SECP issues qualified capital criteria for NBFCs

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) on Friday issued criteria for qualified capital and its terms and condition for Non-Banking Finance Companies (NBFCs).

The criteria have been issued for those NBFCs which exclusively in the business of issuance of guarantees to enhance the quality debt instruments issued to finance infrastructure projects in Pakistan, namely:

Qualified capital means the aggregate of callable capital and contingent capital (including any drawdown threunder);

Explanation: For the purpose of this clause the expressions:

i. Callable Capital means share capital that, in terms of written agreement entered into between the NBFC and sponsor, shareholder and/or investor, as the case may be, is agreed to be subscribed on the following terms and conditions:

a. the shares shall be fully subscribed over a period of 24 months from the date of the written agreement;

b. during the subscription period specified in sub-clause (a), the obligation to subscribe to shares shall be irrevocable and on demand, at the sole discretion of the NBFC; and

c. the subscription obligation shall be secured by a bank guarantee or standby letter for credit from a commercial bank rated AAA or higher by a credit rating agency registered with the commission;

ii. Contingent Capital means long term commitment for finance that, in terms of a written agreement entered into between the NBFC and a Qualified Financial Institution(s), is provided as a second loss facility on the following terms and conditions:

a. at any time, the contingent capital, in aggregate, shall not exceed one and a half times of the sum of paid up share capital and callable capital of the NBFC;

b. the commitment shall, in accordance with the terms thereof, be irrevocable, confirmed and fully committed;

c. the long term commitment and the finance thereunder shall be available on a revolving basis;

d. the finance under the commitment shall be callable and demand upon a capital event and the sole discretion of the NBFC or on a direction by the Commission (after giving the NBFC a reasonable opportunity of a hearing), which shall be binding on the NBFC; and

e. the commitment shall be replaced by the NBFC if the financing entity ceases to be a qualified financial institution;

iii. Qualified Financial Institution means a local or a international or multilateral financial institution rated AAA by a credit rating agency registered with the Commission;

iv. Capital Event means the depletion of the equity (after the callable capital has been completely drawn down by the NBFC) of the NBFC.

Terms and Conditions:

i. The NBFC shall not take any exposure against the qualified capital unless it has obtained a certificate from its statutory auditor that all the requirements have been complied with;

ii. The certificate shall be supported by a legal opinion from a reputed law firm and a copy of the certificate along with the legal opinion shall be submitted to the commission: and

iii. With regard to its qualified capital, the NBFC, in relevant notes to its financial statements, shall make disclosures, which are necessary for the users to understand its salient features.

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