State Bank of Pakistan is in the process of reviewing the existing foreign exchange regulations in consultation with relevant stakeholders, including Authorized Dealers, in phased manner. The objective of this review is to align these regulations with the changing business environment and to enhance ease of doing business. In this respect, eleven chapters of the FE Manual have already been revised through FE Circulars No. 14 of 2018, 03 of 2019 and 01 of 2021 and placed at the SBP’s website.

2.            In this regard, now Chapter 12 of FE Manual relating to exports has been revised. A number of significant changes have been made in the revised chapter to streamline the existing instructions, remove redundancies and delegate more powers to the Authorized Dealers. Some of the key changes made in the chapter are given hereunder:

1. Paras 11A  (Amended): Regulations on making & dispatch of shipping documents in the name of foreign buyer have been amended to allow SME as well as new exporters to use the facility.
2. Para 15B (New): New paragraph has been added to include instructions relating to execution of export transactions under Pakistan Single Window system.
3. Para 41 (New): Regulatory framework on Business to Business to Consumer (B2B2C) e-Commerce exports has been introduced to facilitate the exporters in selling their products through international digital marketplaces.

4.            The existing chapter of the Foreign Exchange Manual is being replaced with the revised chapter at the SBP’s website, which is available at the following link: https://www.sbp.org.pk/fe_manual/index.htm 6.         Authorized Dealers are advised to bring the above development to the notice of all their constituents for meticulous compliance.

      In order to facilitate the startup companies, in raising convertible debt from abroad, it has been decided to introduce a new category of loan in Chapter 19 of Foreign Exchange Manual. For this purpose, following new paras are being introduced:

7(vii). PSBA mobilized as Convertible Debt

A company may raise funds from abroad in the form of convertible debt i.e. the loan with the option to be converted into equity shares of the borrowing company, subject to following terms and conditions:

1. The borrowing company is incorporated as a private limited/public unlisted company under the Companies Act, 2017 (erstwhile Companies Ordinance 1984) for not more than 7 years, provided that such entity is not formed by splitting up, or reconstruction of a business already in existence.
2. The borrowing company has annual revenue below PKR 2 billion since its incorporation.
3. The borrowing company has equity (including retained earnings) below PKR 300 million as per latest audited financials.
4. The requirement of long-term credit rating (as defined at para 7(i)(a)) shall not be applicable.
5. 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.
6. 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.
7. The all-in-cost ceiling is given as under: 

   Maturity Period	Borrowing Cost Ceiling excluding relevant benchmark rate
   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.
8. 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.
9. 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.
10. 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 (mid-rate) announced by State Bank of Pakistan.

18(xiv). PSBA mobilized as Convertible Debt

• Documentation Requirement:

1. The loan/credit agreement having specific clause(s) regarding conversion of loan into equity shares of the borrowing company.
2. A list of the Directors of the borrowing company along with their National identity numbers/ passport number and certified true copies of the same.
3. Beneficial ownership of the borrowing company.
4. An authenticated copy of the final repayment schedule (as per Appendix V-92).

• • Other conditions:

 

5. On complete disbursement of foreign currency loan, as per the underlying loan agreement, the Authorized Dealer will maintain the Proceeds Realization Certificates (PRC).
6. The Authorized Dealer can affect the remittance of principal, interest and other fees as per repayment schedule, once the loan is registered. A copy of the Proceeds Realization Certificate (PRC), a certificate confirming the applicable benchmark rate and a certificate confirming payment of applicable taxes will be attached with the Form ‘M’ indicating LRN as remittance authority shall be maintained with Authorized Dealer at all times.
7. In case of conversion of outstanding loan amount into equity shares of the borrowing company, the same shall be intimated to the respective authorized dealer who will intimate the changes to the Statistics & Data Warehouse Department, State Bank of Pakistan during the following month, for reporting purposes.

2.       Authorized Dealers are advised to bring the same to the notice of all their constituents for meticulous compliance.  

      Attention of all Authorized Dealers is invited to the instructions contained in Chapter (4) of the Foreign Exchange Manual in terms of which Authorized Dealers may enter into contracts for forward purchase or sale of foreign currencies subject to the regulations set out in this chapter.

2. In order to facilitate Exchange Companies in managing exchange rate risks associated with realization of export proceeds against the export of permissible foreign currency notes, it has been decided that Authorized Dealers may enter into forward purchase transactions with Exchange Companies.

3. Accordingly, a new Para ‘3A’ has been added in Chapter (4) ibid as under:

“Forward Purchase of foreign exchange in US Dollars against export of foreign currencies by Exchange Companies licensed by SBP”.

1. Authorized Dealers may purchase forward the export proceeds in US Dollars received from abroad against export of permissible foreign currencies by Exchange Companies, subject to adherence of following terms and conditions:

1. 1. Forward purchase facility may be provided up to maximum five working days (including both transaction and settlement days).
   2. In case Authorized Dealers purchase forward the export proceeds in US Dollars against exports of permissible foreign currencies for less than five working days, Authorized Dealers may extend the maturity date provided that the total period of forward purchase, including the extended maturity period, does not exceed five working days (including both transaction and settlement days). However, such extensions will be made by closing out the original contract and booking of a fresh contract at the new rate.
   3. Forward purchase may be booked before or after the export shipment.
   4. Exchange Companies are required to bring export proceeds within 5 working days from the date of shipment. In case forward purchase is booked on or after the shipment date, maximum maturity date of forward purchase facility may be up to 5th working day of date of shipment.
   5. Forward purchase may be booked for full or partial value of export proceeds against export shipment.
   6. Forward purchase will be booked based on specific export shipment. For this, Authorized Dealers shall obtain copy of export documents from Exchange Companies. In case of advance booking, copy of confirmed deal ticket shall be obtained from Exchange Companies, while copy of other export documents shall be obtained subsequent to the shipment.
   7. No substitution is allowed for settlement of export proceeds.
   8. Forward contracts, which are not taken up, may be closed out on the date of maturity at prevailing spot rate. Exchange gain, if any, will not be passed on to the Exchange Company, rather the same will be deposited in favor of State Bank of Pakistan by Authorized Dealer. In case of exchange loss, the same will be recoverable from Exchange Company by Authorized Dealer. To this effect, the Authorized Dealer should get consent/agreement signed by the concerned Exchange Company before entering into forward contract. The exchange gain shall be deposited in favor of the State Bank through RTGS Clearing Account No. 427517. In this respect, a consolidated statement regarding all such cases shall be submitted by Head/Principal Office of Authorized Dealers to the Director, Off-Site Supervision & Enforcement Department on monthly basis as per prescribed format (Appendix V-145) in excel file at email ec.osed@sbp.org.pk

4. In addition to above, Authorized Dealers may continue to purchase foreign exchange in Ready, Tom and Spot value dates, from Exchange Companies.”

5. Related F.E. Circular No. 02 dated February 24, 2021 issued to Exchange Companies is attached herewith for ready reference.

Encl: As Above

      Attention of all Exchange Companies is invited to the instructions contained in Para (9)(i)(e), Chapter (3) of the Exchange Companies Manual whereby Exchange Companies are allowed to sell foreign exchange in Ready, Tom and Spot value dates, with banks as counterparty (Interbank Market).

2.   In order to facilitate Exchange Companies in managing exchange rate risks associated with realization of export proceeds against export of permissible foreign currency notes, it has been decided that Exchange Companies may enter into forward sale transaction with banks up to 5 working days against export proceeds in US Dollars. 3.   Accordingly, a new sub-para (e) (i) at Para (9) of Chapter (3) ibid has been added as under: “Exchange Companies may sell forward the export proceeds received from abroad in US Dollars to banks against the export of permissible foreign currencies made on consignment basis through cargo/security companies subject to adherence of following terms and conditions:

1. Forward sale facility may be availed up to maximum five working days (including both transaction and settlement days).
2. In case Exchange Companies sell forward the export proceeds for less than five working days, forward sale period may be extended provided that the total period of forward sale, including the extended period, does not exceed five working days (including both transaction and settlement days). However, such extensions will be made by closing out the original contract and booking of a fresh contract at the new rate.
3. Forward sale may be booked before or after the export shipment.
4. Exchange Companies are required to bring export proceeds within 5 working days from the date of shipment. In case forward sale is booked on or after the shipment date, maximum maturity date of forward sale facility may be up to 5th working day of shipment date.
5. Forward sale may be booked for full or partial value of export proceeds against export shipment.
6. Forward sale will be booked based on specific export shipment. For this, Exchange Company shall provide copy of export documents including deal ticket confirmed with foreign buyer to the bank. In case of advance booking, Exchange Companies will submit copy of deal ticket confirmed with foreign buyer to the bank, while copy of other export documents will be submitted subsequent to the shipment.
7. No substitution is allowed for settlement of export proceeds.
8. Forward contracts, which are not taken up, may be closed out on the date of maturity at prevailing spot rate. Exchange gain, if any, will not be passed on to the Exchange Company, rather the same will be deposited in favor of State Bank of Pakistan by the bank. To this effect, the Exchange Companies are required to provide their consent/agreement in writing as prescribed by the bank before entering into forward contract.

4.   Further, sub-para (i) of Para (4) of Chapter (5) ibid stands revised as under:

“Exchange Companies exporting permissible foreign currencies shall repatriate equivalent US Dollars in their foreign currency accounts maintained with banks in Pakistan. Such US Dollars against exports must be credited in foreign currency accounts within five working days from the date of export of foreign currencies”.

5.   F.E. Circular No. 03 dated February 24, 2021 issued to Authorized Dealers is attached herewith for ready reference. 6.   All other instructions relating to the subject shall remain unchanged. Encl: As Above  

       As Authorized Dealers are aware, the State Bank of Pakistan is in the process of revising the Foreign Exchange (FE) Manual in consultation with different stakeholders, including Authorized Dealers, in the phased manner. In this respect, ten chapters of the FE Manual have already been revised through FE Circulars No. 14 of 2018 and & 3 of 2019 and placed at the SBP’s website.

2.   Now, the following chapter of the Manual also stand revised:

S. No.	Chapter No.	Title of Chapter
1	20	Securities

3.   In the revised Chapter 20, following major changes have been made

1. Policy for equity investment abroad (Para 13) has been revised, attached as Annexure-A.
2. Trading in units of funds quoted on Stock Exchange and investment in units of Mutual Funds registered as Open-end Schemes have been allowed through Special Convertible Rupee Account (SCRA) and NRP Rupee Value Account (NRVA). (Para 9)
3. Non-residents have been allowed to invest in units of private funds established by Private Fund Management Company. (Para 6(B))

4.   In order to implement the revised policy of equity investment abroad (Para 13, Chapter 20 of FE Manual), Authorized Dealers shall set up a separate unit in their Head Offices, which shall be responsible for dealing with cases of equity investment abroad, under the revised regulations, in coordination with the designated branch. The unit shall be staffed with officers well versed with foreign exchange regime and shall be headed by a senior officer. Authorized Dealers shall submit the compliance, in this regard, to this office not later than February 19, 2021. The said unit shall ensure strict compliance with the provisions of policy during processing the cases in collaboration with the designated branches, and referring the cases to SBP where regulatory approval is required. The Authorized Dealer shall maintain complete party wise record of all such investment abroad transactions. SBP shall review these cases during the course of its supervisory assessment processes. In case non-compliance of the provisions of this policy is observed, appropriate enforcement action may be initiated against the delinquent Authorized Dealers under relevant provision of Foreign Exchange Regulation Act, 1947. 5.   The existing chapter of the Foreign Exchange Manual is being replaced with the revised chapter at the SBP’s website which is available at the following link: https://www.sbp.org.pk/fe_manual/index.htm. 6.   Authorized Dealers are advised to bring the above development to the notice of all their constituents for meticulous compliance. Encls: Annexure-A