SECP has Introduced Various Enabling Provisions in The Regulatory Space
16 financial institutions are registered with PSX as Market Makers Origination of secured and unsecured debt securities, including GDS, through execution of issuance agreements has been introduced.
Over the last two and half years, SECP has introduced various enabling provisions in the regulatory space. He mentions that the SECP has simplified the process for issuance of Govt debt securities and Govt guaranteed debt securities.
The markets making framework has been revamped to address liquidity, and as a result, 16 financial institutions are registered with PSX as Market Makers Origination of secured and unsecured debt securities, including GDS, through execution of issuance agreements has been introduced.
Infrastructure fund, as a separate category of a private fund, has been allowed to invest up to 70% of its net assets into the infrastructure sector. Moreover, the SECP has issued guidelines on Green Bonds, to enable the raising of funds to finance infrastructure projects that contribute positively to the environment.
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He further explained that infrastructure mutual funds, an open-end structure, are now mandated to invest 70% of their net assets into the infrastructure space; and PPP-REIT Schemes under the revamped REIT regulations can now undertake development, up-gradation, and maintenance of infrastructure projects.
These measures, khan said, are complementary to the 2016 SBP Prudential Regulations for infrastructure financing, which expanded the scope of infrastructure financing to include social, cultural, and commercial infrastructure projects.
The Government of Pakistan on its part has also introduced various reforms to facilitate the involvement of the private sector in this domain. The formation of a dedicated Public Private Partnership Authority, and recent 2021 amendments in the Public-Private Partnership Authority Act, have energized this space.
As a result, the regulatory process for developing and structuring infrastructure projects on a PPP basis has been streamlined. Consequently, a number of mega projects have been approved by the Public-Private Partnership Authority, such as Karachi Circular Railway, Sukkur-Hyderabad Motorway, and Kharian-Rawalpindi Motorway.
In addition, Aamir said, the recent amendments in the Companies (Asset-Backed Securitization) Rule 1999, have streamlined matters relating to management and transfer of property.
Historically, this was the major hurdle in the way of using SPVs for infrastructure financing. Furthermore, the adoption of the ABS Rules has been allowed federal and provincial governments, to facilitate the issuance of structured debt securities and raise funds through the capital market.
And lastly, the government has initiated the transformation of the Pakistan Credit Guarantee Company, into an NBFC structure. SECP has already granted permission for the creation of the new entity, the National Credit Guarantee Company Limited.
Moreover, necessary amendments have also been incorporated in the NBFC Regulations, allowing credit guarantee companies to take enhanced exposure in contingent liabilities up to 10 times of their equity.
The NCGC shall promote credit enhancement mechanisms in an efficient and timely manner, while at the same time supporting the development of the local bond market.
Having covered the current situation, the challenges, and measures introduced to address them thus far, the SEC chairman pointed out the areas where further actions are required.
Firstly, he said, it is imperative that infra-financing instruments are structured in a manner that appeals to investors. One such attraction is the provision of credit guarantees, in line with debt issuances globally, while meeting the local investors’ needs and preferences.
Secondly, improvements in the risk management structure in the project design phase are vital. Given the long-term duration, and complexities involved, especially in the case of a PPP structure, a forward-looking approach needs to be implemented, that clearly accounts for life-cycle-oriented risk assessment.
Thirdly, amendments may be introduced in the PPP law, to further improve the governance and risk management framework. Fourthly, operationalization of a Viability Gap Fund is critical to attract and incentivize private sector involvement in social infrastructure development, he concluded.
Also, the importance of the agriculture sector in terms of generating employment, saving precious foreign exchange, and ensuring food security must not be overlooked.
When looking at the infrastructure needs, efforts must be focused on diverting infrastructure financing to this sector. Pakistan is a country that is vulnerable to climate change. Therefore, we must be mindful of environmental sensitivities while attracting private capital, with an eye on sustainability.
He stressed an effort to work for a technical listing of privately placed infrastructure investment pools such as Neelam Jhelum and Dassu Hydroelectric projects. On similar lines, the GOP must consider using capital markets for all future government-guaranteed infrastructure projects.
Finally, he suggested, necessary tax concessions must also be introduced to incentivize direct investments into infrastructure projects by retail and institutional investors. He concluded that using capital markets is the only viable option for meeting the country’s infrastructure financing needs.
