abs pakistan feb05

THE STUDY ON SUCCESS AND PROSPECTS OF ASSET

BACKED SECURITIZATION IN CORPORATE SECTOR

OF PAKISTAN

A thesis

Presented to the

Faculty of Management Sciences

Bahria Institute of Management and Computer Sciences, Karachi

In Partial fulfillment

Of the Requirements for the

Degree Master in Business Administration

By

NAJMUS SAQIB

FEBRUARY 07, 2005

The Study on Success and Prospects of Asset Backed Securitization in Corporate Sector of Pakistan

TABLE OF CONTENTS ABSTRACT……………………………………………………..…………………...01

CHAPTER NO.1 PROBLEM AND ITS BACKGROUND

1.1 Introduction…………………………………………………………………..03

1.1.1 Asset Backed Securitization Market in Pakistan……………………..04

1.2 Statement of the Problem…………………………………………………….05

1.3 Significance of the Study…………………………………………………….06

1.4 Scope of the Study……………………………………………………………06

1.5 Delimitations…………………..……………………………………………..07

1.6 Definitions……………………………………………………………………07

CHAPTER NO: 2 RESEARCH METHODOLOGY AND PROCEDURES

2.1 Research Design……………………………………………………………..11

2.1.1 Purpose of the Study…………………………………………………11

2.1.2 Types of the Investigation……………………………………………11

2.1.3 Study Settings………………………………………………………...11

2.1.4 Researcher’s Interference…………………………………………….11

2.1.5 Time Horizon………………………………………………………...11

2.2 Respondents of the Study…………………………………………………….11

2.3 Instruments……………………………………………………………….......12

2.4 Treatment of the Data………………………………………………………...12

2.5 Presentation Analysis………………………………………………………...12

CHAPTER NO 3: REVIEW OF LITERATURE & STUDIES

3.1 Features of Asset Backed Securitization…………………………………….14

3.1.1 Marketability…………………………..………………………………14

3.1.2 Merchantable Quality………………………………………………….15

3.1.3 Wide Distribution……………………………………………………...15

3.1.4 Homogeneity………………………………..…………………………15

3.1.5 Special Purpose Vehicle……………………………………………….16

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3.1.6 Assets that can be Securitized………………………………………….16

3.2 Mechanism of Asset Backed Securitization & its beneficiaries……………..17

3.2.1 Process of Asset Backed Securitization………………………………..17

3.2.2 Why Do Issuers Need Securitization…………………………………..18

3.2.3 Why Do Investors Invest In Asset-Backed Securities…………………19

3.2.4 Impact of Asset-Backed Securitization on Capital Market……………20

3.2.5 Motivations in Future Flow Securitization……………………….……20

3.2.6 Managing Risks In Future Flows………………………………………21

3.3 Asset Backed Securitization in Pakistan……………………………………...22

3.3.1 Setting Up……………………………………………………………...23

3.3.2 Registration Issues……………………………………………………..23

3.3.3 Operations………………………………...……………………………24

3.3.4 Prohibitions…………………………………………………………….25

3.3.5 Problems……………………………………………………………….26

3.3.6 Hurdles & Initiatives…………………………………………………..26

CHAPTER NO 4: PRESENTATION ANALYSIS

4.1 Market Overview……………………………………………………………….29

4.1.1 Paktel Limited………………………………………………………..30

4.1.2 World Call Payphones Limited………………………………………32

4.1.3 Pakistan Telecommunication Ltd…………………………………….33

4.1.4 Pakistan Industrial Leasing Corporation……………………………..36

4.1.5 Associated Constructors Limited…………………………………….38

4.1.6 Orient Petroleum Inc. – Pakistan Branch…………………………….40

4.1.7 Pakistan International Airlines……………………………………….42

4.2 Fitch Rating For Pakistani Environment for Securitization……………………42

4.3 Summary of Asset Backed Securitization in Pakistan…………………………44

CHAPTER NO 5: SUMMARY OF FINDINGS AND CONCLUSION

5.1 Summary of Findings………………………………………………………...47

5.2 Conclusion…………………………………………………………………....49 5.3 Recommendations……………………………………………………………50 REFERENCES AND BIBLIOGRAPHY………………………………………….51

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ABSTRACT This study analyzes and explores the existing status of Asset Backed Securitization in

Pakistan, its development and application in various business sectors, its importance and

significance for the corporate sector in Pakistan. It also covers the information about the

existing operational scenario for the asset backed securitization in Pakistan including the

challenges faced by corporate sectors and the future scope of the asset backed

securitization in the potential sectors of Pakistan for the economical growth. In Pakistan,

the Asset Backed Securitization involves the future flows of receivables of the

companies. The development of a viable securitization market is extremely dependent

upon the legal and regulatory framework that is in place to provide adequate protection

for investors. The development of a thriving securitization environment in Pakistan is no

exception. There is a part series that will review securitization deals in Pakistan. In this

section the regulatory framework that permits securitization to take place will be

analyzed. The mechanism of asset backed securitization has been studied, the benefits of

securitization process to the investors, companies and all other associates and the impact

of the asset backed securities on the capital markets in Pakistan. Moreover it also

discusses the risk faced by the parties in the securitization process and how these risks

can be managed. After all detailed description of the Asset Backed Securitization in

Pakistan there has been made a significant study on the various business sectors of the

country where the asset backed securitization has been implemented, their facts and

figures regarding the transaction summary; profitability and the amount of securities

have been studied. In the end there is a market overview of the asset backed

securitization in Pakistan, its future prospects in the country and the potential sectors

where the asset backed securitization can be implemented to achieve effectiveness. In the

last there is a detail of the findings of the research which answers all the questions of the

research. In findings it is encouraging to mention that there is a strong potential for the

growth of asset backed securitization in Pakistan, and the deals have been successfully

been carried out. Moreover the businesses are growing in the country, the investors’

confidence has been regained and the foreign investors are attractive to invest in Pakistan

which can be analyzed from the rising trend in the capital market indicators as the stock

exchange index crossed the KSE 100 index 7000 points. The government has tried its

level best to achieve a sustainable economic growth in the country by developing

attractive policies to the businessmen and entrepreneur.

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CHAPTER ONE

BACKGROUND OF THE SUBJECT AND

STATEMENT OF THE PROBLEM

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CHAPTER NO.1 PROBLEM AND ITS BACKGROUND 1.1 INTRODUCTION Asset securitization is one of the most significant innovations in the global capital

markets during the last fifteen years. It has substantially enhanced the efficiency of

assets and liabilities by individuals and corporations.

Standard & Poor’s, 2000

Asset-Backed Securitization is one of the most exciting areas of application of

securitization, particularly from emerging market countries. Securitization is the

conversion of receivables and cash flow generated from a collection (pool) of financial

assets such as (mortgage loans, auto loans, credit card receivables and other assets

including present or future receivables) into securities that are backed by these assets. In

other words, securitization is the “pooling of homogenous, financial, cash-flow

producing, illiquid assets and issuing claims on those assets in the form of marketable

securities.”

The idea of asset backed securitization is to create a capital market product. It results in

the creation of a "security", which is a marketable product. Asset Backed Securities

(ABS) is considered both a fixed income and a derivative instrument. Asset Backed

Securities (ABS) qualify as a fixed income instrument because they generate a coupon

income (not necessarily fixed) periodically, and qualify as a derivative, since they are a

derived instrument from a plain vanilla instrument (a straightforward financial

instrument such as a standard fixed-interest product with no sophisticated add-ons) being

the underlying pool of assets.

Asset Backed Securitization is the issuance of a debt instrument backed by a revenue

producing asset of the issuing company. Asset securitization involves producing bearer

asset-backed securities usually Term Finance Certificates in Pakistan, which can be

freely traded and which are secured by a portfolio of receivables. In order to ensure

marketability, the instrument must have general acceptability as a store of value; hence,

the security is generally either rated by credit rating agencies, or is guaranteed by an

independent guarantor. Further, to ensure liquidity, the instrument is generally prepared

in homogenous lots as if it is a case of securitization of future receivables, the assets with

the same maturity will be pooled and taken up for the asset backed securities.

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ASSET-BACKED SECURITIZATION MARKET IN PAKISTAN:

Asset-Backed Securitization (ABS) was previously governed by a bare law till 1999. The

only significant securitization transaction in Pakistan before the guidelines and rules of

Securities and Exchange Commission of Pakistan was in 1997, the securitization of net

settlement receivables by Pakistan Telecom. Pakistan Telecom in the country's overseas

telephony monopoly and net settlement receivables arise when there are inward calls into

Pakistan. Pakistan Telecom, like most of the emerging Asian countries, would normally

have such remittances as the inward calls by Pakistani residents abroad would exceed

those outward calls, leading to a net settlement receivable. 6 international carriers such as

AT&T who were expected to pay to Pakistan Telecom entered into notice-of-assignment

agreements agreeing to pay into the collection account in favor of the SPV.

Thereafter, the guidelines and rules have been designed by the Securities and Exchange

Commission of Pakistan in 1999 for the establishment of Special Purpose Vehicle (SPV)

to carry out the Asset-backed Securitization in Pakistan. Banks and Development

Financial Institutions (DFIs’) were attractive to participate in the Securitization by

having their own Special Purpose Vehicle (SPV). In this regard, State Bank of Pakistan

has received requests from a number of financial institutions desirous of performing

various roles in assets securitization transactions through special purpose vehicle. These

requests have been considered in consultation with concerned quarters and it has been

decided that banks/DFIs can participate in assets securitization through SPV. These

guidelines limit (cap) the total exposure of a bank/DFI towards securities issued by a

Special Purpose Vehicle (SPV) at 5% of its own paid up capital or 15% of the total value

of the Asset-Backed Securitization (ABS) issued by the Special Purpose Vehicle (SPV)

— which ever is less. Further, the aggregate exposure on account of Asset-Backed

Securitization is limited to 20% of the total paid up capital of the bank/DFI. This will

encourage banks/DFIs to

(a) Invest in and sell-down these Asset-Backed Securities, i.e. to churn their Asset

Backed Securities portfolio to stay within the 20% cap and to

(b) Actively trade in Asset Backed Securities to develop a secondary market, rather than

to simply purchase these Asset Backed Securities and hold them till maturity.

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Securitization has not taken off in Pakistan to any appreciable extent. Pakistani market

for securitization seems to be a curious shape: both these deals are future flows-based,

and are domestic future flows. However, three or more transactions have been executed

in various sectors i.e. Pakistan International Airlines has struck a deal with Citibank for

securitization of domestic aviation future flows, ORIX Investment Bank recently

concluded a securitization transaction from the oil & gas sector for Orient Petroleum Inc.

Trust Investment Bank Limited announced the completion of Rs100 million

securitization of lease receivables pertaining to lease portfolio of Pakistan Industrial

Leasing Corporation (which now stands merged into Trust Bank). The deal marks the

completion of first ever securitization transaction in Pakistan.

Most recently, the SECP has granted registration to Securetel-SPV Limited, a wholly

owned subsidiary of United Executors and Trustees Limited, to operate as a special

purpose vehicle under the Companies (Asset Backed Securitization) Rules, 1999.

Securetel envisages mobilization of funds for Paktel Limited -a local cellular telecom- by

issuing Term Finance Certificates with the total sum of Rs840 million.

1.2 STATEMENT OF PROBLEM This research aim is to respond and analyze the following questions and interviews have

been conducted from the companies to take information accordingly.

1. The determination of success of Asset-Backed Securitization in the Corporate

Sector of Pakistan?

2. The features of Asset-Backed Securities to make its attractiveness?

3. Why the investors are interested to invest in Asset-Backed Securities?

4. The impact of the Asset-Backed Securitization on the Asset and Liability

Management Status of the companies?

5. The impact on the liquidity and profitability of the Corporations executed the

Asset Backed Securitization transactions?

6. How the Asset-backed Securities have minimized the risk for the corporations?

7. To understand the role of banks and credit rating agencies in the Asset-backed

Securitization.

8. Impact of Asset Backed Securities on the Capital Market?

9. What are the future prospects of Asset Backed Securitization in Pakistan?

10. What are the opportunities in the current scenario?

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1.3 SIGNIFICANCE OF STUDY

The information technology and synthetic solutions have been driving the businesses of

the global economies. To deal with the various risks associated with the businesses, the

entrepreneurs have to come up with innovative solutions and asset-backed securitization

is one of them. All the companies face the sovereign risk including the political risk,

credit risk and liquidity risk. To deal with these risks and to improve the liquidity and

profitability position of the companies, they have to follow certain innovative solutions.

Asset Backed Securitization is one of the techniques adopted by the companies by

keeping in view the securitization of future flow receivables. In this way, the company

will be able to maintain its liquidity and profitability position with out compromising on

the operating and financial position of the company. It allows the development of new

instruments in the capital market which ultimately creates more investment opportunities

in the capital market. Besides this the study analyzes the opportunities where this

concept of asset backed securitization can be successfully implemented. The analysis not

only guides the present companies who have already adopted the asset backed securities

but also helpful for the potential companies.

1.4 SCOPE OF THE STUDY

The scope of this research covers the study of present and future receivables in the

corporate sector of Pakistan, its treatment through asset-backed securitization. The

corporations treat with trade receivables (present and future) by adopting various

synthetic techniques i.e. asset-backed securitization for improving their liquidity and

profitability position to remain competitive in the business environment. The study

comprises the period from 1999-2004 and reveals the facts of various companies in

public and private sectors. The sample taken for the research includes the companies:

• Pakistan Telecommunication Limited.

• Paktel Limited.

• Pakistan Industrial Leasing Corporation.

• Pakistan International Airlines.

• Associated Constructors Limited.

• Orient Petroleum Incorporation.

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To get further assistance for the research United Bank Limited for Asset Backed

Securitization in Paktel and Japan Credit Rating agency were also visited to get the

details of transaction summary.

The major limitations for the research are:

Disclosure of information termed as confidential by the companies and the bank.

Time was another limitation. Since it was not possible to study the whole banking

sector in the time span provided for this study and sampling was used.

Budget was another limitation. As there was no sponsor for this study, so the

financial constraint was also an impediment.

1.5 DELIMITATION

The basic assumptions taken for the research are:

There is one independent variable i.e. the Asset Backed Securitization process

adopted by the companies and the dependent variables are the profitability of the

companies, liquidity position of the company, availability of credits at lower cost and

development of an instrument in the capital market.

There is no political influence on the economic activities and investment

opportunities in the country.

1.6 DEFINITIONS

1. Asset Backed Securities a process whereby any SPV raises funds by issue of

Term Finance Certificates (TFCs) or any other instruments with the approval of the

Commission (SECP), for such purpose and uses such funds by making payment to the

Originator and through such process acquires the title, property or right in the receivables

or other assets in the form of actionable claims"

2. The entity that securitizes its assets is called the originator: the name signifies

the fact that the entity was responsible for originating the claims that are to be ultimately

securitized.

3. There is no distinctive name for the investors who invest their money in the

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instrument: therefore, they might simply be called investors. It may include financial

institutions, insurance companies, banks, state financial corporations, state industrial

development corporations, trustees or any asset management companies making

investment on behalf of mutual fund or provident fund or gratuity fund or pension fund

or foreign institutional investors.

4. The claims that the originator securities could either be existing claims, or

existing assets (in form of claims), or expected claims over time. In other words, the

securitized assets could be either existing receivables, or receivables to arise in future.

The latter, for the sake of distinction, is sometimes called future flows securitization, in

which case the former is a case of asset-backed securitization.

5. Since it is important for the entire exercise to be a case of transfer of receivables

by the originator, not a borrowing on the security of the receivables, there is a legal

transfer of the receivables to a separate entity. In legal parlance, transfer of receivables

is called assignment of receivables. It is also necessary to ensure that the transfer of

receivables is respected by the legal system as a genuine transfer, and not as mere

eyewash where the reality is only a mode of borrowing. In other words, the transfer of

receivables has to be a true sale of the receivables, and not merely a financing against

the security of the receivables.

6. Since securitization involves a transfer of receivables from the originator, it

would be inconvenient, to the extent of being impossible, to transfer such receivables to

the investors directly, since the receivables are as diverse as the investors themselves are.

Besides, the base of investors could keep changing as the resulting security is essentially

a marketable security. Therefore, it is necessary to bring in an intermediary that would

hold the receivables on behalf of the end investors. This entity is created solely for the

purpose of the transaction: therefore, it is called a special purpose vehicle (SPV) or a

special purpose entity (SPE) or, if such entity is a company, special purpose company

(SPC). The function of the SPV in a securitization transaction could stretch from being a

pure conduit or intermediary vehicle, to a more active role in reinvesting or reshaping the

cash flows arising from the assets transferred to it.

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Therefore, the originator transfers the assets to the SPV, which holds the assets on behalf

of the investors, and issues to the investors its own securities. Therefore, the SPV is also

called the issuer. In the Act an independent ‘Securitization Company’ or ‘Asset

Reconstruction Company’ is envisaged.

7. There is no uniform name for the securities issued by the SPV as such securities

take different forms. These securities could either represent a direct claim of the

investors on all that the SPV collects from the receivables transferred to it: in this case,

the securities are called pass through certificates or beneficial interest certificates as

they imply certificates of proportional beneficial interest in the assets held by the SPV.

Alternatively, the SPV might be re-configuring the cash flows by reinvesting it, so as to

pay to the investors on fixed dates, not matching with the dates on which the transferred

receivables are collected by the SPV. In this case, the securities held by the investors are

called pay through certificates. The securities issued by the SPV could also be named

based on their risk or other features, such as senior notes or junior notes, floating rate

notes, etc.

8. Another word commonly used in securitization exercises is bankruptcy remote

transfer. What it means is that the transfer of the assets by the originator to the SPV is

such that even if the originator were to go bankrupt, or get into other financial

difficulties, the rights of the investors on the assets held by the SPV is not affected. In

other words, the investors would continue to have a paramount interest in the assets

irrespective of the difficulties, distress or bankruptcy of the originator.

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CHAPTER TWO

RESEARCH METHODOLOGY

AND PROCEDURE

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CHAPTER NO: 2 RESEARCH METHODOLOGY AND

PROCEDURES

2.1 RESEARCH DESIGN It includes the set up of research methodology and setup of research design. The research

includes:

Purpose of the Study: The purpose of the study was descriptive in nature in which variables were described in

detail for better understanding.

Type of the Investigation: It was non-causal or co-relational research. In this study relationships were established

between independent and dependent variable.

Study Setting:

The study setting was non-contrived. It was a field study as it examined the attitudes and

perception of these strategies in their natural environment. Variables were neither

controlled nor manipulated.

Researcher’s Interference: A co-relational study was conducted in the natural environment with the researcher

interfering minimally with the normal flow of events. The extent of research interference

was minimal.

Time Horizon:

The study was cross sectional in nature.

2.2 RESPONDENT OF THE STUDY

The respondents of the study include the Financial Planning Department of the

companies selected for the study i.e. Pakistan Telecommunication Limited, Paktel,

Pakistan International Airlines, Associated Constructors Limited and Orient Petroleum

Incorporation. The bank considered to get the information is United Bank Limited for the

development of case of Asset Backed Securitization and department visited was the

treasury department. One of respondents of the study was the unit head of Corporate &

Structured Finance of Japan Credit Rating Agency (JCR-VIS).

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2.3 INSTRUMENTS The instruments include the primary and secondary sources of the data collection for the

research. Primary sources of the data collection are the formal and structural interviews

and the observations techniques. An open ended questionnaire has been designed to

investigate the related matters of the research which includes all the related questions

about the asset backed securitization process, its development, its implementation, and

its impact over the operational activities of the companies.

While the secondary sources includes the:

Audited annual reports and accounts.

Other statutory statements.

Economic publications.

Central Bank Publications.

Credit Rating Agencies Publications.

World Wide Web.

Books and other Publications.

It also includes the visit to the Institute of Bankers, Pakistan Library for the data

collection from various published notes.

2.4 TREATMENT OF DATA The analysis will be done on the basis of the data gathered by visiting the companies and

information revealed by them. The treatment will be in the descriptive form by analyzing

the results of securitization adopted in the companies in terms of the account receivable

collection, improving status of liquidity, the profitability, and other operational activities

of the companies in the figures.

2.5 PRESENTATION ANALYSIS Final presentation of the facts will be in the form of tables, figures and the statistical

charts. Various schedules will be used to show the profitability situation of the

companies, its collection of present and future receivables.

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CHAPTER THREE

REVIEW OF LITERATURE

AND STUDIES

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CHAPTER NO 3: REVIEW OF LITERATURE & STUDIES

The development of a viable securitization market is extremely dependent upon the legal

and regulatory framework that is in place to provide adequate protection for investors.

The development of a thriving securitization environment in Pakistan is no exception.

The companies, investors, banks and development financial institutions were attractive to

execute the securitization deals in Pakistan. It is therefore, various deals regarding the

present and future receivables of the companies have been executed through asset backed

securitization in various business sectors of the country i.e. leasing sector, telecom

sector, oil sector, aviation sector and construction areas. To have the better understanding

about the securitization it is necessary to discuss the features the asset backed

securitization, mechanism and process of asset backed securitization, its beneficiaries,

investors of asset backed securities and motivation for the originator of ABS:

3.1 FEATURES OF ASSET-BACKED SECURITIZATION: A securitized instrument, as compared to a direct claim on the issuer, will generally have

the following features:

3.1.1 MARKETABILITY

The very purpose of securitization is to ensure marketability to financial claims. Hence,

the instrument is structured so as to be marketable. This is one of the most important

features of a securitized instrument, and the others that follow are mostly important

only to ensure this one. The concept of marketability involves two postulates:

(a) The legal and systemic possibility of marketing the instrument;

(b) The existence of a market for the instrument.

Securitization is a fallacy unless the securitized product is marketable. The very

purpose of securitization will be defeated if the instrument is loaded on to a few

professional investors without any possibility of having a liquid market therein.

Liquidity to a securitized instrument is afforded either by introducing it into an

organized market (such as securities exchanges) or by one or more agencies acting as

market makers in it, that is, agreeing to buy and sell the instrument at either pre-

determined or market-determined prices.

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3.1.2 MERCHANTABLE QUALITY

To be market-acceptable, a securitized product has to have a merchantable quality. The

concept of merchantable quality in case of physical goods is something which is

acceptable to merchants in normal trade. When applied to financial products, it would

mean the financial commitments embodied in the instruments are secured to the

investors' satisfaction. "To the investors' satisfaction" is a relative term, and therefore,

the originator of the securitized instrument secures the instrument based on the needs

of the investors. The general rule is: the broader the base of the investors, the less is the

investors' ability to absorb the risk, and hence, the more the need to securities.

For widely distributed securitized instruments, evaluation of the quality, and its

certification by an independent expert, viz., rating is common. The rating serves for

the benefit of the lay investor, who is otherwise not expected to be in a position to

appraise the degree of risk involved.

In securitization of receivables, the concept of quality undergoes drastic change

making rating is a universal requirement for securitizations. As securitization is a case

where a claim on the debtors of the originator is being bought by the investors. Hence,

the quality of the claim of the debtors assumes significance, which at times enables to

investors to rely purely on the credit-rating of debtors (or a portfolio of debtors) and so,

make the instrument totally independent of the originators' own rating.

3.1.3 WIDE DISTRIBUTION

The basic purpose of securitization is to distribute the product. The extent of

distribution which the originator would like to achieve is based on a comparative

analysis of the costs and the benefits achieved thereby. Wider distribution leads to a

cost-benefit in the sense that the issuer is able to market the product with lower return,

and hence, lower financial cost to him. But wide investor base involves costs of

distribution and servicing. In practice, securitization issues are still difficult for retail

investors to understand. Hence, most securitizations have been privately placed with

professional investors. However, it is likely that in to come, retail investors could be

attracted into securitized products.

3.1.4 HOMOGENEITY

To serve as a marketable instrument, the instrument should be packaged as into

homogenous lots. Homogeneity, like the above features, is a function of retail

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marketing. Most securitized instruments are broken into lots affordable to the marginal

investor, and hence, the minimum denomination becomes relative to the needs of the

smallest investor. The need to break the whole lot to be securitized into several

homogenous lots makes securitization an exercise of integration and differentiation:

integration of those several assets into one lump, and then the latter's differentiation

into uniform marketable lots. This often invites the next feature: an intermediary to

achieve this process.

3.1.5 SPECIAL PURPOSE VEHICLE

In case the securitization involves any asset or claim which needs to be integrated and

differentiated, that is, unless it is a direct and unsecured claim on the issuer, the issuer

will need an intermediary agency to act as a repository of the asset or claim which is

being securitized. Let us take the easiest example of a secured debenture, in essence, a

secured loan from several investors. Here, security charge over the issuer's several

assets needs to be integrated, and thereafter broken into marketable lots. For this

purpose, the issuer will bring in an intermediary agency whose basic function is to hold

the security charge on behalf of the investors, and then issue certificates to the

investors of beneficial interest in the charge held by the intermediary. So, whereas the

charge continues to be held by the intermediary, beneficial interest therein becomes a

marketable security.

The same process is involved in securitization of receivables, where the special

purpose intermediary holds the receivables with it, and issues beneficial interest

certificates to the investors.

3.1.6 ASSETS THAT CAN BE SECURITIZED

Basically, all assets which generate a cash flow can be securitized e.g. mortgage loans,

housing loans, automobile loans, credit card receivables, trade receivables, consumer

loans, lease finance, etc. a perfectly and normal financial asset is usually securitized. A

difference is usually made between asset securitization and mortgage securitization.

Asset securitization is protected from a pool of loans and receivables while the

mortgage backed securities are protected by residential or commercial mortgage loans

however mortgage backed securities is a particular type of asset backed securities.

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3.2 MECHANISM OF ASSET-BACKED SECURITIZATION AND

ITS BENIFICIARIES:

The process of Asset Backed Securitization is summarized in the following diagram and

is described in detail:

Trustees

Assets Issue

Asset-Backed Securities

Corporate Receivables

Special Purpose Vehicle

Credit Enhancer

Service Manager

Investors

3.2.1 PROCESS OF ASSET BACKED SECURITIZATION

The process of creating asset backed securities is discussed in the following points:

1. The Company sells its products and services on credit and this becomes the trade

receivables or account receivables in the balance sheet of the company. 2. Out of these receivables, the originator pools certain receivables together on the basis

of maturity and risk structures and sells these to a securitization company known as

Special Purpose Vehicle (SPV) or Special Purpose Entity (SPE). 3. The securitization company makes payment (consideration) to the originator for the

receivables purchased. 4. These receivables are converted into a pool of securities by the securitization

company for the purpose of issuing Pass Through or Pay through Certificates (PTCs). 5. These Pay Through or Pass Through Certificates are then rated by Credit Rating

Agencies e.g. Pakistan Credit Rating Agencies (PACRA), JCR-VIS Credit Rating

Co. Ltd.

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6. The Pay Through or Pass Through Certificates are sold to individual investors or

Qualified Institutional Buyers. 7. The Collection of receivables from debtors is obtained by Company itself in case of

Pass Through Certificates and by Securitization Company in case of Pay Through

Certificates. If collection is made by the Company then it is under obligation to pass

on the money to the securitization company. 8. The securitization company then, makes payment to the investors.

3.2.2 WHY DO ISSUERS NEED SECURITIZATION?

The need for cash is to grow and expand the business. Raising equity and borrowing

through debt is difficult, expensive and can distort the financial leverage of a company.

Equity and bonds are two sources of “on-balance sheet” financing. Securitization, on the

other hand, is an “off-balance-sheet” source of funds. According to the FASB, rules

governing securitization (assuming all conditions are met) cash and proceeds from the

sale of assets are added to assets, while the transferred asset itself is taken off the balance

sheet. ABS offer increased liquidity through a broader market. Besides this the originator

of asset-backed securitization may benefit in the following manners:

• Securitization mainly results in receivables being replaced by cash thereby improving

the liquidity position.

• It removes the assets from the balance sheet of the originator, thus liberating capital

for other uses, and enabling restructuring of the balance sheet by reducing large

exposures.

• It facilitates better asset liability management by reducing market risks resulting from

interest rate mismatches. The process also enables the issuer to recycle assets more

frequently and thereby improve earning.

• Finally, transparency may be improved since securitization results in identifiable

assets in the balance sheet.

Reasons to Securitize Receivables: Probably the most common reason to securitize receivables is to efficiently raise cash.

Enhancing working capital is especially important for companies with long sales cycles

and terms of sale. Given that receivables are typically the largest single asset category on

the balance sheet, it is a natural choice for monetization. The securitization process

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generally provides companies broader access to capital at a lower all-in-cost of funds.

This is especially true for companies whose creditworthiness is weaker than their

customers. In such instances there exists a credit arbitrage. A well-structured

securitization can achieve an investment grade rating even for a selling company that is

not investment grade rated. Through standardized underwriting, robust servicing, credit

insurance and appropriate structuring, a company can intends to further broaden the

opportunities for mid-sized companies to bootstrap their access and resulting

efficiencies. Achieving balance sheet management objectives can be an additional reason

a company chooses to securitize their receivables. Sale treatment can be achieved with

the resulting opportunity to de-leverage through the use of proceeds to redeem

outstanding debt. Compliance with debt or loan covenants can be fostered through

improvements in certain balance sheet ratios and metrics, including: days sales

outstanding (DSO), “quick” ratio, return-on-assets (ROA) and debt-to-equity ratio.

3.2.3 WHY DO INVESTORS INVEST IN ASSET-BACKED SECURITIES?

These the reasons the investors prefer to invest in asset-backed securities:

• Securitization creates instruments with differing maturities, risks, coupons, which

is appealing to investors. Securitization is a structured financial instrument i.e.

tailored to the risk-return and maturity needs of investors, rather than a simple

claim against an entity or asset.

• Asset-Backed Securitization offers a yield higher than instruments with

comparable risk. This is due to the credit worthiness of the instruments (usually

AAA rated) and the credit enhancement features.

• Asset-Backed Securitization offers a predictable cash-flow. Investors buy Asset-

Backed Securities with confidence that payments will occur at specified dates in

the future.

• Asset-Backed Securities are secured by the underlying assets; therefore they offer

significant protection against downgrades by rating agencies to the issuer.

• It provides an opportunity to the investors to diversify their investment portfolio

by investing in these asset backed securities.

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3.2.4 IMPACT OF ASSET-BACKED SECURITIZATION ON CAPITAL

MARKET:

The impact of asset-backed securities on capital market can be analyzed in the following

points:

• Securitization reduces transaction costs in the capital market by creating a market

for financial claims, which otherwise, would have remained illiquid, i.e. limited

trading.

• Securitization saves intermediation costs, since the specialized intermediary costs

are service related and generally lower. Securitization promotes saving since it

offers a security to investors with guaranteed interest or payments and an

assurance of credit quality and safety nets in the form of trustees.

• Securitization leads to diversification of risk since it pools several financial assets

with differing features together and offer them to investors. When the ownership

of the asset becomes spread among a wide base of investors, it becomes diffused,

thus reducing the inherent risk in financial transactions.

• Securitization promotes the idea of capitalists being trustees of resources and not

owning them. Just as financial assets can be securitized, physical assets can also

be securitized, which means that an entity can make use of physical resources

without actually owning them.

3.2.5 MOTIVATIONS IN FUTURE FLOW SECURITISATION

An originator in a future flow securitization would look essentially at two motivations:

� Does it allow the originator to borrow more than under traditional funding

methods;

� Does it allow the originator to borrow at lesser cost than under traditional funding

methods?

There is no certain answer to either of these two questions, but the economics of any

future flow deal should be tested on the above. It is possible that a future flow

securitization may allow the originator to borrow more, since, while a typical traditional

lender looks at the assets on the balance sheet (say, receivables which have fallen due), a

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future flow investor looks at receivables which are not on the balance sheet. A future

flow transaction may even allow the originator to borrow at lesser costs.

3.2.6 MANAGING RISKS IN FUTURE FLOWS SECURITIZATION:

Developing an appropriate legal structure and managing credit risk are the two biggest

challenges in ensuring the success of an asset-backed issue. Many investors who

recognize that asset-backed securities can be a rewarding component of their portfolios

are unwilling or unable to perform the complex analysis required. They may also be

unable or unwilling to bear the credit and other risks associated with these instruments.

Fortunately, in the United States and certain other countries, the ABS market is

sufficiently well developed that the risks can be carefully identified and reallocated to

those best able to bear them. Today, the techniques for doing so are being transferred to

Asia.

Since investors rely heavily on the detailed assessments and ratings assigned by the

principal rating agencies such as Moody’s and Standard and Poor’s, early involvement of

these agencies in the risk-management process makes good sense. The rating agencies

focus on such issues as the following. Involvement of the rating agencies in the ABS

risk-management process is essential, since investors rely heavily on their assessments.

§ Credit risk

§ Liquidity risk

§ Financial guarantees

Credit risk:

It arises from the possibility that the issuer of an ABS, usually a special purpose vehicle,

may default on its liabilities. Since the SPV is normally structured to have no assets or

business other than holding the securitized assets, the principal focus is on the cash flow

from the assets themselves. The most important possibility to be considered is default by

the underlying borrowers, such as the car owners in the case of automobile loan

securitization. While a small but predictable loan loss ratio is manageable, the rating

agencies must carefully analyze the variations in default and delinquency rates and

evaluates any factors that might trigger an escalation in defaults.

Since the SPV is normally structured to have no assets or business other than holding the

securitized assets, the principal focus is on the cash flow from the assets themselves.

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Liquidity risk:

It is the possibility of a cash shortfall at times when interest or principal payments are

due. If the individual obligors behind the underlying loans are late with their payments,

cash flow to the SPV may be insufficient for it to make interest and principal payments

in full and on time to investors. The cash flow from the underlying assets to the investors

should be structured -- and, if necessary, supplemented -- in such a way that no such

shortfall will occur.

Financial Guarantee:

Many asset- backed securities are guaranteed, to remove the burden of analysis from the

investor. Rather than having to conduct a detailed analysis of a complex structure, many

investors prefer to rely on a top-rated, specialized financial institution whose only

business -- and livelihood -- depends upon maintaining its top rating through extremely

prudent credit policies. 3.3 ASSET-BACKED SECURITIZATION IN PAKISTAN:

Following the October 1999, there was a reform driven agenda causing an unprecedented

amount of regulatory and enabling legislation in Pakistan. Law making in Pakistan has

now become a more consultative and transparent process with cluster participation and

input being a key feature. However, state policy has often defeated by persistent

bottlenecks in the administrative machinery and wherever official and lower level

corruption are endemic.

In some ways ABS is not a whole new feature in Pakistan. Indeed, corporate debt issues

by leasing companies that were secured by way of assignment of specific lease rentals

had resemblance to ABS. However, these did not qualify as true ABS since the

assignment of lease receivables did not constitute a ‘true sale’ by way of an SPV.

Assigned receivables also, were not removed from the balance sheet of the issuer.

In what can best be called a piecemeal effort, THE COMPANIES (ASSET BACKED

SECURITIZATION) RULES, 1999 open up the securitization market in Pakistan

through Statutory Regulatory Order 1338(I)/99. Only eleven sections long, the Rules fail

to cover much ground in terms of detail but open up tremendous scope of ABS activity

in their interpretation. The skeletal law leaves therefore, tremendous room for expansion

and development of ABS in Pakistan where securitization provides a means of

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liquidating certain assets (normally long-term receivables) on the balance sheet of a

financial institution by issuing marketable securities against these assets. It, therefore,

represents a process whereby the balance sheet can be unlocked by freeing up capital

tied-up in long-term assets that are essentially illiquid in nature.

3.3.1 SETTING UP

Aside from government owned entities, the Rules allow any Public Limited Company

(SPC) or a Trust (SPT) to register with the Securities & Exchange Commission of

Pakistan (SECP) for the purposes of becoming an SPV.

The SPC must adhere to the comprehensive provisions of the Companies Ordinance

1984 which created by formerly Corporate Law Authority (CLA). The CLA has since

been replaced by the SECP (created under the Securities and Exchange Commission of

Pakistan Ordinance, 1997); which now continues to be a strong regulator of Equity and

Investment in Pakistan. The Ordinance governing Special Purpose Committees (SPC)

also covers matters of Winding up & Insolvency, Schemes for Amalgamation and

Disclosure. In addition to this, an SPC must have a paid up capital of at least one

hundred thousand rupees (approx. US$1666).

The Trusts Act in Pakistan dates back to 1882 and has thus developed rich case law

offering an appropriate vehicle for entities including non-profit organizations, charities

and grant foundations. The Ordinance also applies in some cases to SPTs as prescribed in

the Rules.

3.3.2 REGISTRATION ISSUES

An aspiring SPV with directors, officers or employees that have been adjudged as

insolvent, have suspended payment, compounded with creditors, have been convicted of

fraud or breach of trust or of an offence involving moral turpitude is precluded from

Registration with the SECP. The Rules do not address jurisdictional issues where the

above-mentioned offences are committed in foreign law jurisdictions, by foreign entities.

Arguably, it appears that such entities may not be barred from registration by the SECP.

The Rules give the SECP powers to bar an entity where the promoters, directors and

trustees of such person are, in the opinion of the SECP, not persons of means and

integrity and do not have special knowledge and experience of matters to be dealt with

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by a SPV. Such discretion may be founded in bad policy where necessary opinions of the

regulator may lie well against an entity for personal reasons and indeed the global

lessons of Enron might be hard learnt by such entities.

Upon application for registration by the Trust or Company, a fact finding inquiry ensues

which leads to the SECP granting a certificate of registration. In addition to the eligibility

criteria prescribed in the Rules, information relating to the Originator, Obligator, Trustee

and other related parties in the transaction along with the details of the securitization

transaction are also required upon application. The Rules place certain obligations of

periodic reporting upon the SPV and give the SECP powers to cancel the registration

if the SPV fails to make a public offering of securities within such time frame and in

such manner as may be specified by it while granting the certificate of registration. If the

SECP is satisfied that it would be in the public interest so to do, it may on its own

motion, or on the application of the investors holding not less than ten percent of the

securities issued by such SPV, by order in writing, cancel the registration. However,

the SPV has been given the right of hearing before any such order is passed within the

Rules. To rule out possible conflicts of interest, the ABS Rules also require that the

Originator and the SPV not be "connected persons" defined as any person or company

beneficially owning, directly or indirectly, ten per cent or more of the share capital of

that SPV or able to exercise directly, or indirectly, ten per cent or more of the voting

rights in that company.

3.3.3 OPERATIONS

A Trust is by far the most appropriate choice of SPV to issue Asset Backed Certificates

by process of Asset Backed Securitization which has been defined in the Rules as:

"A process whereby any SPV raises funds by issue of Term Finance Certificates

(TFCs) or any other instruments with the approval of the Commission (SECP), for

such purpose and uses such funds by making payment to the Originator and

through such process acquires the title, property or right in the receivables or other

assets in the form of actionable claims"

The Pakistan Code of Corporate Governance, notified by the SECP in the wake of

Enron’s collapse, has no applicability to SPTs although it is a mandatory requirement to

implement for all public listed companies since early this year. Any securitization

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activity in Pakistan must also be in conformity with the Islamic principles of finance and

investments which prohibit interest based lending, but encourage management of risk in

expectation of profit or mark-up.

The Rules define "future receivables" to include all such receivables against which

income may accrue or arise at a future date. An inclusionary structure therefore leaves

the playing field for ABS wide open. External credit enhancement can be obtained for

the securitization structure by means of

Pool & bond insurances (to cover any losses on the pool of assets),

Letters of credit from banks (to cover losses up to a certain amount) and

Corporate guarantees (either from a third party or from the Originator).

Advertisements, prospectuses and other invitations to the public to invest in a scheme,

including public announcements, must be submitted to the SECP for approval prior to

their issue. The approval may be varied or withdrawn but not before a hearing. SPVs

may at all times take legal recourse against the orders of the SECP.

3.3.4 PROHIBITIONS

An SPV in Pakistan is generally prohibited from:

merging with, acquiring or taking over any other company or business, unless it

has obtained the prior approval of the Commission in writing to the scheme of

such merger, acquisition or take-over;

pledging any of the assets held or beneficially owned by it except for the benefit

of the investors;

making a loan or advancing money to any person except in connection with its

normal business;

participating in a joint account with others in any transaction;

applying any part of its assets to real estate except property for its own use;

making any investment with the purpose of having the effect of vesting the

management, or control, in the Special Purpose Vehicle; and

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giving guarantees, indemnities or securities for any liability of a third party;

3.3.5 PROBLEMS

The rather hastily drafted Rules leave much to be desired in terms of emphasizing a true

sale for adequate bankruptcy remoteness and leave definitional issues mostly nebulous

and left to the better practice of industry. The Rules do not explicitly state that the assets

must be owned by a Special Purpose Vehicle (SPV), whose ownership of the sold assets

is likely to survive the bankruptcy of the Seller. Thus the conceptual understanding of a

true sale is alien to many an investor in Pakistan.

Trusts are by far the most convenient vehicle for securitization in Pakistan, although the

Rules prescribe no minimum standards for them. Being a single purpose entity, the Rules

do not provide for any voluntary deregistration mechanism or a renewable operational

timeframe for the SPV. Neither do the Rules specify any servicing or liquidity support

obligations inter se the Originator and the SPV although secure originators assigning

lease receivables in Pakistan operate with certain negotiable minimum standards for

servicing, credit enhancement and non-interest based lending. The ABS Rules are also

silent on the issue of private placement though the SECP has allowed certain strong

financial companies to make private placements for lease receivables and thereby issue

TFCs.

3.3.6 HURDLES & INITIATIVES

Securitization is at a nascent stage in Pakistan. Indeed, Income Tax and Islamic

Jurisprudence have been the most persistent retardants for growth and development of

the debt market. A lack of legal and regulatory framework coupled with tax obstacles in

the transfer of financial assets and issuance of TFCs have further impeded ABS. Given

that Pakistan’s inherent sovereign risk considerations have hindered cross – border

transactions in the past, the newly ushered government and US interests in the region

promise some stability of governance, law and order.

The income of an SPV is now exempted from tax through the Finance Ordinance 2000

and they also receive preferential withholding treatment. Although stamp duties are still

applicable to the transfer of assets, the stamp duties in respect of issuance of TFCs have

been greatly reduced. As a matter of policy the SECP is dedicated to the facilitation of

venture capital, corporate debt and securitization. The Board of Investment’s Policy now

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allows foreign investment on a repatriable basis is in the Service, Infrastructure, Social

and Agriculture Sectors subject to certain conditions. The dependable presence of Fitch

Ratings and the International Finance Corporation (IFC) as a Credit Rating agency has

added to investor confidence in the Capital and Debt markets of Pakistan. Most

promising for the ABS market are guidelines for the relaxation of Prudential Regulations

for Banks and DFI in respect of investment in securities issued by SPVs are currently

being drafted by the State Bank of Pakistan (SBP).

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CHAPTER FOUR

PRESENTATION ANALYSIS

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4.4 MARKET OVERVIEW:

Securitization was not taken off in Pakistan to any appreciable extent till 1997. The only

significant securitization transaction in Pakistan in 1997 was the securitization of net

settlements receivables by Pakistan Telecom. Pakistan Telecom in the country's overseas

telephony monopoly and net settlement receivables arise when there are inward calls into

Pakistan. Pakistan Telecom, like most of the emerging Asian countries, would normally

have such remittances as the inward calls by Pakistani residents abroad would exceed

that outward calls, leading to a net settlement receivable. 6 international carriers such as

AT&T who were expected to pay to Pakistan Telecom entered into notice-of-assignment

agreements agreeing to pay into the collection account in favor of the SPV. Thereafter,

there was a considerable growth noted in the securitization market and especially after

the approval of rules and regulations by Securities and Exchange Commission of

Pakistan in 1999. The transactions include the:

• Securitization of receivables of Paktel,

• Securitization for non performing leases/Loans of the leasing company named

Pakistan Industrial Leasing Corporation Limited,

• Securitization of future receivables of Orient Petroleum Incorporation, Pakistan

Branch,

• Securitization of future flow receivables arising from a construction project of

Associated Constructors Limited in the construction process of six towers of

Creek Vistas Towers in Creek City Project. This securitization was the latest

from all the securitization deals in Pakistan.

The case studies have been developed for the study of securitization deals, its

mechanism, its originators, its special purpose vehicles i.e. securitization trusts. The case

studies of different sectors and companies have been designed for the better

understandings are discussed below namely:

• Paktel Company Limited.

• World Call Payphones Limited.

• Pakistan Telecommunication Limited.

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• Pakistan Industrial Leasing Corporation.

• Associate Constructors Limited.

• Orient Petroleum Limited.

• Pakistan International Airlines.

4.1.1 TELECOM SECTOR (PAKTEL LIMITED)

Special Purpose Vehicle: Securetel-SPV Limited.

Originator: Paktel Limited.

Recently, the SECP has granted registration to Securetel-SPV Limited, a wholly owned

subsidiary of United Executors and Trustees Limited, to operate as a Special Purpose

Vehicle under the Companies (Asset Backed Securitization) Rules, 1999. Securetel

envisages mobilization of funds for Paktel Limited -a local cellular telecom- by issuing

TFCs. Of the total sum of Rs840 million, TFCs worth Rs640 million would be offered as

pre-IPO and Rs200 million in IPO. The TFC is rated "A" (single A) by PACRA, is for 3

year tenor and carries profit at SBP discount rates plus 200 bps with a cap of 16 per cent

and floor of 12 per cent for the first year and 11.5 per cent for the last two years. United

Bank Limited has acted as consultant for the ABS transaction. This securitization would

enable Paktel to replace its short-term foreign currency debt with medium-term local

currency debt. Considering the fall of the greenback following 9/11, the transaction

would improve Paktel's liquidity position by reducing foreign exchange losses.

Securetel purchased a portion of Paktel’s receivables and issued ABS notes in March

2003. Paktel in turn expects to utilize the proceeds in retiring partly its existing loans of

United Bank Limited of Rs750 million and Pak Kuwait Investment Company's Rs240

million. Nearly 99 per cent shares in Paktel are held by the Luxembourg based Millicom

International Cellular S.A, which is a fairly large holding company with 18 cellular

operations in 17 countries. Another major player, Orascom Telecom is also expected to

assign its nationwide receivables to a foreign bank in Pakistan.

Analysts at IP Securities (Pakistan) said that with the falling rate of returns on National

Savings Schemes (NSS) and Government Securities for the general public and financial

institutions, investment avenues were falling short and the facilitation of innovative

instruments was needed. Paktel had suffered huge exchange losses till the financial year

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2001, due to foreign currency borrowings, a significant portion of which had been paid

off through internal cash generation and short-term loans. This had led to high reliance

on short-term borrowings. Paktel had therefore decided to issue medium term securitized

TFCs to rationalize its capital structure and to correct imbalance in asset liability

maturity profile.

The analyst noted that Paktel had suffered huge exchange losses till the financial year

2001, due to foreign currency borrowings, a significant portion of which had been paid

off through internal cash generation and short-term loans. This had led to high reliance

on short-term borrowings. Paktel had therefore decided to issue medium term securitized

TFCs to rationalize its capital structure and to correct imbalance in asset liability

maturity profile.

The 'mitigants' part of the Prospectus listed among others the following: The purpose of

securitization was to segregate the operational performance of a company from its

financial performance. The risk was on the operational performance of Paktel rather than

on its financial performance; the investment by the TFC holders would be in securities

issued by SPV and not in Paktel. Thus the TFC holders would not largely be dependent

on the financial performance of Paktel; the transaction was a future flow transaction,

because it was not backed by cash flows generated by an existing pool of assets, but

rather by cash flows from assets that would be generated in the future.

The prospectus noted that the future flow transactions were dependent on the ability of

the company to produce a good or provide a service, and thus derived their strengths

from segregating its performance from the overall financial profile of the company. By

separating operational from financial performance such transactions offered a less risky

investment alternative.

According to other details noted in the prospectus, of the total sum of Rs840 million,

TFCs worth Rs640 million would be offered as pre-IPO and Rs200 million in IPO. The

TFC is rated "A" (single A) by PACRA, is for 3 year tenor and carries profit at SBP

discount rate plus 200 bps with a cap of 16 per cent and floor of 12 per cent for the first

year and 11.5 per cent for the last two years.

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4.1.2 WORLDCALL PAYPHONES LIMITED:

The telecom sector itself has seen substantial activity in structured finance. WorldCALL

Payphones Limited is one of Pakistan's fastest growing telecom companies, with an

installed base of over 5,000 smart card payphones throughout Pakistan. WorldCALL

needed to raise Rs. 345 million in new equity financing to fund a major expansion plan,

including 8,000 additional card phones and a proposed wireless local loop network

supporting 50,000 additional phones. Following the unsuccessful attempts of another

securities firm to effect the offering and reopen the Pakistani IPO market, after a dry

spell of over two years, WorldCALL appointed AKD Securities as its financial advisor

to raise the necessary funds.

Realizing the potential upside for well funded private companies in Pakistan's

increasingly deregulated telecom sector, AKD underwrote the offering. After leading a

Rs. 195 million pre-IPO placement with institutional investors, AKD generated demand

for the IPO and as a result WorldCALL's Rs. 150 million IPO was heavily

oversubscribed and the company received the funds necessary for it to continue on its

growth trajectory.

Head of Research at IP Securities, Iffat Zehra Mankani commented that it was

encouraging to note the pace of growth at which financial instruments that were new in

this part of the world were being introduced. Analyst said that with the falling rate of

returns on National Savings Schemes for general public and Government Securities for

the financial institutions, investment avenues were falling short and the introduction of

innovative instruments was needed.

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4.1.3 PAKISTAN TELECOMMUNICATIONS LTD.

Net Settlement Securitization

In 1997, Fitch rated a securitization of Pakistan Telecommunications Ltd.’s (PTCL) net

settlement receipts. The receivables in this type of transaction are the net amounts

generated by tariffs that one company owes to another for the use of its

telecommunication infrastructure when completing international calls. These tariffs arise

when individuals in a developed country (e.g., the United States, Japan or Germany)

make calls into an emerging-market country (e.g., Chile, Pakistan or Peru). Although the

developed-market company, MCI, for example, is originating the call and collecting the

revenues from the individual in the developed country, MCI must use PTCL’s

infrastructure to complete the call. PTCL allows MCI to use its infrastructure but charges

the company a fee for each minute of use. Similar fees are charged to PTCL when calls

originate in Pakistan and go to MCI’s market. There is a net amount in favor of PTCL,

because the volume of originating calls tends to be much higher in the United States than

Pakistan. It was these international net payments that were securitized in the PTCL

transaction. A key factor to this transaction was that the international carriers, such as

MCI, signed notice and acknowledgement agreements (N&As) that legally obligated

them to remit payments into the offshore collection account that is used to pay investors.

This structure mitigates certain sovereign risks, such as transfer and convertibility and

sovereign redirection. Due to this structure, Fitch initially rated the transaction ‘BBB–’.

This rating meant the transaction had a lower probability of default compared to that of

the sovereign. Additionally, Fitch rated the transaction above PTCL’s local currency

rating due to the company’s monopoly status in the local market and the high ratio of net

settlements in favor of Pakistan. Furthermore, the company is fully supported by the

government since it is 88% state owned. Rating the transaction above the local currency

rating of PTCL and the sovereign signifies that Fitch believes the net settlement cash

flows would continue to pay offshore investors, even during a default on local creditors.

From 1998–2001, Pakistan’s and PTCL’s credit quality deteriorated. Due to the decline

in credit quality and an increased risk of cash flow disruption, Fitch downgraded the

transaction first in June 1998 to ‘BB+’ and then again in October 1999 to ‘BB’.

Additional concerns included the drastic declines in net settlement tariffs.

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Continued Performance

The PTCL transaction will mature in August 2003 and currently has an outstanding

balance of US$2.9 million out of the original issuance of US$250 million. The deal has

been performing well since 2001: the average receivables for the past year and a half

have been US$45.9 million, and the coverages have been well-above the required levels.

The purchased receivables debt service coverage ratio (DSCR) has averaged 3.0x (twice

the 1.5x requirement), and the sum of the two lowest purchased receivables DSCRs

during four consecutive periods has averaged just less than 3.0x (more than the required

2.0x coverage). These levels are shown in the PTCL 12-Month Rolling DSCRs and

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PTCL Performance charts. While Fitch still does not publicly rate Pakistan, the ‘BB’

rating on the transaction is still notches higher than what we believe the sovereign rating

to be. This rating differential reflects Fitch’s opinion that the risk of the net receivables

not going to investors (per the going concern assessment) remains relatively low

compared to our view regarding the sovereign’s creditworthiness in the current

environment. The ‘BB’ rating is supported by various aspects of the transaction. PTCL

holds a 100% market share within Pakistan; the ratio of net settlements will continue to

favor Pakistan; the decline in settlement rates has been offset by an increase in volume;

and the N&As.

Securitization of international receivables

Currency balance Rupee equivalent Quarterly

Currency 2003 2002 2003 2002 Installments

(Amount in thousand) (Rupees in thousand) Payable

US $ 15,126 72,576 876,106 4,383,584 1

The company obtained funds aggregating US $ 250 million against securitization of its

future international receivables relating to certain carriers. Under the arrangements, these

carriers have irrevocably assigned the company's future receivables to a Trust set up for

this purpose for the tenor of the facility. The cash flows arising from these receivables

are paid to the company by the Trust after deducting there from the repayment of

principal and return that investors in the Securitization Trust are to receive and retaining

a cash margin as a default cushion. Interest is payable quarterly at 8.42% per annum.

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4.1.4 THE LEASING SECTOR:

(PAKISTAN INDUSTRIAL LEASING CORPORATION)

Earlier in June 2002, the specialized Companies Division of the SECP processed the

registration of First Securitization Trust as the first special purpose vehicle under the

Companies (Asset Backed Securitization) Rules, 1999. This trust has been set up to raise

funds for Pakistan Industrial Leasing Corporation Limited (PILCORP) up to rupees one

hundred million through issuance of debt instruments against the Securitization of

PILCORP's lease receivables. The said transaction was arranged by Aqeel Karim Dhedi

Securities (Pvt) Limited (AKD) and Orix Investment Bank Limited to provide funds to

PILCORP for retiring its debt obligations. In emerging markets like Pakistan, where

volatile economic cycles and sudden shocks are translated on the asset portfolio,

protection against deteriorating credit quality is very important. This unstable nature of

Pakistan’s economy has highlighted the importance of a strong capital base which can

provide protection against unanticipated losses. Furthermore, substantial capital provides

a leasing concern with greater flexibility to leverage its balance sheet. On the other hand,

for leasing companies in developed markets, deterioration in the asset quality usually

occurs over the long run, thus enabling them to increase general reserves/provisioning

against potential losses over a period of time. A serious issue plaguing the leasing sector

is the high rate of non-performing leases and loans (NPLs), a situation that can be

attributed primarily to the inadequacy of risk assessment procedures and, to a lesser

degree, limited industrial growth that has led to sectoral concentration. Leasing across a

spectrum of industries reduces the risk of impairment in the asset quality. Strict credit

policies and continuous monitoring of the portfolio are looked upon favorably by credit

rating companies and accounts are reviewed closely to establish a company's exposure in

each sector, which if exceeds 20% of Net Investment in Leases (NIL) prompts a further

examination. Similarly, a drag on ratings may occur if exposure to a single client exceeds

15% of total equity. SECP is paying increasing attention to this factor and has recently

proposed an amendment in the rules that govern the leasing sector by restricting

exposure to a single party to 30% of unimpaired capital and reserves instead of the

earlier limit of 20% of NIL.

STATUS: Trust Investment Bank Limited announced the completion of Rs100

million securitization of lease receivables pertaining to lease portfolio of Pakistan

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Industrial Leasing Corporation (which now stands merged into Trust Bank). The deal

marks the completion of first ever securitization transaction in Pakistan.

A press release issued by Orix Investment Bank Pakistan Limited - one of the two

advisers to the securitization, the other being AKD Securities (Pvt.) Limited - stated that

The First Securitization Trust (FST) was the Special Purpose Vehicle (SPV) through

which the securitization had been conducted. The press statement stated that all parties to

the transaction appreciated the cooperation offered by the SECP. "They further

mentioned that the State Bank of Pakistan was also considering guidelines for the

securitization of receivables which when approved would enable the financial

institutions to invest in SPVs.

Speaking at the signing ceremony, Ali Ansari, CEO of AKD Securities and Naim

Farooqui, CEO of Orix Investment Bank stated that with the landmark transaction, doors

were now open for Pakistan's corporates to raise financing against future cash flows.

Rashid Ahmed, CEO of Trust Investment Bank - the originator, mentioned that

securitization of his company's lease receivables would usher in a new era for leasing

business in Pakistan. National Discounting Services Ltd (NDSL), a subsidiary of the

National Bank of Pakistan, is the trustee for the Asset Backed Certificates (ABCs) issued

by the SPV.

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4.1.5 REAL ESTATE SECTOR

(ASSOCIATED CONSTRUCTORS LIMITED)

Nature of Transaction

Future flow securitization of receivables arising from a construction project

Issue Amount: Rs. 100m

Tenor: 30 months

Placement Type: Private

Originator & Servicer: Associated Constructors Limited

Primary Obligator: Pakistan Defense Officers’ Housing Authority.

SPV Trustee: Crescent Leasing Corporation Limited

Investor Trustee: First Dawood Investment Bank Limited

Overview of the Originator

ACL was incorporated in 1966 as an unlisted public company engaged in the business of

civil engineering and construction and has completed multifarious projects including

construction of power and industrial plants, road and bridges, transmission, lines, oil and

gas field development, salinity control etc.

Transaction Summary:

The proposed ABS Certificates amounting to Rs. 100m will be issued by Development

Securitization Trust (DST), a Special Purpose Vehicle (SPV) formed under the Asset

Backed Securitization Rules 1999. The issue is securitized against designated future flow

receivables arising from the contract for six towers of Creek Vistas Towers in the Creek

City Project being executed by Associated Constructors Limited (ACL), the originator.

The contract agreement of the project is with the Pakistan Defense Officers’ Housing

Authority (DHA). The proceeds of sales of receivables will be utilized by ACL in the

purchase of specialized construction equipment for the project.

Future receivables, i.e. 40% of the originator’s present and future receivables based upon

the contract excluding the receivables that have already been realized prior to the closing

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date, are expected to amount to around Rs. 477.72m. They will be routed through a

collection account to be maintained by the SPV trustee from which deductions will be

made for payments to the investors. A reserve fund equivalent to one installment will

also be created initially from the proceeds of the certificates. It may be increased to two

installments by the SPV Trustee if for two consecutive months project gross cash flows

fall short materially from the Projected Service Schedule provided by ACL. An exclusive

charge on the equipment being bought by ACL will form the security against

performance risk. The ABS Certificates will have a tenor of 30 months including three

months initial grace period on principal and interest payments. Debt servicing will be in

quarterly installments with nine equal principal repayments at a rate of KIBOR + 4%

with a floor of 7.50% and no cap.

Rating Rationale:

The rating of the ABS Certificates is based on the quality of receivables, the structure of

the transaction and the credit quality of ACL. In the absence of a potential backup

servicer, cash flow generation is dependant upon the performance of the originator in

carrying out the contract. The assigned cash flows are projected to provide over-

collateralization of over 4.0x to debt servicing requirements to cover the risk of both time

and cost overrun. Where cost considerations are considered, ACL is of the view that it

will benefit from the subsequent reduction in prices of non-pass through items. Presence

of a reserve fund is an additional source of comfort. ACL possesses diverse and vast

experience in carrying out construction activities. Our meetings with their past customers

also established that they enjoy a sound reputation in terms of quality and reliability.

However this is the first time they are venturing into a residential project of this

magnitude. Currently, this is the sole major project in which they are involved. ACL

operates at a very low debt leverage level in view of erratic cash flows associated with

the construction business and has been assigned entity ratings of BBB-/ A-3.

Category Latest Previous

ABS BBB- BBB- *

Certificates Sept. 27, ‘04 Sept. 08, ‘04

Outlook Stable Stable

* Preliminary

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4.1.6 PETROLEUM SECTOR:

(ORIENT PETROLEUM INC. – PAKISTAN BRANCH)

Nature of Transaction

Securitization of future receivables i.e. proceeds of sale of gas and condensate production

of designated fields of Orient Petroleum Inc.-Pakistan Branch.

Issue Amount: Rs. 1 billion + 500 million green shoe option.

Tenor: 5 Years

Originator & Servicer: Orient Petroleum Inc. Pakistan Branch.

Primary Obligator: National Refinery Limited.

Pakistan Refinery Limited.

Sui Southern Gas Company Limited.

Trustee: To be decided

Overview of the Originator

Orient Petroleum Inc. is incorporated in the state of California, United States of America,

with the Head office in Houston, Texas and a branch office in Islamabad. The Pakistan

branch in engaged in exploration, drilling, production and sale of petroleum, natural gas

and LPG. The company was taken over by Hashoo Group in 1995. It is joint venture

operator in the North Porwar, Soan, Ratana, Mirpur Khas and Khipro Petroleum

Concession blocks and is a partner in non operated Meher Block of Petronas Carigali and

Sinjhoro Block of OGDCL where recently six discoveries were made.

Transaction Summary:

The proposed TFCs of Rs. 1,000 m with Rs 500m green shoe option will be issued by

Naimat Basal Oil & Gas securitization Company Limited (NBSC), a Special Purpose

Vehicle for a tenor of five years. These are backed by the US dollar denominated future

receivables, with a cap of Rs 2,041 billion, arising from the sale of upto 0.52 MMBO of

condensate and 38.80 BSCF of gas from three producing fields i.e. naimat Basal, Siraj

South and Ali, where Orient Petroleum Inc. – Pakistan branch (OPI) is operator.

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Suibsequent to the early well testing currently underway, the Government of Pakistan

will assueme the role of the primary buyer of the production of the designated fields.

GOP will in turn assign this production to National Refinery Limited and Pakistan

Refinery Limited (condensate) and Sui Southern Gas Company Limited (gas). These

companies will make direct payments into the collection account to be operated

exclusively by NBSC for monthly debt servicing and for meeting its administration

expenses. A reserve fund equivalent to three installments principal and interest payment

will also be maintained. It may increased on NBSC’s discretion to a maximum of six

instrallments equivalent payments, if for two consecutive months the production in the

fields falls below the “Projected Production Schedule” (PPS) provided by OPI by 15% or

more.

Debt servicing will be in monthly installments with 3% of the principal to be redeemed

in six months and remaining 97% in 54 equal monthly installments at a coupon rate of

Average Ask Rate of six months Karachi Interbank Offer rate + 2.5% with a floor of

7.50% and a cap of 13.00%. The TFCs will be listed on the Karachi Stock Exchange.

Rating Rationale:

The ratings are based on the quality of receivables, the structure of the transaction and

the credit quality of OPI as servicer and originator.

• The bankruptcy remote nature of NBSC arising from its legal status as an SPV

with limited scope of operations and true sale of assigned future receivables to

NBSC.

• The projected cash flows fro the assigned producing fields provide over

collateralization of around 3.0x to debt servicing requirements to cover the risk of

adverse fluctuations in production level, price and the exchange rate. Also the

projections have been based on very conservative price assumptions.

• Presence of reserve fund.

• Assured market for gas and condensate production due to the limited market

supply and strategic importance of the product.

• The quality of the receivables has been assured with good track record of

performance of the buyers.

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• If OPI is unable to continue production for any reason, there is high probability

that the GoP will assign a Back up operator to ensure steady production flows

due to the strategic nature of the asset.

• OPI is involved in exploration and production activities in Pakistan and operates

with a sound technical team. It has substantial proven recoverable reserves which

are expected to generate strong cash flow stream during the next ten years. OPI’s

medium to long term entity rating is A (single A) while short term rating is A-1

(A One).

Category Latest Previous

TFC-S* A+** N/A

Rs. 1,500m SEP 13, 04

Outlook Stable N/A

*Securitized **Preliminary

4.1.7 PAKISTAN INTERNATIONAL AIRLINES:

Pakistan International Airlines has struck a deal with Citibank for securitization of

domestic aviation future flows but the transaction has not been successfully executed.

The sources at Pakistan International Airlines have not revealed the information due to

the secrecy regarding the events.

However, it is concluded that all the other securitization transactions have been carried

out successfully and satisfactorily which shows its strong status in the Pakistani market.

4.2 FITCH RATING FOR PAKISTANI ENVIRONMENT FOR

SECURITIZATION:

International Special Report: Structured Transactions in Emerging - Market

Stress—Update 2003

1998 Crisis

Following its nuclear tests in May 1998, Pakistan was immediately hit with international

economic sanctions and a suspension of multilateral lending. As a result, the government

Project Thesis

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was under severe pressure because of its dependence on bilateral assistance and

multilateral agency financing for a significant portion of its external borrowing. By

freezing private-sector activity, Pakistan tried to stave off a sovereign default, but by

August 1998, the government had defaulted on external debt payments to certain

bilateral and commercial creditors. By November that same year, Pakistan defaulted on a

eurobond interest payment. During 1999, the government of Pakistan restructured

US$877 million in commercial loans and negotiated a rollover of US$3.3 billion in

credits under the Paris Club. Additionally, the International Monetary Fund (IMF) agreed

to a US$1.5 billion loan.

Recovery Since 2001

Although Fitch has never maintained a sovereign rating for Pakistan, if a rating were

assigned in 2001, it would likely have fallen in the ‘CCC’ range. This rating would have

been based on the relatively weak balance of payments and fragile external liquidity at

the time. However, since late 2001, Pakistan has been readmitted to the international

financial community, enjoys good relations with the United States and is fully engaged

with the IMF and the World Bank. If Fitch were to again consider a sovereign rating, it

would more likely fall in the ‘B’ range. Other improvements in the country are due to the

new civilian government, elected in October 2002, which has provided much greater

macroeconomic stability. The balance of payments has been transformed by a

combination of external debt relief and high levels of remittances and private capital

flows from abroad. International reserves now stand at a historical high of US$8.8 billion

(as of February 2003), compared with barely US$1 billion in mid-2001. The new

government has also remained broadly on track with the IMF program and professes to

be committed to a broad range of structural reforms. Still, public and external

indebtedness remain high, and tax reform, financial sector reform and privatization are

pressing issues. Additionally, there are risks involved with a new government struggling

to establish a track record against entrenched, vested interests and rising populist

pressure. Political stability in Pakistan is still tenuous, and security risks remain high in

relation to both Afghanistan and India.

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4.3 SUMMARY OF ASSET BACKED SECURITIZATION IN

PAKISTAN:

From all the discussion in the form of case studies on various sectors regarding the asset-

backed securitization in Pakistan, it can be summarized that sovereign risk (political risk,

legal risk, currency devaluation risk) credit risk and liquidity risk are faced by all the

companies in the sovereign countries in which they operate as the countries come under

economic stresses. The sovereign will take actions that might interfere with the

continued operations of the company. These risks create a cap on the ratings of the

issuer. However this risk is not a constraining factor for companies domiciled in highly

rated countries.

The driving force in the development of future flow securitization structure was the need

to mitigate sovereign risk for highly rated issuers in emerging markets. After successful

mitigation of sovereign risk, the structure will be reliant on the originating entity to

continue to produce the product or services that will generate the hard currency cash

flows necessary to pay the interest and principal on the transaction. The asset generation

risk inherent in these deals means there is a component of credit risk associated with the

issuing institution.

From the above discussion and the information taken from the visit to various

organizations it has been noted that the government has tried its level best to achieve the

sovereignty in the country so that the conducive environment for the business can be

maintained. There was more focus on the political stability, the stability in economic

policies for the businesses, the more regularized laws in the country and the economy has

been controlled and directed in a much planned manner. The ultimate goal was to

achieve the business friendly environment where innovations can be brought, encouraged

to get implemented for the growth and stability in the country. It can also be cleared from

the above illustrations that more asset backed securitization transactions have been

executed successfully after regulating the economy. This shows the investors confidence

in the economy, business activities and other investment venues. Now the people are

more interested to come up with innovative solutions to accelerate the growth pace in the

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country. The laws relating to various business activities have been revised and every

thing is likely to put in a planned way.

This research outcome identifies not only the implementation of the Asset backed

securitization in other business sectors including Railways, Pakistan International

Airlines, WAPDA, SNGPL, Toll receivables, Leasing companies and Insurance

companies but also the development of Mortgage Backed Securities market in the

Pakistan, establishment of Fixed income market in Pakistan for the banks and DFIs’. The

asset backed securitization should continue the future receivable including Credit Card

Receivables, Trade Receivables, Revenue Receivables, Automobile Leases, Future

royalties, Bridge Tolls and Rent & Income Receivables

The future however, is encouraging following the 2002 Guidelines. DFIs are preparing to

consolidate the market while the SECP assures the facilitation of a strong Mortgage

Backed Securitization market having registered a 75% increase in bank housing finance

schemes since the issue of the guidelines in November 2002. There are also indications

from the SECP and a Japanese holding company towards negotiating the securitization

of small & medium enterprise receivables which analysts say, promise higher yields.

Recent technical assistance by the Asian Development Bank has enhanced capacity to

generate revenue amongst SMEs which capture a fairly large export market in Pakistan.

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CHAPTER FIVE

SUMMARY OF FINDINGS

AND CONCLUSION

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CHAPTER NO 5: SUMMARY OF FINDINGS AND

CONCLUSION 5.1 SUMMARY OF FINDINGS The findings of the research conducted are:

1. The motivation regarding adopting the asset-backed securitization was to raise

cash, improving the working capital for the business, paying of the huge debts

and borrowings, managing the position of balance sheet by improving the assets

and liability position of the company.

2. Asset-backed Securitization has improved the credit rating of the companies as

the liquidity and profitability position improves.

3. The future flows of receivables are available today at lower cost than the other

borrowings so it attracts the originators of the securitization.

4. This availability of the cash improves the liquidity position of the company and it

enables the company to meet its operational expenses and further expansion by

investing in the capital assets.

5. The Securities and Exchange Commission of Pakistan and State Bank of Pakistan

has designed and supported to implement the innovation solutions for the

business risk so it has become attractive to the companies to adopt new solutions

for the growth of the business.

6. This has improved the asset and liability management structures of the companies

as the companies can pay its outstanding loans and provisions.

7. There is a credit risk involved in this mechanism; to deal with; a surplus fund has

been created to get assured the payment from the originator.

8. On the basis of quality of the receivables the credit rating is done so that investors

may be well clear about the financial and operational conditions of the

companies.

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9. The improved credit rating helps the company in carrying the future businesses of

the company and also increases the lines of credit.

10. There are still up to some extent legal issues for example taxation issues which

have not been addressed by the regulatory authorities i.e. Central Board of

Revenue, Securities and Exchange Commission of Pakistan and State Bank of

Pakistan.

11. There is a Successful completion of transactions of Pakistan Industrial Leasing

Corporation and the Pakistan Telecommunication Transaction is nearly to be

completed.

12. There is a successful implementation of asset backed securitization in Pakistan as

all the companies are effectively managing according to Securities and Exchange

Commission of Pakistan requirements for it.

13. There is an encouraging position of asset backed securitization in Pakistan as the

capital market is going to be expand and the KSE 100 index crossed the 7000

points which ultimately showing the investors’ confidence over the corporate

sector performance and more satisfaction to the overall economic position in the

country.

14. The success of the asset backed securitization has led the development of

Mortgage Backed Securitization in Pakistan. As a result of this, the Government,

Banks, Development Financial Institutions and other private sectors are

encouraged and attractive to design the legal framework to carry out the

mortgage backed securities of house financing and other mortgages in Pakistan.

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5.2 CONCLUSION

Pakistan is expected to see a marked increase in structured finance and successful

transactions would inevitably spread out over a broad range of sectors. The call to

foreign investors to inject funds and repatriate profits rings out clear as ever as the newly

elected government tries to exercise its mandate. The growing market of trading

corporations, banks, extractive industries and manufacturers has begun engaging legal

counsel and accountants to carry out feasibility studies and documentation for a variety

of future flows including oil & gas royalties and credit card receivables. Although the

recent divestiture by Fitch and the IFC from PACRA may be cause for concern, the

SECP is confident that good governance and rating processes installed at PACRA and

JCR-VIS are sufficient to secure the investor. This has led the development and strong

growth of Asset-Backed Securitization in Pakistan. As the investors’ confidence has

been regained therefore they are interested to invest in the innovative financial

instruments in the market. There is an increasing trend of asset backed securitization in

Pakistan from the last three years; the main reason is the existence of the securitization

rules and regulations in Pakistan which is providing guidelines for the growth and

development of ABS in the various other sectors in near future.

In order to make issues more flexible and affordable for the investors, issuers are adding

different features from shelf registration to the green shoe option to TFC structure. Use

of shelf registration implies that the issuer can split the TFC issue into tranches, which is

useful for periodic financing requirements of the issuer and also allows optimal pricing

of the individual tranche. Similarly, the green shoe option allows the issuer the right to

retain the over subscribed portion of the IPO. However, the issuer has to specify the

amount it would retain under this option in advance. A very interesting development is

the gradual evolution is the pricing structure of the TFCs. Starting from the plain vanilla

structure with fixed coupon rates, the market has witnessed an increasing number of

bonds with floating structures.

The prospects for the securitization of existing assets in Pakistan are favorable as the fact

that present volume of eligible assets is relatively high. Securitization laws enacted in

Pakistan in the 1999 have served as catalysts for change, since they have helped spawn

the right environment for credit-originating institutions. Mortgage foreclosures or

auctions are not now allowed in Pakistan, and so banks are not participating in the

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Mortgage Backed securitization which is expected to be approved in the near future for

the House Finance and other Loans. Investors are now likely to be more interested in

investing in MBS and ABS in Pakistan than in the past."

5.3 RECOMMENDATIONS These are the following recommendations for the development and growth of Asset-

Backed Securitization in Pakistan:

• The Asset Backed Securitization rules are needed to be better defined in the

scope of activities.

• The Securities and Exchange Commission of Pakistan should allow wider scope

for the asset backed securitization i.e. not only limited to the future receivables

but also the loans including credit card loans, mortgage loans and auto loans etc.

• The taxation issues regarding the Special Purpose Vehicle to be resolved or it

should be tax exempted.

• The Banks and Development Financial Institutions should be allowed to take part

in the asset backed securitization process more freely.

• The organizations are to be encouraged to adopt asset backed securitization

especially in the Small and Medium enterprises as there is lack of legal

framework for the SME’s participation in asset backed securitization.

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REFERENCES AND BIBLIOGRAPHY

BOOKS

“Financial Instruments, Institutions and Markets” by Christopher Viney.

“Securitization: An Innovative Credit Technique” by Hassan Alamgir Sheikh in Journal of Institute of Bankers, Pakistan, March 1999.

“Securitization, Asset Reconstruction & Enforcement of Security Interest” by Vinod Kothari.

“The Economy of Money, Banking and Financial Markets” by Frederic S. Mishkin.

PERIODICALS

“Asset Backed Securitization 1999 Year in Review and 2000 Outlook”, Moody's Investors Service, January 2000.

“International Special Report: Structured Transactions in Emerging- Market Stress— Update 2003, Fitch Rating.”

“Rating Reports on Asset Backed Securitization in Pakistan 2004, Japan Credit Rating Agency.”

“STATE BANK OF PAKISTAN BANKING POLICY DEPARTMENT BPD Circular No.31 November 14, 2003 for Asset Backed Securitization.”

Quarterly Review of State Bank of Pakistan.

INTERNET (Major Search Engines)

1. www.google.com

2. www.encarta.com

3. www.altavista.com

4. www.securitization.com

5. www.pakistaneconomist.com

Magazines

Pakistan and Gulf Economist.

Business Recorder.

Business Today

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abs pakistan feb05

Travel