Circulars/Notifications - Exchange Policy Department  
 FE Circular No. 04 of 2021

May 26, 2021

The Presidents/Chief Executives of
All Authorized Dealers in Foreign Exchange

Dear Sir/Madam,

Raising of Convertible Debt from Abroad by Startup Companies

      In order to facilitate the startup companies, in raising convertible debt from abroad, it has been decided to introduce a new category of loan in Chapter 19 of Foreign Exchange Manual. For this purpose, following new paras are being introduced:

7(vii). PSBA mobilized as Convertible Debt

A company may raise funds from abroad in the form of convertible debt i.e. the loan with the option to be converted into equity shares of the borrowing company, subject to following terms and conditions:

  1. The borrowing company is incorporated as a private limited/public unlisted company under the Companies Act, 2017 (erstwhile Companies Ordinance 1984) for not more than 7 years, provided that such entity is not formed by splitting up, or reconstruction of a business already in existence.

  2. The borrowing company has annual revenue below PKR 2 billion since its incorporation.

  3. The borrowing company has equity (including retained earnings) below PKR 300 million as per latest audited financials.

  4. The requirement of long-term credit rating (as defined at para 7(i)(a)) shall not be applicable.

  5. In addition to the eligible lenders (as defined at para 7(i)(b)), funds can be raised from all those investors which are eligible for issuance of shares in terms of Para 6 of Chapter 20 of Foreign Exchange Manual.

  6. The maturity of such loans shall range from one (1) year to five (5) years. The loans may be rolled-over subject to the condition that its total tenor will not exceed 5 years, in any case.

  7. The all-in-cost ceiling is given as under:

    Maturity Period

    Borrowing Cost Ceiling excluding relevant benchmark rate

     One (01) Year to three (03) Years

    250 bps

     Above three (03) Years, up to five (05) Years

    350 bps

    The borrowing cost ceiling includes spread over relevant benchmark rate, loan related insurance premium, and other loan related fees payable in foreign currency; except the commitment fee, cost & expenses and fees payable in local currency.

  8. The funds borrowed under this category can be credited in a foreign currency account opened and maintained in terms of Para 9(ii), Chapter 6 of the Foreign Exchange Manual.

  9. The outstanding loan amount, including accrued profit/mark-up, can be converted in to equity of the borrowing company on or before the maturity of the loan. The borrowing company may issue shares in favor of lender, in accordance with para 6 and 7 of Chapter 20 of Foreign Exchange Manual. However, the shares cannot be issued below the latest break-up value as determined by the external auditors included in the State Bank’s approved list of Auditors.

  10. The rupee liability of the loan (including accrued profit/mark-up) shall be determined by converting the FCY loan amount, outstanding as per last month-end or quarter-end (in case where last month-end figures are not available) financial statement, in to PKR by using the prevalent mark-to-market exchange rate (mid-rate) announced by State Bank of Pakistan.

       18(xiv). PSBA mobilized as Convertible Debt

  • Documentation Requirement:
  1. The loan/credit agreement having specific clause(s) regarding conversion of loan into equity shares of the borrowing company.

  2. A list of the Directors of the borrowing company along with their National identity numbers/ passport number and certified true copies of the same.

  3. Beneficial ownership of the borrowing company.

  4. An authenticated copy of the final repayment schedule (as per Appendix V-92).
  • Other conditions:

  1. On complete disbursement of foreign currency loan, as per the underlying loan agreement, the Authorized Dealer will maintain the Proceeds Realization Certificates (PRC).

  2. The Authorized Dealer can affect the remittance of principal, interest and other fees as per repayment schedule, once the loan is registered. A copy of the Proceeds Realization Certificate (PRC), a certificate confirming the applicable benchmark rate and a certificate confirming payment of applicable taxes will be attached with the Form ‘M’ indicating LRN as remittance authority shall be maintained with Authorized Dealer at all times.

  3. In case of conversion of outstanding loan amount into equity shares of the borrowing company, the same shall be intimated to the respective authorized dealer who will intimate the changes to the Statistics & Data Warehouse Department, State Bank of Pakistan during the following month, for reporting purposes.

2.       Authorized Dealers are advised to bring the same to the notice of all their constituents for meticulous compliance.

Yours truly,


(Arshad Mehmood Bhatti)


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