Asset Backed Securitization Study

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 1.3 1.4 1.5 1.6
Statement of the Problem.05 Significance of the Study.06 Scope of the Study06 Delimitations....07 Definitions07
CHAPTER NO: 2 2.1
RESEARCH METHODOLOGY AND PROCEDURES
Research Design..11 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 Purpose of the Study11 Types of the Investigation11 Study Settings...11 Researchers Interference.11 Time Horizon...11
2.2 2.3 2.4 2.5
Respondents of the Study.11 Instruments.......12 Treatment of the Data...12 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 Securities19 3.2.4 Impact of Asset-Backed Securitization on Capital Market20 3.2.5 Motivations in Future Flow Securitization.20 3.2.6 Managing Risks In Future Flows21 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 4.1.2 4.1.3 4.1.4 4.1.5 4.1.6 4.1.7 Paktel Limited..30 World Call Payphones Limited32 Pakistan Telecommunication Ltd.33 Pakistan Industrial Leasing Corporation..36 Associated Constructors Limited.38 Orient Petroleum Inc. Pakistan Branch.40 Pakistan International Airlines.42
4.2 4.3
Fitch Rating For Pakistani Environment for Securitization42 Summary of Asset Backed Securitization in Pakistan44 SUMMARY OF FINDINGS AND CONCLUSION
CHAPTER NO 5: 5.1 5.2 5.3
Summary of Findings...47 Conclusion....49 Recommendations50
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 & Poors, 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
1.
DEFINITIONS
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.
Researchers 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). Project Thesis
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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
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 predetermined 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 Project Thesis
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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
Corporate Receivables
Assets
Special Purpose Vehicle
Issue
Asset-Backed Securities
Investors
Credit Enhancer
Service Manager
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 Project Thesis
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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 AssetBacked 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 Moodys and Standard and Poors, 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 Project Thesis
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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 Project Thesis
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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 Enrons 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 Project Thesis
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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 Project Thesis
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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 Pakistans 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 Investments Policy now Project Thesis
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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
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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: Originator: Securetel-SPV Limited. 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 Paktels 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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Project Thesis
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 PTCLs 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 MCIs 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 PTCLs local currency rating due to the companys 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 19982001, Pakistans and PTCLs 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 Project Thesis
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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 Fitchs 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 sovereigns 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 Currency 2003 2002
Rupee equivalent 2003 2002
Quarterly Installments Payable 1
(Amount in thousand) US $ 15,126 72,576
(Rupees in thousand) 876,106 4,383,584
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 Pakistans 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 Project Thesis
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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: Tenor: Placement Type: Originator & Servicer: Primary Obligator: SPV Trustee: Investor Trustee:
Rs. 100m 30 months Private Associated Constructors Limited Pakistan Defense Officers Housing Authority. Crescent Leasing Corporation Limited 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 originators 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 overcollateralization 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 ABS Certificates Outlook Latest BBBSept. 27, 04 Stable Previous BBB- * Sept. 08, 04 Stable
* Preliminary Project Thesis

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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: Tenor: Originator & Servicer: Primary Obligator:
Rs. 1 billion + 500 million green shoe option. 5 Years Orient Petroleum Inc. Pakistan Branch. 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. Project Thesis
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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 NBSCs 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.
Project Thesis
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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. OPIs medium to long term entity rating is A (single A) while short term rating is A-1 (A One).
Category TFC-S* Rs. 1,500m Outlook *Securitized
Latest A+** SEP 13, 04 Stable
Previous N/A
N/A **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 StressUpdate 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
45
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.
Project Thesis
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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 assetbacked 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
Project Thesis
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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.
Project Thesis
48
CHAPTER FIVE
SUMMARY OF FINDINGS AND CONCLUSION
Project Thesis
49
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. Project Thesis
50
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.
Project Thesis
51
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 Project Thesis
52
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 AssetBacked 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 SMEs participation in asset backed securitization.
Project Thesis
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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. 2. 3. 4. 5. www.google.com www.encarta.com www.altavista.com www.securitization.com www.pakistaneconomist.com
Magazines Pakistan and Gulf Economist. Business Recorder. Business Today Project Thesis
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Asset Backed Securitization Study

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THE STUDY ON SUCCESS AND PROSPECTS OF ASSET BACKED SECURITIZATION IN CORPORATE SECTOR OF PAKISTAN

NAJMUS SAQIB FEBRUARY 07, 2005

Introduction..03 1.1.1 Asset Backed Securitization Market in Pakistan..04

1.2 1.3 1.4 1.5 1.6

CHAPTER NO: 2 2.1

RESEARCH METHODOLOGY AND PROCEDURES

2.2 2.3 2.4 2.5

Respondents of the Study.11 Instruments.......12 Treatment of the Data...12 Presentation Analysis...12

REVIEW OF LITERATURE & STUDIES

CHAPTER NO 5: 5.1 5.2 5.3

Summary of Findings...47 Conclusion....49 Recommendations50

REFERENCES AND BIBLIOGRAPHY.51

CHAPTER NO.1 PROBLEM AND ITS BACKGROUND

SCOPE OF THE STUDY

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

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

Another word commonly used in securitization exercises is bankruptcy remote

CHAPTER NO: 2 RESEARCH METHODOLOGY AND PROCEDURES

Purpose of the Study:

Type of the Investigation:

RESPONDENT OF THE STUDY

CHAPTER NO 3: REVIEW OF LITERATURE & STUDIES

FEATURES OF ASSET-BACKED SECURITIZATION:

SPECIAL PURPOSE VEHICLE

ASSETS THAT CAN BE SECURITIZED

MECHANISM OF ASSET-BACKED SECURITIZATION AND ITS BENIFICIARIES:

Special Purpose Vehicle

3.2.1 PROCESS OF ASSET BACKED SECURITIZATION

WHY DO ISSUERS NEED SECURITIZATION?

IMPACT OF ASSET-BACKED SECURITIZATION ON CAPITAL MARKET:

MOTIVATIONS IN FUTURE FLOW SECURITISATION

ASSET-BACKED SECURITIZATION IN PAKISTAN:

4.4 MARKET OVERVIEW:

4.1.2 WORLDCALL PAYPHONES LIMITED:

4.1.3 PAKISTAN TELECOMMUNICATIONS LTD.

Currency balance Currency 2003 2002

Rupee equivalent 2003 2002

Quarterly Installments Payable 1

(Amount in thousand) US $ 15,126 72,576

(Rupees in thousand) 876,106 4,383,584

4.1.4 THE LEASING SECTOR: (PAKISTAN INDUSTRIAL LEASING CORPORATION)

4.1.5 REAL ESTATE SECTOR (ASSOCIATED CONSTRUCTORS LIMITED)

Overview of the Originator

* Preliminary Project Thesis

4.1.6 PETROLEUM SECTOR: (ORIENT PETROLEUM INC. PAKISTAN BRANCH)

Issue Amount: Tenor: Originator & Servicer: Primary Obligator:

Overview of the Originator

Category TFC-S* Rs. 1,500m Outlook *Securitized

Latest A+** SEP 13, 04 Stable

4.1.7 PAKISTAN INTERNATIONAL AIRLINES:

4.2 FITCH RATING FOR PAKISTANI ENVIRONMENT FOR SECURITIZATION:

SUMMARY OF ASSET BACKED SECURITIZATION IN PAKISTAN:

CHAPTER NO 5: SUMMARY OF FINDINGS AND CONCLUSION

REFERENCES AND BIBLIOGRAPHY

INTERNET (Major Search Engines) 1. 2. 3. 4. 5. www.google.com www.encarta.com www.altavista.com www.securitization.com www.pakistaneconomist.com

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