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Term Finance Certificates

We recommend that the retiree should invest Rs. 100,000 in the Term Finance certificates.

TFCs are a good means of increasing the yield for the investor over the long term. They are

also beneficial since they are risk-free due to which there is a plausible justification for the

increase in the demand for TFCs over the recent years. However, the TFCs are an uncommon

mode of investment due to which the terms of the certificate must be carefully looked over. It

is recommended that our retiree should invest in a corporate term finance certificate.

The Term Finance Certificates for Pak Libya Holding Corporation have been recommended.

Pak Libya Holding Company has emerged as a joint venture between Pakistan and Libya

which was established in 1978. The company operates in energy, chemical, construction and

textile sector. It has a strong financial position in the country and has issues its latest Term

Finance Certificates on February, 2011. As per the annual report 2011, the issue is secured by

fixed charge of hypothecation on all present and future loans and lease receivables of the

Company ranking pari passu with prior charges. The issue is rated and carries a mark-up of

six months KIBOR plus 1.6% per annum payable on a semi-annual basis. The retiree can

invest in the TFCs with the maturity of 6 years starting now (2012). The maturity will be

reached on February, 2016.

Weightage: 20%

Risk Involved:

The risk is minimal as it is pegged against the KIBOR. The issue has a mark-up of six months

KIBOR plus 1.6% per annum. Hence, the market risk is evaded. The ratings of double A

denote a very low expectation of credit risk and there is a very high likelihood of timely

payments.

Return:

As per the data available on Business Recorder, the TFCs are priced at PKR 99.643 currently

which means that the following returns are expected from the invested volume:

100000/99.643

1003 * 0.4 = PKR 401 capital gain in February 2016.

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Why TFCs of Pak Libya Holding Company?

As the return of the TFCs is pegged with the KIBOR, there is minimal risk involvedin the investment. The rate is variable and moves with KIBOR which saves the retiree

from the interest rate risk of market.

Furthermore, the investment generates fixed returns on a semi-annual basis. Inaddition to that, the principal is guaranteed at the time of maturity.

Pak Libya Holding Company has a good rating for the privately placed secured TFCsas per Pakistan Credit Rating Agency (PACRA) and is rated AA which symbolizes a

good financial position. Hence, there is minimum chance of default. The double A

rating is held by the company for a long time and is the highest in the sector.

Furthermore, the company is the first ISO certified in financial sector of Pakistan for

the provision of quality services.

The company has entered into a joint mandate with the National Bank of Pakistan andPak-Oman Investment Company (Pvt) in order to float the underwritten TFCs worth

PKR 750 million.