| DMMD Circular
No. 23 of 2020
|| October 16, 2020
The Presidents/Chief Executive Officers
All Banks/Primary Dealers
Floating Rate Pakistan Investment Bonds
Government of Pakistan (GOP) vide their Notification dated the October 14, 2020 (copy enclosed) is pleased to make amendment in the Pakistan Investment Bonds Rules, 2000. In this context, the instructions regarding Floating Rate Pakistan Investment Bonds (PFL) issued by State Bank of Pakistan vide DMMD Circular No. 09 of 2018, DMMD Circular No. 16 of 2019 and DMMD Circular No. 22 of 2019 are being amended and consolidated as under:-
Coupon Payment Frequency:
- Only Primary Dealers (PDs) of government securities (MTBs & PIBs) will be eligible to participate in the competitive auctions and submit Non-Competitive Bids (NCBs) on behalf of eligible investors.
Floating Rate Pakistan Investment Bonds (PFLs) may be offered as (i) Quarterly coupon paying bonds; (ii) Semi-annual coupon paying bonds; and/or (iii) monthly coupon paying bonds, as decided by the Finance Division.
Determination of Floating Rate Coupon:
- Currently, GOP is planning to issue PFLs with quarterly and semi-annual coupon payment frequency. The details of coupon determination, payment and resetting of quarterly and semi-annual coupon paying bonds are provided below.
- For Quarterly Coupon Paying Bonds:
- The coupon rate shall be equal to the weighted average yield of the 3-month Market Treasury Bills (MTBs) as determined in the latest 3-month MTB auction held prior to the floating rate PIB’s auction or resetting of coupon.
- The coupon will be paid quarterly.
- The coupon may be reset either on quarterly basis, or on the day of settlement of each auction of 3-month MTBs during the life of the bond (i.e. fortnightly), as may be announced by the State Bank of Pakistan through the auction calendar.
- In case the auction of 3-month MTBs applicable for initial coupon determination or resetting thereafter is either rejected or there is no participation from the market, the average of 3-month (i.e. 61 – 90 days) PKRV applicable for last five working days prior to the PFL auction or the day on which coupon is due to be reset, as the case may be, will be used as an alternate coupon rate.
- For Semi-annual Coupon Paying Bonds:
- The coupon rate shall be equal to the weighted average yield of the 6-month Market Treasury Bills (MTBs) as determined in the latest successful 6-month MTB auction held prior to the floating rate PIB’s auction and/or the start of the coupon period.
- In case, the latest held auction of 6-month MTBs is either rejected or there is no participation from the market, the average of 6-month (i.e. 121- 180 days) PKRV applicable for last five working days prior to the PFL auction or before the start of the coupon period will be used as an alternate coupon rate.
- The coupon shall be paid and reset semi-annually, according to the procedure explained above.
- Separate instructions will be issued for coupon determination, payment and resetting of monthly coupon paying bonds when the Finance Division decides to issue such bonds.
D. Participation in Competitive Auction:
E. Re-opening Auction Mechanism of Floating Rate PIBs:
- The Floating Rate PIBs will be issued through multiple price competitive bidding auction process conducted by State Bank of Pakistan.
- Primary Dealers will be required to place competitive bids in terms of price (up to four decimal points). Minimum bid size will be PKR 100,000 and in multiples thereof. Primary Dealers will be free to place multiple bids.
- Auction will be conducted using Bloomberg online module. In case there is internet connectivity or any other technical issue, PD may submit bids manually as per format attached as ‘Annexure A’.
F. General Instructions:
- Re-opening auctions of Floating Rate PIBs will be conducted as per the same rules and procedures as the first/original auctions, as stated in Para D above.
- Coupon rate on Floating Rate PIBs offered in re-opening auctions will be the same as determined in the first auction of respective issue of the bond and reset at the start of each reset period.
- The successful bidders will make the settlement on the date of settlement at the amount calculated as per accepted price plus accrued interest for the number of days lapsed since the start of the coupon period on the basis of the respective coupon rate.
The above instructions will be applicable to the floating rate PIBs issued after October 16, 2020.
- The bids may be accepted either in full or on pro-rata volume basis as per DMMD Circular no. 6 of 2018. The participation in the auction through NCBs will also be as per the procedure described in the same circular.
- All other rules and regulations applicable to PIBs with fixed rate coupon shall also be applicable on floating rate PIBs (e.g. SLR eligibility, securities classification and use of securities for liquidity management).
- Bids can be rejected without assigning any reason thereof.
- ‘Actual/Actual’ day count convention shall be used for computation of profit for both (i) Quarterly coupon paying bonds, and (ii) Semi-annual coupon paying bonds.
GOP Notification – Amendment in PIB Rules
Annexure A – Format for Manual Bid Submission
Additional Director, DMMD
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