Karachi September 26 2024: State Bank of Pakistan will conduct auctions for the buyback of MTBs on behalf of the Government of Pakistan.
Buyback & Exchange of government securities is an important contemporary tool of a country’s debt management strategy and especially has gained more attention in the prevailing economic challenging conditions to achieve pro-active debt management targets.
Pakistan paid PKR 7.2 trillion in debt repayments during last fiscal year which eats 78 percent of Federal government tax revenue.
Utilization of surplus cash, removal of illiquid and expensive debt securities (off the run issues) to direct market liquidity into newer issuances (on the run issues) for improvement in system liquidity, for fiscal account management of ongoing financial year through reprofiling of debt maturities can be helpful to lower interest expense.
By repurchasing its own outstanding securities from the market before they mature, the government aims to reduce its liabilities and strengthens its fiscal position. The process involves using either government funds to buyback these bonds/securities (which stands retired) and transpires to decrease the overall outstanding debt (simple Buyback strategy), or, exchange the securities of specific maturity with another security of a different maturity (Buyback & Exchange strategy) to manage cash positions and address refinancing or rollover risks, by creation of maturity pockets at longer-end of the debt profile.
SBP has prescribed number of procedural changes for execution of buyback transactions in instruction issued to the Presidents/Chief Executive Officers of all Banks/DFIs/NBFIs.
The Central Bank will announce the details such as security, target amount, auction schedule etc., and auction result for the buyback of MTBs on Refinitiv, Bloomberg, SBPK pages and on SBP website.
The buyback price of the security will be determined through multiple-price competitive auction process.
All Primary Dealers will be eligible to submit competitive bids in the auctions. Non-competitive bids can also be submitted as per existing instructions.
Eligible participants will submit the following details in the auction bidding on Bloomberg Auction Module (AUPD) within the stipulated time with Bid price (per Rs.100 of face value) for the buyback up to four decimal places and amount (face value) of the securities.
On settlement date, the bought back securities will be debited from the SGLA of successful bidders while their current accounts will be credited with the accepted price.
