LAHORE: Due to a deteriorating financial situation, rising expenditures, inflation, and a significant decline in revenue collection, the Lahore Development Authority (LDA) has decided to overcome the financial crisis.
According to sources, the authority has planned to invest a portion of its pension fund under Tier-II capital (Term Finance Certificates) of the Bank of Punjab (BoP) to generate profits and meet expenses.
In a recent meeting held at the office of the Punjab chief secretary on March 28, 2023, the LDA’s governing body formally approved an initial investment of Rs. 220 million with the Bank of Punjab.
According to the meeting minutes, the government has decided to revamp the structure and nature of existing commodity financing.
The Bank of Punjab proposed the investment of LDA funds in Tier-II capital, which includes profit/markup payments calculated on a semi-annual basis with a profit rate of six months KIBOR+1.25 percent per annum.
The investment would mature after 10 years, with an option for better quality capital (call option) after five years.
Moreover, the minutes highlighted the challenging economic conditions and the impact on the real estate sector, which has significantly affected the LDA’s revenue sources.
The income from commercialization fees and land sales is currently 36% and 82% below the targets, respectively.
On the other hand, the development expenditures of the LDA are increasing due to rising material costs, leading to a compromised liquidity position for the LDA’s Urban Development Wing.
However, the minutes revealed that the LDA’s pension fund still has some surplus funds, despite continuous depletion caused by an increasing number of pensioners and annual pension increases.
The investment aligns with the LDA Act 1975, which allows the authority to invest surplus funds in government securities, government-sponsored saving schemes, or other prescribed methods.
The delegation of powers of LDA, as stated in clause 19, empowers the authority/chairman (governing body) to determine the manner of investing surplus funds.
After thorough deliberations, the LDA’s governing body approved the proposal to invest Rs200 million in the Bank of Punjab’s scheme.
Source: DAWN
