted by the government
get the same rate of profit.
Income Tax: income Tax will be deducted as per existing law
Zakat: No compulsory deduction of zakat at source
Custodian: ultimate custodian is the SBP, but banks maintain these securities in the investor
Portfolio of Securities (IPS) Accounts on behalf of their customers
Investor can find out the latest auction yields of GOP Ijara Sukuk at

Benefits
Islamic Mode of Investment: GOP Ijara Sukuk is based on the guidelines of Shariah and
approves by SBP shariah Board.
Guaranteed Repayment: The repayment of face value at maturity and periodic rental payment are
guaranteed by the Government of Pakistan
Higher Profit: These securities provide higher returns to the investor, as compared to most bank
deposits.
Accepted as collateral: GOP Ijara Sukuk is acceptable by the banks as collateral.
Liquidity: Highly liquid and tradable in the secondary market.
Easy Process of Investment: Local and foreign investors can easily invest in the GOP Ijara Sukuk
by opening an IPS account in any bank offering these services. In addition to IPS accounts
foreign investors also have to open a special Convertible Rupee Account (SCRA) with any
Authorized Dealer in Pakistan.
National Saving Bonds
All the prize bonds issued by the State Bank of Pakistan(SBP) two months before its draw will
be included in very next upcoming prize bond draw result. Sale period of any prize bond denomination
remains for one month in which anyone can buy prize bond from SBP or branches of National Savings.
This one month starts from the very next day of its denominations draw then next two months sale of the
same prize bond denomination will remain closed until its next draw. Hence every prize bond
denomination avails four prize bond draw result every year.
BAHBOOD SAVINGS CERTIFICATES
Keeping in view the hardships faced by the widows and senior citizens, this ten years' maturity
scheme was launched by the Government on 1st July, 2003. Initially the scheme was meant for widows
only, however, the Govt. later decided to extend the facility for senior citizens aged 60 years and above
with effect from 1st January, 2004. These certificates are available in the denominations of Rs.5,000/-,
Rs.10,000/-, Rs.50,000/-, Rs.100,000/-, Rs.500,000 and 10,00000/-. Profit is paid on monthly basis
reckoned from the date of purchase of the certificates. The minimum investment limit in this scheme is
Rs.5,000/- and multiple thereof, whereas, the maximum limit of investment for a single investor is Rs. 4
million if encashed before completion of 01 year from the date of purchase@ 1.00% of the face value At
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the prevailing rates monthly profit of Rs.800/- is paid on investment of each Rs.100,000/-. This way the
profit rate works to 9.60% p.a. Automatic reinvestment of profit facility to earn further profit is not
admissible in this scheme at the scheme's rate. The monthly profit, if not drawn on due date shall not
earn further profit. The withholding tax is not collected on the profit earned on these certificates. The
investment made in this scheme is also exempt from Zakat.
DEFENCE SAVINGS CERTIFICATE
The Government of Pakistan introduced Defense Savings Certificate scheme in the year 1966.
The scheme has specifically been designed to meet the future requirements of the depositors. This is 10
years' maturity scheme with built in feature of automatic reinvestment (Further, certificates purchased on
or after 15-11-2010 cannot be automatically reinvested) after the maturity. These certificates are
available in the denominations of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000,
Rs.500,000 and Rs.1,000,000/=. The minimum investment limit is Rs.500/-, however, there is no
maximum investment limit in this scheme. These certificates are encashable at par any time after the
date of purchase. However, no profit is payable if encashment is made before completion of one year. In
this scheme the profit is paid on maturity or encashment for completed years. Every Rs.100,000/- will
become Rs.105,000/-, Rs.111,000/-, Rs.118,000/-, Rs.126,000/-, Rs.135,000/-, Rs.145,000/-,
Rs.157,000/-, Rs.172,000/-, Rs.190,000/- and Rs.212,000/- on completion of 1, 2, 3, 4, 5, 6, 7, 8, 9 and
10 years, respectively. These rates are effective from 1st February, 2016. The average compound rate of
return on maturity presently works to7.80% p.a.
SPECIAL SAVINGS CERTIFICATES
Keeping in view the periodic needs of depositors, this three years' maturity scheme was
introduced in February, 1990. These certificates are available in the denomination of Rs.500, Rs.1000,
Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000. Profit is paid on the
completion of each period of six months. These certificates can be purchased by a single adult. The
minimum investment limit is Rs.500/-, however, there is no maximum investment limit in the scheme.
At prevailing rates, the profit is paid @ 6.00% p.a. for 1st five profits and @ 6.40% p.a. for the last
profit. However, if the profit is not withdrawn on due date it will automatically stand reinvested and
would be calculated for further profit on completion of the next 06 months' period.
REGULAR INCOME CERTIFICATES
Keeping in view the monthly requirements of the general public, this five years maturity scheme
was launched on 2nd February, 1993. These certificates are available in the denomination of Rs.50,000,
Rs.100,000, Rs.500,000, Rs.1,000,000, Rs.5,000,000 & Rs.10,000,000/=. Profit is paid on monthly basis
reckoned from the date of issue of certificates. The minimum investment limit is Rs.50,000/-, however,
there is no maximum investment limit in this scheme. If encashed before completion of one year from
the date of issue. @ 2.00% of the face value. At the prevailing rates monthly profit of Rs.552.67
(including withholding tax) is paid on investment of each Rs.100,000/-. This way the profit rate works to

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6.632% p.a. However, the facility of automatic reinvestment of profit to earn further profit is not
available in this scheme. The monthly profit, if not drawn on due date shall not earn further profit.
PENSIONERS BENEFIT ACCOUNT
Keeping in view the hardships faced by the pensioners, this ten years' maturity scheme was
launched by the Government on 19th January, 2003. The deposits are maintained in the form of accounts
and the profit is paid on monthly basis reckoned from the date of opening of the account. The pensioners
of Federal Government, Provincial Governments, Government of Azad Jammu & Kashmir, Armed
Forces, Semi Government and Autonomous bodies. The minimum investment limit is Rs.10,000/-,
whereas, the maximum limit is Rs.4,000,000 if withdrawn before completion of one year from the date
of deposit. @1% of the principal amount At the prevailing rates monthly profit of Rs.800/- is paid on
investment of each Rs.100,000/-. This way the profit rate works to 9.60% p.a. Automatic reinvestment
of profit facility to earn further profit at the scheme's rate is not admissible in this scheme. The facility of
automatic re-investment on maturity of Deposits in PENSIONERS BENEFIT ACCOUNT is available.

Corporate Bonds
Corporate Bond is a debt security which is issued by company and sold to investors to meet its
financial requirements. In Pakistan this is commonly known as Term Finance Certificate (TFC).
Corporate Bonds are normally issued for a specified time period with an assurance to return the principal
amount of the bond money including interest to the bondholder. Foundations of the corporate bond
market were laid in 1995 with the first issue of Term Finance Certificates. Since then issuance of listed
TFCs has totaled approximately PKR 80 billion a combination of factors resulted in the issuance boom
in the past five years. Amongst those was de-regulation of the banking sector, lower interest rates,
availability of benchmarks for both fixed and floating rate debt, active inter-bank trading markets in
government securities, coming of age for mutual funds, etc. Corporate bond market in Pakistan is
smaller in comparison to many equivalents rated economies (less than 1% of GDP) although the
situation is improving.
Corporate bond market can improve financial stability, provide competition to the private sector,
and allow more efficient allocation of saving by providing a broader range of assets. A primary reason
for developing corporate bond markets is that they provide an alternate source of external funds for the
private sector other than equity and bank borrowing, which enhances financial stability and efficiency of
credit allocation.

Overview of Pakistan's Corporate Bond Market

Commercial Paper:
SBP and SECP issued guidelines for their issuance three years back. The tenor of commercial papers
is 3, 6 and 9 months. The Corporate can issue CPs on attaining criteria. Commercial paper is always a
better option to choose rather than going for large bank loans and paying a good deal interest on them.
Commercial paper bears low risk and are considered as a safe and secure investment with a predictable
12 | P a g e

return on investment. They help to establish national credit and also allow to enhance borrowing power
with local banks There is no secondary market for commercial paper and once your funds are tied up, it
is difficult to get them out.You have to wait till the maturity time to get the face or par value for the
commercial paper and to redeem funds.
Equity of the corporate is not less than Rs 100 million,
Minimum credit rating for short term CP should be A- and for long tenor A,
It should have clean credit information Bureau (CIB) report
Commercial paper is a low risk investment and is usually issued by those companies who
have high credit ratings
Commercial paper can be issued as an interest bearing note or it can traded at less than its par
value (discount).

Packages Ltd was the first company to raise working capital through CP. Packages Limited for Rs. 232
million in February of 1995. The total amount of outstanding as of March 2006 is estimated at Rs. 57.99
billion US$ dollars 0.97 billion or 1.12 percent of GDP.
Wapda Bonds
Characteristics of Bond

WAPDA has, so far, floated six regular issues and one special issue involving total proceeds of
Rs 23.7 billion.
Starting from 1987-88, these bonds of varying maturity periods and carrying different coupon
rates have been issued.
First two issues worth Rs 8.733 billion have already been redeemed.
WAPDA Bond number 3 to 5 are perceived to be more secure investment in bond market due to
the government guarantee provided to them.
Bond 3 and 7 will be maturing in year 2000.
The remaining five bonds amounting to Rs 14.96 billion remain outstanding,
The earliest maturing in the year 2000 and the last by the year 2004.
The first 5 issues were government guaranteed and the remaining 2 were not.
An amount of Rs 16.471 billion has been disbursed to bondholders till the last financial year. So
far, there has not been any default by WAPDA on account of payments made for any of the
issues.

Benefits
1)
2)
3)
4)
5)

WAPDA Bonds are very attractive for the time being.

The discount rate has fallen by a drastic 450 basis points in less than a year and
It appears to be the most attractive and highly demanded issue trading in the market.
It is a government guaranteed issue with currently less than a year to maturity,
A yield to maturity of approximately 18 per cent per annum and a market price of Rs 94/95.

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Cost
1) WAPDA's point of view these Bonds have been a tremendous financial burden.
2) High interest rate, are the main cause of its financial collapse.
Term Finance Certificate
The corporate bond market in Pakistan, in the form of Term Finance Certificates (TFCs), The
TFC issuers include both non financial and financial institutions as well as private and public forms. The
coupon rate on the TFCs display a wide variety with different coupons linked to various interest rates
including the discount rate,
PIA Bonds
Key features
The largest TFC ever issued was by PIA for Rs. 15.4 billion, issued in February of 2003,
The smallest issue was for Rs. 100 million issued by Network Lease in October of 2000.
Excluding the jumbo issue by PIA the average size of the TFCs was Rs. 660 million with
maximum of Rs. 2.5 billion.
In 2007 Pakistan International Airlines plans to sell more than Rs25 billion eight-year Sukuk
bonds next month in a move to generate funds for infrastructure development.
Engro Rupiya Certificates
Key features
Fixed Profit rate of 14.5% per year payable every 6 months for a tenor of 3 years
Minimum investment of Rs. 25,000 with increments of Rs. 5,000
Profit earned from the first day of investment
Profit deposited directly into your bank account for added convenience
Rated AA which denotes very high credit quality
No minimum holding period so investments can be in cashed anytime subject to service charges
of 2% on the investment balance for encashment before completion of 3 years
Available for purchase till January 15, 2011. Multiple applications are allowed
Zakat is exempted for non-Muslims and for applicants who submit Zakat Affidavit
Withholding tax is not applicable on investments below Rs. 150,000

Companies Issues TFC

Sr.No

Issuer
Sui Southern Gas
Company Limited

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TFC
issue

Date of issue

TFC-I

17-19 Oct, 1995

Tenor

Coupon

Principal

5 Years

18.25%

500.00

2
3
4
5
6
7
8
9
10
11

12
13
14

15
16
17

18
19
20
21
22
23

Nishat Tek Limited

ICI Pakistan
Limited
Dewan Salman
Fibre Ltd
Atlas Lease Limited
Shakarganj Sugar
Mills Ltd.
Dewan Salman
Fibre Ltd
Pakistan PTA
Limited
Sitara Chemical
Industries Ltd.
Engro Chemical
Pakistan Ltd
Maple Leaf Cement
Factory Ltd.
Shakarganj Sugar
Mills Ltd.
Standard Chartered
Bank Pakistan Ltd
Ittehad Chemicals
Limited
Pakistan Services
Limited
Jahangir Siddiqui &
Company Ltd
Hira Textile Mills
Ltd.
Naimat Basal Oil
and Gas
Securitization Co.
Ltd
Soneri Bank
Limited
Al-Zamin Leasing
Modaraba
Askari Bank
Limited
Bank Alfalah Ltd
IGI Investment
Bank Ltd.

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TFC-I

3 Years

18.00%

250.51

5 years

18.70%

1,000.00

5 years
5 years

863.76
200.00

4 years

19.00%
15.00%
(Min)15.00%
(Max) 18.75%

4 Years

16.00%

1,816.35

5 Years

1,600.00

5Years

16.00%
Profit & Loss
sharing formula

5Years

15%

1,000.00

4Years

17.75%

250.00

4Years
5-1/2
year

15.75%

200.00

15.50%

750.00

TFC-I

15-16 Jan, 1996

26,29,30 Sep,
1996
24-26 May,
1999
Sep 26-27, 2000
09 - 10 Apr,
2001
21-22 June,
2001
01-02 August,
2001
19 - 20 June,
2002
04-05 July,
2002
18-19 July,
2002
26-27
September,
2002
19-21
December, 2002
26-27 June
2003

5 Years

12.00%

250.00

TFC-I

11-12 Nov 2003

5 Years

6 months KIBOR +:
9.75%

700.00

TFC-III

20-21 Dec 2004

5 Years

TFC-I

15-17 Mar 2005

5 years

TFC-I
TFC-I
TFC-I
TFC-I
TFC-II
TFC-I
TFC-I
TFC-I
TFC-I

TFC-II
TFC-I

TFC-I

11-12 Apr 2005

5 years

TFC-I

8 years

TFC-I

04-05 May 05
30-31 May
2005

5 years

TFC-II
TFC-III

29-31 Oct 2005

24-25 Nov 2005

8 years
8 years

TFC-I

10-11 July 2006

5 years

8.29%
6 months KIBOR
+ 2.5%

6 months KIBOR
13% p.a.
6months kibor +
160%
9.5% and sharing
in excess profit
6months kibor +
1.50%
0.15
6 months KIBOR
+ 2.25 %

250.00

360.00

500.00
350.00

1,200.00
2.88
325.00
3.30
2.80
437.53

10 Years

6 months
KIBOR+ 1.95%
p.a.
6 months
KIBOR+ 1.40%
p.a.
6 months
KIBOR+ 1.5%
p.a.
6 months
KIBOR+ 1.6%
p.a.
6 months
KIBOR+ 1.3%
6 Month KIBOR
+ 2.95%

3 years

14.50%

24

Bank Al Habib
Limited

TFC-II

06-07 Feb 2007

8 Years

25

Faysal Bank
Limited

TFC-I

10-12 Nov 2007

7 Years

26

Pakarab Fertilizers
Ltd.

TFC-I

27-28 Feb 2008

5 Years

27
28
29

30

WorldCall
Telecomm Ltd
Allied Bank
Limited
Askari Bank
Limited
Engro Corporation
Limited (Engro
Rupiya Certificate)

TFC-III
TFC-II
TFC-III

TFC-I

06-07 October
2008
27-28 August
2009
17-18
November 2009
October 15,
2010 - January
15, 2011

5 Years
10 Years

2.40

1.40

800.00

1,098.13
1.800
1.800

0.000

Conclusion of Corporate Bonds

Corporate bond markets are increasingly becoming an important source of Financing for the
private sector in Pakistan. Private sector financing in Pakistan, similar to rest of the emerging markets, is
dominated by banks. There are several advantages to fostering a corporate bond market to complement
the banking sector. These include improved financial stability, competition in the financial sector, more
efficient allocation of credit, and a diversified portfolio of assets.
The corporate bond market in Pakistan has seen tremendous growth since its inception in 1995.
Recently, more financial institutions have been tapping the TFC market as compared to non financial
firms. There are fewer fixed rate TFCs with an increasing number TFCs being issued at floating rates
linked to the 6 Month KIBOR. The average tenor of the TFCs has also increased over the years from
around 5 years to 7 years at present. The share of the bond market in private sector financing in Pakistan
is similar to the share of bonds markets in Asia and emerging markets. Although the TFC market is
growing, some impediments to bond market development still exist. A major impediment is a lack of
long term benchmark rates as a result of thin secondary market for sovereign bonds. Second, since the
sovereigns and TFCs are competing for the same pool of saving there is potential for crowding out.
Finally, there are some administrative Barriers to TFC market growth including high stamp duty and a
lengthy approval process the authorities can take several steps to support the corporate bond market
development. Secondary market for sovereign bonds could be promoted. Liquidity of the corporate
market could be enhanced by strengthening data dissemination of OTC corporate bond transactions,
providing a repo facility for TFCs, and allowing short selling of TFCs. Finally, steps should be taken to
make TFC issuance more cost effective by reducing stamp duty and administrative barriers.

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Primary Dealers of Bonds

Habib Bank Limited.

Jahangir Siddiqui & Company Limited

National Bank of Pakistan

Pak Oman Investment Bank.

United Bank Limited

JS Bank limited

Royal Bank of Scotland

NIB Bank limited

Bank Al-Falah Limited

Meezan Bank limited

Standard Chartered Bank

Habib Metropolitan Bank

Citi Bank

The Bank of Khyber

MCB Bank Limited

Soneri Bank limited

Askari Bank limited

Burj Bank limited

Al-barka Bank limited

Role of Credit Rating Agencies

The Pakistan Credit Rating Agency (PACRA) was established prior to the first public issue of
Term Finance Certificate (TFCs). This agency was incorporated in August 1994 by IFC in collaboration
with Fitch-IBCA Inc of UK and Lahore Stock Exchange, while the second credit rating agency DCRVIS Credit rating Co. Ltd was set up in 1997 to improve transparency in capital market
Size of Local Currency Bond Market as a % of GDP, 2015
Country

Government

Corporate

China

22.16

12.96

Hong Kong

9.17

38.85

Korea

24.77

58.26

Malaysia

39.1

54.14

Singapore

40.18

31.29

Pakistan

4.4

0.90

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Total Size of Local Currency Bond Market, 2015

Percent Share
Country

Government

Corporate

China

Total Size (Billion

USD)
85.09

19.1

80.9

Hong Kong

633.03

63.6

36.4

Korea

637.86

29.8

70.2

Malaysia

121.79

41.9

58.1

Singapore

83.43

56.2

43.8

Pakistan

6.528

82.87

17.13

Size of Local Currency Bond Market 2015

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