Pakistan, China extend currency swap agreement

The SBP can purchase yuan from the PBOC against the rupee, and repurchase its local currency with the same yuan on a predetermined maturity date and exchange rate. (Shutterstock)
Updated 25 May 2018
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Pakistan, China extend currency swap agreement

  • The arrangement will ease pressure on dollar-based foreign exchange reserves while importing machinery for CPEC-related projects, say financial experts
  • The CSA amount has been increased from 10 billion yuan to 20 billion, and from 165 billion rupees to 351 billion

KARACHI: The State Bank of Pakistan (SBP) on Thursday said it has extended a currency swap arrangement (CSA) with the People’s Bank of China (PBOC) for three years in their respective local currencies.
The central banks also agreed to increase the CSA amount from 10 billion yuan ($1.56 billion) to 20 billion, and from 165 billion Pakistani rupees ($1.43 billion) to 351 billion. 
A CSA allows parties to exchange payments in one currency for equivalent amounts in the other to facilitate bilateral trade settlements, providing liquidity support to financial markets.
“The increase in the CSA amount reinforces the commitment of the two central banks to promote the usage of local currencies in bilateral trade and investment, and strengthen financial cooperation between the two countries,” the SBP said.
The CSA was signed on Dec. 23, 2011, to promote bilateral trade and finance direct investment between the two countries in their respective currencies.
Financial experts term this agreement and its continuation a big development, especially in the presence of the ongoing projects under the China-Pakistan Economic Corridor (CPEC).
“In the presence of CPEC (the China-Pakistan Economic Corridor), this is a huge development since it will ease the pressure on foreign exchange reserves needed for the import of machinery to undertake CPEC-related projects,” said Muzamil Aslam, senior economist and CEO of EFG-Hermes Pakistan.
Since the CSA is a bilateral financial transaction, all terms and conditions apply equally to both countries, and the pricing is based on standard market benchmarks, which are widely accepted in both domestic markets. Both banks will be able to draw on the swap line anytime during the tenure of the swap. 
The SBP can purchase yuan from the PBOC against the rupee, and repurchase its local currency with the same yuan on a predetermined maturity date and exchange rate.
Similarly, the PBOC can purchase rupees against the yuan, for which standard market pricing will apply. Pakistan’s foreign exchange reserves have plummeted to $16.6 billion. 
“The CSA will help Pakistan avert pressure on the US dollar since exports between Pakistan and China will take place in their local currencies,” Aslam told Arab News.
“It will also ease pressure on the current account deficit, as we will have to pay in Chinese currency instead of the dollar.”
Muhammad Sohail, senior financial expert and CEO of Topline Securities, said: “This is a short-term step to avert a major foreign exchange reserves crisis. Pakistan needs to seriously take measures to boost its exports and curtail its imports.”
This is the second CSA that the SBP has signed, the first one being with the Central Bank of Turkey on Nov. 1, 2011.


JC Decaux pursues $810 million bid for Australia billboard firm APN

Updated 10 min 52 sec ago
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JC Decaux pursues $810 million bid for Australia billboard firm APN

PARIS: French outdoor advertising company JC Decaux said it was still in talks with Australian billboard firm APN Outdoor Group over its offer to buy APN, currently worth around $810 million.
The statement from JC Decaux came after APN itself lost out in a bid for advertising firm Adshel, part of a series of deals in the lucrative Australian outdoor advertising market. The French group is one of four companies controlling an industry estimated to be worth some $660 million in Australia.
JC Decaux’s offer had in fact been conditional upon APN scrapping its $424 bid for HT&E’s Adshel outdoor advertising division Adshel. A deal for APN to buy Adshel would have increased the competitive pressure on JC Decaux’s local business.
JC Decaux, which sells ads on bus stops and billboards, has offered A$6.52 per APN share, valuing APN at around A$1.09 billion ($808.8 million).
“Until a transaction is agreed between the parties, there is no certainty that the proposal will result in any transaction. JC Decaux will continue to update the market in relation to the proposal,” JC Decaux said in a statement.
Last week, APN had called JC Decaux’s offer “modest” and had decided against backing down on its proposal to buy Adshel. In the event, APN was beaten out by rival Ooh!Media Ltd. in the fight to buy Adshel.
JC Decaux shares were up 0.5 percent on Monday, while shares in APN had been temporarily suspended.
APN and Ooh!Media rank first and second in the billboards and outdoor advertising market in Australia, according to research firm IBISWorld. JC Decaux ranks as the third-biggest in Australia, while HT&E ranks fourth.
The mergers and acquisitions activity within the Australian outdoor advertising sector has drawn close scrutiny from regulators, which had last year blocked a merger between APN and Ooh!Media.