The state bank of Pakistan vide its FE Circular no. 04 0f 2021 have now allowed companies to raise funds in the form of convertible loans if the following stipulated criteria is met.
- The borrowing company is incorporated as a private limited/public unlisted company under the Companies Act, 2017 for not more than 7 years, provided that such entity is not formed by splitting up, or reconstruction of a business already in existence.
- The borrowing company has annual revenue below PKR 2 billion since its incorporation.
- The borrowing company has equity (including retained earnings) below PKR 300 million as per latest audited financials.
- The requirement of long-term credit rating shall not be applicable.
- In addition to the eligible lenders (as defined at para 7(i)(b)), funds can be raised from all those investors which are eligible for issuance of shares in terms of Para 6 of Chapter 20 of Foreign Exchange Manual.
- The maturity of such loans shall range from one (1) year to five (5) years. The loans may be rolled-over subject to the condition that its total tenor will not exceed 5 years, in any case.
- The all-in-cost ceiling is given as under:
- One (01) Year to three (03) Years 250 bps
- Above three (03) Years, up to five (05) Years 350 bps
- The borrowing cost ceiling includes spread over relevant benchmark rate, loan related insurance premium, and other loan related fees payable in foreign currency; except the commitment fee, cost & expenses and fees payable in local currency.
- The funds borrowed under this category can be credited in a foreign currency account opened and maintained in terms of Para 9(ii), Chapter 6 of the Foreign Exchange Manual.
- The outstanding loan amount, including accrued profit/mark-up, can be converted in to equity of the borrowing company on or before the maturity of the loan. The borrowing company may issue shares in favor of lender, in accordance with para 6 and 7 of Chapter 20 of Foreign Exchange Manual. However, the shares cannot be issued below the latest break-up value as determined by the external auditors included in the State Bank’s approved list of Auditors.
- The rupee liability of the loan (including accrued profit/mark-up) shall be determined by converting the FCY loan amount, outstanding as per last month-end or quarter-end (in case where last month-end figures are not available) financial statement, in to PKR by using the prevalent mark-to-market exchange rate (midrate) announced by State Bank of Pakistan.