Gong struck for Pakistan’s first hybrid financial instrument

Treet Corporation’s term certificates commence trading on all three major stock exchanges.

KARACHI:

It was an odd sight. A few middle-aged men dressed in bland suits huddled up close to each other on the trading floor of the Karachi Stock Exchange (KSE) just before 9:30 am on Thursday around a huge gong fitted in a square wooden frame.

With an unusually large hammer in his hand, Habib Asset Management CEO Imran Azim struck a perfect pose for photographers for a minute or so before sounding the gong three times with all the power he could muster.

Azim, who also serves on the board of directors of Treet Corporation, led the gong-beating drill to formally commence trading and listing of the Participation Term Certificates (PTC) issued by Treet Corporation.

According to Muhammad Farid Alam, CEO of AKD Securities, which serves as financial adviser in this deal, the PTC is a hybrid financial instrument that combines qualities of debt and equity. Speaking to The Express Tribune, he said it was the first time that this financial instrument was being issued in Pakistan, although it existed in many economies of the world.

PTCs are being initially offered to all the existing shareholders of Treet Corporation through renounceable offer letters (ROLs), which are tradable at the three stock exchanges of Pakistan. Investors, including individuals, institutions, funds and corporations, can purchase ROLs from the open market as well as from shareholders of the company.

With a tenor of seven years, a little over 41.8 million PTCs have been issued in the ratio of one PTC against one ordinary share held on the date of entitlement. As each certificate is valued at Rs30, the total size of the issue is estimated to be Rs1.2 billion. According to company officials, the proceeds of the issue will be utilised to repay the existing bank borrowings to the extent of Rs1.2 billion.

Speaking on the trading floor, financial advisers and company officials acknowledged that the Securities and Exchange Commission of Pakistan had shown some reluctance before approving the issue, circulation and publication of the Treet Corporation PTC prospectus.

Alam said PTCs offered a regularity of income, as in the case of debt, in addition to growth, as in the case of equity. “This product is going to stand out tall. I hope other companies will follow suit and issue their PTCs,” he said.

The objective of the issue, according to AKD Securities, was the gradual elimination of financial risk by repayment of debt along with broad-based equity ownership and a simultaneous increase in the free-float of the company’s shares. The issue is expected to increase the company’s share tradability and hence liquidity of shares, Alam said.

Published in The Express Tribune, October 12^th, 2012.