The Securities and Exchange Commission of Pakistan (ESCP) has constituted a special 12-member working group to expand corporate debt market in the country and remove bottlenecks in long-term financing. Those doing business in major commercial cities like Karachi, Lahore and Faisalabad know very well how complicated and expensive a process it is to get a loan from banks. Companies continue to struggle with their expansion plans due to high interest rates and demand for heavy collateral from commercial banks, while direct access to capital through bonds or sukuk has also been plagued by lengthy paperwork.

Why is there a need for reforms in the corporate debt market?

Until now, Pakistan's financial system has mostly relied on government loans or traditional banking. Due to regulatory delays, double taxation issues and strict conditions in the issuance of corporate bonds, ordinary companies shy away from venturing into this market. The main objective of this new working group is to review all these barriers to make it easier and cheaper for companies to issue bonds. This will not only provide cheap capital to the private sector but also provide better investment alternatives to institutions like mutual funds and insurance companies.

Key Responsibilities of the Working Group

  • Simplifying the bond issuance and private placement process.
  • Removing tax loopholes that hinder the trading of corporate bonds.
  • Improving liquidity in the secondary market (secondary market) so that investors can buy and sell easily.
  • Developing uniform regulations to reduce legal and advisory costs.

What should you do now?

If you are a finance manager in a corporate organization or planning to expand your business in the future, keep an eye out for upcoming ESCP tips. Companies should improve their balance sheet and credit rating so that they can quickly raise funds from the market as soon as regulatory easing is available. General investors should also keep an eye on the performance of the fixed income category in mutual funds as improvements in corporate debt can impact their returns.

What to expect in the next few months?

The working group will submit its recommendations to the ESCP Board before the end of the current financial year. The real test will be whether the government and the Federal Board of Revenue (FBR) agree to remove the tax hurdles that have restricted the trading of corporate bonds on the Pakistan Stock Exchange in the past.