NIT-LoC holder banks: SBP prevents ‘forced sale’

KARACHI: The State Bank of Pakistan on Saturday gave ‘dispensation’ over the Prudential Regulation (PR)-6 to the NIT’s Letter of Comfort (LoC) holders. 
 
This was affirmed by the chairman and managing director of NIT Tariq Iqbal Khan in reply to queries by Dawn on Wednesday evening.


The SBP Regulation stipulated that banks could not hold more than 30 per cent of their capital in equity portfolio on their balance sheets. Due to the ‘dispensation’ accorded by the central bank for a year, the four LoC holder banks would be insulated against an immediate offloading of their portfolio to conform to the equity exposure limit. Such a ‘forced sale’ was likely to have brought about an enormous selling pressure in the related ‘blue chip’ shares and rock the boat of the stock market, now steering easy towards the index value of 10,000 points.

The above was a part of the solution to the full and final settlement of Rs23 billion in debts that the fund owes to the LoC holders.

The NIT chairman confirmed that a meeting of the fund was held on Wednesday with the representatives of the four major unit holders: The National Bank of Pakistan, Bank of Punjab, Faysal Bank and Bank of Khyber.

Earlier last month, the government had stepped in to find a solution to the long standing issue of LoCs, the extended date of which expired on Dec 31.

Mr Tariq Iqbal Khan said the meeting with the LoC holders had proceeded smoothly.

A few contentious matters were left for representatives to discuss with their managements and put suggestions on the table in the next round of talks, due in a couple of days.

The NIT chairman said that the government had granted approval to the proposed settlement on Dec 8; only the methodology and modalities of the agreement were to be sorted out.

The NIT chief said he would unveil the proposed scheme of arrangement next week.

Giving an outline of the proposed deal, he said the fund would exchange the LoCs with stocks in its portfolio with the four major unit holders.

“In order to park the strategic assets safely, it has been decided to transfer shares of Pakistan State Oil (PSO) and Sui Northern Gas Pipelines to the NBP in exchange for cash,” said the NIT chief.

Analysts said that the spectre of LoC holders has been haunting NIT since 2001. The government had at the time issued letters to the four banks that held substantial number of units in NIT – NBP 333 million units; Faysal Bank 150 million units and Bank of Punjab 190 million units – so as to stave off a run for redemption at a time when the trust was in dire financial straits.

In simple terms, the LoCs stood as government guarantee to the major unit holders for redemption of their unit holdings after a certain time lag, at the price prevailing on the date of such redemption.

The validity of those letters had since been extended for varying period with the mutual consent of the fund and the banks. Although poorer by Rs23 billion of its portfolio of Rs80 billion under management, NIT – the largest mutual fund in the country – would breathe easy after relieving itself of the excess baggage of LoCs, analysts said.