Please
refer to the captioned Scheme circulated vide BPD Circular
No. 14 dated 18th May, 2004 along with other instructions
issued from time to time.
2.
Pursuant to issuance of our SMED Circular No.15 dated 14th
July, 2006 and SMED Circular No. 19 dated 4th September,
2006 on the captioned subject, some of the stakeholders
have raised certain issues requiring our clarifications.
In order to ensure smooth operations of the Scheme and to
facilitate the transition of debt equity swap by banks/DFIs,
the issues raised by the stakeholders and our response thereto
are given hereunder for compliance by all concerned:-
| Sr.
No. |
ISSUES |
CLARIFICATIONS |
| 1. |
Are
debt swap facilities available to entire chain of
Spinning Sector? |
No.
Debt swap is not admissible to spinning sector. Only
six processes allowed earlier for financing under
the LTF-EOP are eligible for debt swap subject to
conditions attached to it. |
| 2. |
Are
machines used in production of “ethanol”
a by-product of sugar mills eligible for debt swap? |
No.
Debt swap has been restricted to only value added
textile sector excluding spinning sector including
Twisting, Doubling, Combing, Slubbing, Lycra &
Yarn Dyeing. |
| 3. |
Can
existing privately or publicly placed TFCs be swapped
under the Scheme? |
No.
|
| 4. |
Whether
facilities can be extended to the borrowers who had
availed funds from NBFCs under leasing or modaraba
arrangements? |
No.
The Scheme is administered through Banks/DFI only
and NBFCs are not intended to be included for swap
of loans allowed by NBFCs. However, where the financing
facility has been provided by the banks/DFIs using
leasing/modaraba as a mode of financing, the same
is eligible for debt swap under LTF-EOP. |
| 5. |
Can
swapping of loans, provided under Islamic modes of
financing like Ijarah, be accommodated under the swap
arrangements? |
At
present no accommodation can be allowed as the LTF-EOP
Scheme operates on service charge basis and is not
Shariah compliant. Islamic Banks are in the process
of developing Shariah compliant mode for availing
the facility from SBP. Once an acceptable product
is established by them and approved by SBP, Islamic
banks may be allowed to avail debt swap, as well. |
| 6. |
Can
spinning mills (as also dying units) avail the facility
for financing generators under the Scheme? |
Yes.
Financing of generators shall be open to all industries
(including spinning sector of the Textile Sector)
with the condition that 50% of their output is being
exported and also that the capacity of generator shall
not be in excess of their in-house energy requirements
for the manufacturing of their products. In case of
excess generation capacity, only the proportionate
financing up to the manufacturing requirements of
the unit will be eligible.
|
| 7. |
Who
will swap the debt, the bank/DFI having already financed
the loan on commercial basis or the other bank/DFI? |
The
debt shall be swapped by the bank/DFI that initially
financed the loan on commercial basis in line with
its own lending policy / decision if it is also an
approved PFI. Banks/DFIs which are not approved PFIs
may approach SME & MF Department, SBP for their
assessment / approval as a PFI.
|
| 8. |
Should
tenor of the balance amount of loans swapped be extended
to 7 ½ years including a grace period?
|
No.
Original repayment schedule has to be adhered to.
|
| 9. |
Can
a transition moratorium be allowed from July 1, 2006
onwards till conversion of loans to avoid default?
Any mechanism be devised to protect the interests
of borrowers till conversion/timely conversion. |
No.
There is no need for a moratorium as loans classified
as NPLs are not eligible for debt swap.
|
| 10. |
Classify
cost of building and import cost of machinery as eligible
for refinancing under LTF-EOP scheme. Similarly, demand
finance loans for construction of building & installation
should be included under the scheme. |
The
Scheme is only available for financing the C &
F cost of the imported machinery. |
| 11. |
Can
a consortium loan be swapped by the lead bank on behalf
of the entire consortium? |
No.
As the entire consortium bears the credit risk of
the loan, it would be unfair to allow a single bank
to make the decision of the swap. Consent of entire
consortium should be obtained to ensure the interests
of the banks as well as the borrowers. However, if
the procedure is resulting in unnecessary delays,
the borrowers should approach this Department through
lead bank. |
3.
Banks/DFIs are, therefore, advised to expeditiously process
the debt swap cases received by them and approach SBP BSC
(Bank) office concerned for obtaining refinance there-against
in compliance with our instructions, well ahead of the given
deadline. The PFIs are also advised to approach this Department
for enhancement of LTF-EOP limit, if required. Please note
that in cases where PFIs fail to avail refinance upto 31-12-2006
on account of delays in their internal approval they will
be responsible for absorbing the markup differential.
4. All other instructions on the subject shall remain unchanged.
Please
acknowledge receipt.