Shares gain 332 points on expectations of circular debt resolution

Shares at the Pakistan Stock Exchange (PSX) continued their bull run on Tuesday, rising immediately after the opening bell.

The benchmark KSE-100 index gained 331.99 points, or 0.81 per cent, to close at 41,522.76 points. It reached an intraday high of 573.18 points, or 1.39pc, around 10:37am.

Dalal Securities CEO Siddique Dalal said the index rose on expectations that the gas sector’s circular debt would be resolved which would result in gas companies paying better dividends.

State-owned companies — Pakistan Petroleum Ltd (PPL), Sui Southern Gas Company Ltd (SSGC), Sui Northern Gas Pipelines Ltd (SNGPL) and Oil and Gas Development Corporation Ltd (OGDC) — performed well and pushed the KSE-100 index higher, he added.

The cement sector also performed better, Dalal said.

Besides this, several companies were buying back shares which was also a positive for the market. Dalal said investor confidence would be strengthened if the government fulfilled its commitment to resolve the circular debt issue and the agreement with the International Monetary Fund (IMF) was done.

Topline Securities Senior Manager Equity Mohammad Arbash said the market rallied on expectations that the government would reach an agreement with the IMF over the weekend.

He also attributed it to reports that the government would settle Rs540 billion circular debt by giving supplementary grants to SSGC and SNGPL, which would, in turn, pay dues owed to OGDC and PPL.

First National Equities CEO Ali Malik also said that oil and gas companies, including PPL, OGDC, SSGC and SNGPL, led the rally on expectations that they would give heavy dividends.

“Besides this, the market is looking towards the IMF. If the deal is done, it will also unlock inflows from other countries and lenders and our balance of payments situation will start improving. Once that has happened, the market will take its position. It is very discounted right now,” he commented.

Circular debt

A delegation of the IMF is currently in Islamabad for discussions on the completion of the ninth review of a $7bn loan programme, which would release $1.18bn that Pakistan needs to stave off default.

The IMF mission and the government were set to begin policy-level talks on Tuesday, after concluding extended technical consultations on Monday.

The government has been left with no other option but to receive additional payment from consumers to retire the power sector debt hovering at Rs1,000bn.

This will be in addition to a slew of other measures, including removal of subsidies and other adjustments, to retire the debt. The move is part of the government’s actions to meet preconditions set by the IMF to resume the loan programme.

The finance and power ministries have already finalised “Revised Circular Debt Management Plan,” based on the Rs2.253 trillion amount as of June 30, 2022.

Under the plan, the government will have to find ways to manage debt of Rs952bn during the current fiscal year, including Rs675bn worth of additional subsidies.

However, the IMF was not on board with it as it sought full financing of the circular debt through tariff measures. Thus, about Rs600bn additional funds would now be recovered from consumers through increase in base tariff on top of outstanding quarterly adjustments from last year.