IMF Loan | 50MW Energy Project | D.G Khan Expansion Plans and T-Bills auction

IMF approves $6.68bn loan for Pakistan

The  Executive  Board  of  the  International  Monetary  Fund  (IMF)  approved today a 3-year arrangement under the Extended Fund Facility (EFF) for Pakistan  in an amount equivalent  to SDR 4.393 billion (US$6.64  billion1, or 425 percent of Pakistan’s quota) to support the country’s economic reform program to promote inclusive growth. The Executive Board’s approval enables an initial disbursement by the IMF of an amount equivalent to SDR 360 million (about US$544.5 million), and the remaining amount will be evenly disbursed over the duration of the program, subject to the completion of quarterly reviews.

US ambassador signs agreement for 50MW energy project

United States Ambassador  Richard Olson, signed on Wednesday a $95 million,  ten-year  loan  on  behalf  of  the  Overseas  Private  Investment  Corporation (OPIC) to Sapphire Wind Power Company to build a 50MW wind power plant  in  Sindh. Situated  in  the  Ghoro-Keti  Bandar wind corridor  near  Jhimpir, the plant will be designed to generate 133-gigawatt hours of emissionfree  electricity  annually  using  33  General  Electric  (GE)  turbines.  OPIC  has invested in 123 projects in Pakistan since 1975. Its current Pakistan portfolio includes  14  active  projects  worth  nearly  $300  million  in  key  industries  including  energy,  health  care,  financial  services  for  small  and  medium-sized enterprises, and telecommunications.

D.G Khan Expansion Plans

The DGKC directors also approved plans of setting up a green field cement production line of up to 2.6m tonnes a year at Hub, district Lasbela, on the land already acquired. The board also noted: “On the basis of due diligence we have  decided  to  abandon  the  idea  of  establishing  a  plant  in  Mozam-bique  due  to  lack  of  major  infrastructure  required  to  set  up  a  cement plant.”  Although  several cement manufacturers admitted  that  the  plans of D.G.  Khan  to  go  ahead  with  its  expansion  could  widen  the  rift  among cement producers, no one thought that a price war among producers was imminent.

T-bills auction: banks reluctant to invest

Banks are reluctant to invest in the long-term government securities mainly  due  to  expected  hike  in  the  key  policy  rate.  A  very  thin  participation was witnessed  in  the  auction  of  the  Market  Treasury  Bills  held  on Wednesday and not a single bid was received for the sale of 6-month and 12-month T-bills as banks are expecting some increase in discount rate in the upcoming monetary  policy  to  be  announced  on  September  14, 2013. The State  Bank of Pakistan (SBP) on Wednesday conducted auction of Market Treasury Bills (MTBs) and received bids only for 3-month T-bills, while not a single bid was received  for  6-month  and  12-month  bills.  As  per expectations  high  participation  was witnessed in the 3-month MTBs and bids worth Rs  87.925 billion (realized amount) were received. The  cut-off yield  for  the  three  months  T-bills  continues  to  stay  unchanged  at  8.9583 percent  with  accepted  amount of  Rs  82.145  billion. As per auction calendar a target of Rs 250 billion was set for the 5th auction of MTBs, however against the target only Rs 82.145 billion was borrowed. Overall target for this quarter was Rs 1.6 trillion, while so far government has borrowed Rs 781 billion through five auctions in first quarter of FY14. Economists said the realized amount remained far below the targeted amount as the SBP seems unwilling to increase cut-off yield significantly.

Karachi Stock Exchange: Weekly Review and Analysis

KSE-100 Index witnessed a significant decline of 2.44%WoW to close at 22,161 points. The market witnessed high selling pressure early in the week as Western powers trumped up the rhetoric for military action in Syria leading oil prices to shoot up and putting regional equity markets under pressure as well. In this regard, panic selling pushed up average daily traded volumes in the market by 3.87%WoW to 204mn shares. Some confidence returned to the equity markets worldwide towards the end of the week as Britain backed out of a possible strike on Syria. Other major news flows affecting market sentiment included i) increase in gas tariffs for CPPs by 17.4% to PkR573/mmbtu, ii) resignation of LUCK from APCMA, iii) reported agreement with IMF over delay in increase of discount rate and iv) a delay in the announcement of the MPS by the SBP to Sep 13’13. Top gainers this week within the AKD Universe were KAPCO (+5.8%),  UBL (+5.2%), ENGRO (+3.1%), HUBC (+2.7%) and OGDC (+2.3%). On the flipside, declining scrips included DAWH (-11.9%), PSO (-11.0%), NCL (-10.7%), PTC (-9.0%) and MCB (-8.2%). Trading activity was led by BOP, FCCL, MLCF, JSCL, and NBP.

Outlook:

Cement sector is likely to remain in the limelight next week where we expect cement producers with CPPs like LUCK and DGKC to outperform the sector. IMF board meeting on Sep 04’13 to approve the bailout package for Pakistan is likely to alleviate pressure on the foreign exchange rate. On the economic front, key release for the week would be the Aug’13 CPI where estimate inflation to come in at 8.7%YoY/1.3%MoM.

Cements: Concrete basis for bottom fishing, ( Aug 30, 2013)

Cement sector stocks came under heavy selling pressure yesterday (3.9% decline on average) as investors reacted sharply to rumors of a possible derailment in industry pricing. By way of background, cement producers without CPPs are at a relative disad-vantage resulting in their push for an increase  in cement prices so as to pass on the recent increase in electricity tariffs. In this regard, while LUCK has tendered its resigna-tion from the APCMA in opposition to any  immediate price hike, our discussion with industry experts suggests that the current pricing consensus as well as production quo-tas will prevail which should allow cement sector stocks to register a swift rebound. Furthermore, price increases may occur beyond the next month or so, dovetailing with anticipated improved demand dynamics. The larger, more efficient players, particularly those with CPPs will likely be clear winners. While our investment case for LUCK is under review, DGKC (FY14F P/E: 5.3x) offers an upside of 39% to our TP of PkR108/share. Buy!                  

Jul'13 Fertilizer offtake update, ( Aug 28, 2013)

According to official statistics released by the National Fertilizer Development Centre (NFDC), urea offtake for 7MCY13 has clocked in at 3.17mn tons, flat as compared to last year, while DAP offtake during the same period has increased by 36%YoY to 504k tons. Among major players, urea offtake of  ENGRO posted significant growth of 59%YoY to 740k tons during 7MCY13 while offtake of imported urea declined by 37%YoY. DAP offtake of FFBL stood at 297k tons during 7MCY13, a robust growth of 86%YoY while CAN and NP offtakes of FATIMA were also up by 29%YoY and 43%YoY, respectively. In Jul'13, sequential offtakes across the industry faced a decline while urea off-take for ENGRO stood out with a growth of 75%YoY due to increased gas supply. Go-ing forward, likely strong 2HCY13 results on the back of higher demand should keep interest alive in the sector while subdued gas supply risk to ENGRO and higher DAP primary margins for FFBL should result in robust bottomline growth for these compa-nies. Moreover, the government has held back its decision to increase gas tariffs for the industry likely due to crop supply concerns from the recent flash floods, which should also pacify uncertainty as to the ability of local players to pass on a substantial cost hike. At current levels, ENGRO and FFBL remain our top picks in the sector with re-spective TPs of PkR199/share and PkR53/share.

CPI Preview Aug’13 and discount rate outlook, ( Aug 27, 2013)

Within the backdrop of the postponement of the MPS announcement to Sep 13'13, os-tensibly to await fresh inflation data, we expect upcoming Aug'13 CPI to register at 8.7%YoY/1.3%MoM. This will make 2MFY14 CPI average 8.5%YoY, implying a posi-tive real interest rate of 0.5%. Uptick in inflationary pressures is expected on the back of 1) increased food and fuel prices and 2)  macro slippages with a weaker PkR and currency printing. In this regard, we expect 1QFY14 CPI to broadly average 8.5%YoY and come close to double digits in 2QFY14. Provided the PkR/US$ parity does not ex-hibit excessive weakness, we believe the  SBP may find reason to keep interest rates on hold in Sep'13. That said, the monetary tightening cycle may not be delayed beyond Nov'13 where we see interest rates settling in the early double digits for the next year or so. As a result, we continue to believe that sector allocations should now gradually begin to reflect higher weights for Banks and E&Ps, two key sectors that are poised for a strong rebound in earnings growth next year. We also maintain a preference for Chemicals and selected Cements.     

Banks: Big-5 1HCY13 Review & Outlook, ( Aug 26, 2013)

Most banking sector results are out with the Big-5 banks posting combined consoli-dated NPAT of PkR43.92bn in 1HCY13 vs. combined 1HCY12 NPAT of PKR48.98bn in 1HCY12, translating into a 10%YoY decline. Combined 2QCY13 NPAT of PkR21.67bn is lower by just 3%QoQ despite tighter regulations on savings a/c coming into play. Key takeaways of reported 1HCY13 earnings include 1) 7%YoY decline in Net Interest In-come, 2) 16%YoY increase in total provisions, 3) 8%YoY growth in non-interest income and 4) 8%YoY increase in non-interest expenses. On reported earnings basis, MCB (NPAT +7%YoY) was the key outperformer while NBP (NPAT -30%YoY) was the standout laggard. That said, results were mostly inline with our expectations with NBP being the only below-line posting and that too due to subjective provisions pertaining to Bangladesh operations. Going forward, we continue to believe that interest rates will average higher in CY14F. As a result, with asset quality seemingly under control, we tentatively eye Big-5 earnings growth of an impressive 15%YoY+ in CY14F where we prefer BAFL, UBL and ABL.

Karachi Stock Exchange: Today's Morning News

No default in next 3 years, says Dar

Federal  Finance  Minister  Ishaq  Dar  said  on  Thursday  that  the government was making its best efforts to stabilize the exchange rate regime, and asked banks  and  exchange  companies  to  help  strengthen  the  local currency  as well  as  the  economy. While  the  minister  appreciated  exchange companies role to reduce dollar price gap between the open market and inter bank, he did not offer any details to stop steep fall of local currency in the inter bank market. He was hopeful that loans from IMF would remove any fear of default that would ultimately help local currency to get strength. The finance minister reportedly asked foreign banks for dollar-based loans and offered a lucrative rate of LIBOR plus 5pc per annum.

NAB directs Ogra chief to recover Rs13b from SNGPL

The  National  Accountability  Bureau  (NAB)  has  directed  the  incumbent OGRA Chairman Saeed Ahmed Khan through a notice under section 18(d) & 33  (c)  of  National  Accountability  Ordinance  (NAO)  1999,  to  recover  an amount of Rs 13 billion of public money from the Sui Northern Gas Pipelines Limited (SNGPL). The NAB also directed him to provide certified copies of all the  decisions  of  the  competent  authority  who  appointed him  as Chairman OGRA.  The  NAB  noticed  that  despite  the  vacation  of  stay  orders  from the Lahore High Court (LHC) the OGRA has failed to recover the Rs 13 billion of public money from the SNGPL, even after the lapse of seven months passed the  orders of  LHC.  The  investigation  bureau  directed  the incumbent Chairman OGRA to recover the said amount through issuance of revised notifications within two working days.

NBP, UBank sign MoU

Retirees can now draw their pensions from 10,000 outlets of Ufone and ordinary  citizens  can  even  pay  income  tax  from  their  mobile  phones after U Microfinance  Bank  Limited  (UBank)  and  National  Bank  of Pakistan (NBP) signed  an  agreement  which  aims  “to  change  the  way people  will perform banking transactions”. A memorandum of understanding (MoU) was signed between NBP  and UBank on  Thursday in this regard. Under the MoU,  NBP will  provide  personal  and  corporate  solutions through branchless  banking services to its customers across the country. Punjab govt part of MoU for coal-based projects worth $5 bnA ceremony for the signing of MoUs between federal, Punjab governments, China  National Power  and  Q-Investment  Qatar  for  over  6,600  MW  coal-based projects worth more than $5 billion was held on Thursday. Under the tripartite agreement,  10  plants  of 660  megawatt  each  will  be  set  up  at Gadani. The  projects  of  3000 megawatt  will  be  completed  within  first  30 months while the remaining projects of 3600 megawatt will be executed in the next two and a half years. The chief minister said this agreement between Pakistan, Qatar and China will prove to be a milestone  in  energy  sector  and  all  out efforts  will  be  made for  the  early  completion  of  this  project  for  power generation from imported coal.

Lawrencepur Woolen and Textile Mills suspends operations

Dawood Lawrencepur Limited (DLL), the pioneers of textile composite units in Pakistan, has announced to suspend opera-tions of Lawrencepur Woolen and Textile Mills with immediate effect. DLL is one of the few woolen and worsted fabric spin-ning  and  weaving  units  in the  region. Lawrencepur woolen  and worsted fabric, the  most  prestigious  names in  French and Italian fashion industry, will now operate under licence. “Due to fall in demand and its adverse impact on the worsted fabric industry in Pakistan, the board of directors of the company has decided to suspend operations of Lawrencepur Woolen and Textile  Mills  with  immediate  effect,”  Hafsa  Shamsie, company secretary  of  DLL,  said.  “However,  the  ‘Lawrencepur’  brand will continue to operate under the licence,” she added. The decision is in line with the company’s strategic intent to focus on the  renewable  energy  business, development of  which is  vital  for  the  country’s economic  growth.  The board has  also  ap-proved a voluntary separation scheme for the management and non-management employees of Lawrencepur Woolen and Textile Mills.

Bike assemblers body calls for new auto sector policy

Pakistan’s new government should take on board all stakeholders and market players while formulating new policies related to  the  auto  sector,  the Association of Pakistan  Motorcycle  Assemblers  (APMA) said.  This  was particularly important  if  the government seriously want to generate revenues, APMA spokesman Muhammad Sabir Shaikh. APMA comprises of companies who are specifically involved in the  assembly of Chinese made motor bikes. Speaking in this context, Shaikh said that the finance minister should also look into the issues of incorrect declaration, under invoicing and smuggling. He added that if the government makes the necessary changes in the policy of the auto sector, it will earn revenues of more than Rs.1,000 crores annually. Shaikh said this amount was being wasted at the moment due to of  incorrect policies. He  went on  to say that  the  retailers  are  not  against  the  imposition  of sales tax,  but  actually  the  manufacturers,  importers,  smugglers  are against this move. In the last 10 years, there was huge evasion and under invoicing of imported parts due to non registration in sales tax regime by auto sector dealers all over Pakistan. Shaikh said all zero rated imports must be fixed at minimum five per cent customs duty. All the Input Output Ratio Certificates (IORCs), which are valid up to June 30, 2013 should not be re-validated and one customs duty on imported parts and one customs duty on CBU imports should be fixed at 25 per cent

Karachi Stock Exchange: Today's Morning News

Latif Gas Field to add 40mmcfd gas by September 10

There  will  be  an  addition  of  about  40  Million  Cubic  Feet  per  Day  (mmcfd) gas by  September 10 from Latif  Gas  Field in District Khairpur Sindh. Development  and  Production  Lease  Deed  Agreement  (DPLDA)  of  Latif  Field  was signed between OMV and other joint venture partners in October 2012 and in the first phase OMV would  add 40 mmcfd gas out of maximum capacity of the field of 100 mmcfd. Austrian Exploration and Production (E&P) Company OMV is the main operator of the Latif Gas Field at Sawan Plant in District Khairpur and holds a 33.34 percent interest in the Field. The other partners in the joint venture are Eni (33.33 percent interest) and PPL (33.33 percent interest). Development  will comprise  of drilling of  new wells and construction of a 50 kms pipeline to transport Latif gas to OMV operated Sawan gas  plant  where Latif  gas  is  processed and  thereafter  delivered to  customers.  OMV is targeting net production of 5,700 BOE per day from Latif Field in 2014.

Turkish bank to provide $300 million credit facility

Export Credit Bank of Turkey (Exim Bank) is to give $300 million credit facility to Pakistan for 2013-14 for which a formal pact will be signed during the 3-day (September 16-18) official visit of Prime Minister Nawaz Sharif to Turkey. Prime ministers of both countries will co-chair the third meeting of the High Level Co-operation Council (HLCC) to be held in Ankara on September 17,  2013. The  HLCC  mechanism  between  Pakistan  and  Turkey  was established  during  the  visit  of  Prime  Minister  Erdogan  to  Pakistan  in October 2009.  The  joint  political  declaration  signed  on  the  occasion provides  HLCC "to  oversee  and  steer  the  unique  partnership  and intensified  co-operation between  the  two  countries."  The  HLCC  has thus far met  twice - December 2010  in  Ankara  and  May  2012  in  Islamabad. During  these  meetings,  25 MoUs/agreements were signed between the two countries. The Prime Minister  would  accord  an  opportunity  to  promote Pakistan  as  an  investment destination despite a dispute between GoP and M/s Karkey Rental Power. A business  forum  with  participation  of  leading Turkish  companies  is  being planned  on  the  sidelines  of  the  visit.  An energy  forum  is  separately  being planned to be held in Istanbul on September 6 where experts from the relevant  Ministries  would  provide  a detailed  overview on  the  technical  and  financial  aspects  of  feasible  energy  projects  including  measures  concerning protection  of  investments,  security  and  special  incentive  packages  by  the GoP.

Ecnec approves Rs132bn power projects

The  Executive  Committee  of  the  National  Economic  Council  (Ecnec) approved on Wednesday 16 projects with a total estimated cost of Rs132 billion,  most of  them for  transmission of  electricity from power plants to the distribution  system.  An  Ecnec  meeting  presided  over  by  Finance  Minister Ishaq  Dar  and  attended  by  ministers  and  senior  representatives  from provincial  governments  constituted  a  committee  to ascertain  the  reasons behind  an  inordinate  delay  in  the  construction  of  the  Kachhi  Canal  that was  scheduled  to  be  completed in March this year at an estimated cost of Rs28bn. The cost has now increased to Rs60bn and the project is likely to take another  two  years.  Of  the  approved  projects, 12  relate  to  the  energy sector,  amounting  to  Rs96.48bn,  including  the Rs7.51bn 31.17MW Koto hydropower project. Three projects of Rs41.39bn were approved for Sindh, two costing Rs9.81bn for Khyber Pakhtunkhwa, seven of Rs43.6bn for Punjab along with a Rs11.8bn project for the province’s southern region and a Rs8.73bn scheme for Balochistan. A Rs22.58bn project was approved for Azad Jammu and Kashmir and one of Rs2.63bn for Islamabad.

Karachi Stock Exchange: Today's Morning News

Pakistan asks China to raise investments to $10 billion

Pakistan  has  asked  China  to  raise  the  investment  ceiling  up  to  $10  billion  from  $3  billion  through  the  EXIM  bank  and  China  Development  Bank  for  undertaking crucial projects. Islamabad also asked Beijing to treat trade corridor as linkage point among different regions such as the Central Asian Republics (CARs) and other important regions of the world. After withdrawal of US troops from Afghanistan, there will be a vacuum and this can only be filled  by  creating  economic  opportunities  in  the  region  to  create  jobs  and economic alternatives. In this regard economic corridor is of high potential for the people of this region .Pak-China economic corridor has bilateral links with  India,  Afghanistan  and  Iran  and  would  bolster  the  development  in South Asia, Central Asia and Middle East. Gwadar offers strategic opportunities not only to Pakistan and China but also to the rest of the world. We are keen to have Chinese investment in energy and infrastructure. We are already working with Chinese companies in Gaddani coastal energy park and in solar energy projects. He  said  that  main  challenge  is  to  make  translate the  vision  of  the  present  leadership  of  Pakistan  and  China  into  reality  as early as possible relations are.

Consumers to remain deprived of relief in gas price

Since the Lahore High Court (LHC) had suspended a decision of Oil and Gas Regulatory Authority (OGRA) pertaining reduction in gas tariff by 45/mmbtu so  the  over  burdened  consumers  would  remain  deprived  of  relief  in  gas price.  the  over  burdened  gas  consumers  already  bearing  high  tariff  have been  deprived  of  a  sigh  of  relief  once  again  only  because  of  strategy  of SNGPL.  Earlier,  the  OGRA  had  rejected  the  request  of  Sui  Northern  Gas Pipeline Limited (SNGPL) on June 1 regarding charging the consumers with 7 per  cent  on  account  of  Unaccounted  for  Gas  (UfG)  and  also  approved  decrease in gas tariff by Rs45/mmbtu. The matter of fleecing the gas consumers  with  7per  cent  of  UfG  was  continuing  since  2011  between  OGRA  and SNGPL, as the former did not allow the later to charge the consumers with said rate of stolen gas. However, the LHC had given decision in the favor of public during February 2013. But, SNGPL, in its plea to the LHC, had raised a point  to  get  OGRA’s  decision  suspended  that  two  members  of  regulatory authority  (OGRA)  are  inactive,  while  both  chairman  and  vice  chairman  of OGRA  are  not  authorized  to  approve  Rs45/mmbtu  reduction  in  the  gas price.  So,  the  honorable  court  should  suspend  the  order  of  the  authority. Interestingly,  SNGPL  had  accepted  the  gas  tariff  of  previous  financial  year (2012-13),  which  was  also  approved  by  both  chairman  and  vice  chairman OGRA.

Debt servicing eats up Rs900 billion in FY13

Debt  servicing  of  domestic  and  external  liabilities  has  become  the  single largest component of the country’s expenditures, as it consumed Rs990 billion during the last financial year ended on June 30.  According  to  Fiscal  Operation  2012-13  released  by  the  Finance  Division  on  Tuesday,  the  debt  servicing  outpaced  de-fence, as well as development expenditures, indicating that the debt servicing will again become a major challenge for the struggling economy of the country on the same pattern of 90s when a major chunk of resources was consumed by debt servicing, leaving no fiscal space to look after areas of the much-needed area of development. According to official figures, the expenditure on defense and federal development stood at Rs. 540 billion and Rs. 348 billion, respectively. A joint calculation of both defense and federal development budgets showed that these heads consumed Rs. 888 billion, while debt serving alone had eaten away Rs. 992 billion. Pakistan’s  budget revolves around three Ds, including debt  servicing, defense and  development,  as  the  debt  servicing  has  been  again  surfaced  the  single  largest  head  of  expenditure  component.  The  country’s budget  deficit  stood  at  eight  percent  of  GDP  with  the  total  revenues  of  Rs. 2,982  billion  against  the  total  expenditures  of Rs. 4,816 billion, resulting in a financing gap of Rs. 1,833 billion in the last financial year. Although, the budget deficit of eight percent of GDP is lower than the expectation of 8.8 percent of GDP, as the government managed savings of 0.8 percent of GDP, and the provinces posted 0.2 percent revenue surplus.

SBP governor for developing Islamic microfinance

State Bank of Pakistan Governor Yaseen Anwar has stressed upon the Islamic finance industry to make individual as well as collaborative efforts to develop Islamic microfinance in the country. Addressing opening session of the Islamic Finance News Pakistan Road show on Islamic Banking held at the State Bank of Pakistan, Karachi on Tuesday, he said Islamic microfinance, a confluence of two industries; Islamic finance and microfinance, can not only be an efficient tool for financial inclusion by catering to both voluntary and involuntary financially excluded but also towards poverty reduction due to its inherent characteristic of being prudent and asset based. He said that financial inclusion is one of the key strategic objectives of SBP and emphasized the industry to develop capacity to tap strategically important sectors of agriculture and SMEs and create value for shareholders, depositors, and the country’s economy as a whole. He assured SBP will provide every support and facilitation to the industry in efforts to build and expand its portfolio in these sectors.