KARACHI: Bank Alfalah Limited (BAFL) plans to issue a Medium Term Note (MTN) programme up to Rs50 billion in multiple tranches with each instrument having a maturity of 3 years or more, to meet its financing needs, a statement said on Wednesday.
The bank said it intended to do it by way of a combination of Pre-IPO (Initial Public Offering) placement and IPO through the Pakistan Stock Exchange (PSX).
“The instruments will be in the form of rated, secured, listed, redeemable, and, fixed-rate TFCs (term finance certificates),” BAFL said in its statement.
It added that the instruments would be secured against the government securities.
“The primary purpose of the issue is to hedge the bank’s fixed rate assets, according to the notice,” the statement said. As of 2019, 11 percent of BAFL’s interest rate sensitive assets had a maturity of about 3 years or more.
Analysts flag the move as “extremely beneficial” for the bank as it may enable the bank to fund high-yield fixed rate assets via lower rate funds (possibly till maturity) and at the same time reduce the volatility in net interest margins owing to the lag between re-pricing of assets and liabilities during interest rate cycles.
“We expect the first tranche to be issued during 4QCY20 or 1QCY21, given the time required for approvals and circulation of prospectus etc,” said an analyst at Taurus Securities Limited in a research note to clients. “As of the first quarter of 2020, BAFL has outstanding subordinated debt amounting to Rs11.99 billion; of which TFCs having an issue amount of Rs5 billion are expected to mature in February 2021.”
“The remaining TFCs have an issue amount of Rs7 billion and are perpetual in nature. Both the instruments are eligible capital instruments,” the analyst added.