PTI government gets Rs300b bids for Sukuk

The Express Tribune/19-05-2020

ISLAMABAD: The federal government has received roughly Rs300 billion worth of bids from investors who have oversubscribed the Sukuk that the authorities have floated to raise funds to settle nearly 20% of circular debt. The Islamic bond was oversubscribed by 50% with bids of more than Rs300 billion on the first day. Although the finance ministry has not yet discovered the price, it expects the price to be Karachi Interbank Offered Rate (Kibor) plus around 0.2% to 0.3%. This price is better than the return of Kibor plus 0.8% that the government is paying on the first Energy Sukuk issued last year to settle Rs200 billion worth of circular debt. A key reason for the oversubscription is better return as compared to the five-year Ijarah Sukuk that investors bought in return for Kibor plus negative 1.25%. The Ijarah Sukuk settlement is directly made by the government, while in the case of Energy Sukuk, Power Holding Limited will make the payments.

The Islamic bond has been floated to raise Rs200 billion to retire some of the circular debt that has recently touched Rs1.2 trillion. There is another Rs804-billion circular debt that has been parked in Power Holding Company after taking commercial loans, taking the total circular debt to Rs2 trillion. It was the third attempt to float the Sukuk, as earlier the government had twice invited bids directly from Islamic banks and Shariah-compliant financial institutions for Rs200 billion worth of bond under the Pakistan Energy Sukuk-II (PES-II) since July 2019, but cancelled both, considering the process was not transparent and more investors should participate.

The PES-II is 100% SLR eligible, meaning banks may use it to meet SLR limits. The amount generated from the PES-II will also be used for the settlement of partial circular debt related to the power sector. For the first time, bonds have been issued through the book-building mechanism. Ordinary investors were allowed to participate and buy government securities. Apart from the banking sector, other eligible investors include mutual funds, voluntary pension schemes and private funds being managed by non-banking finance companies (NBFC), insurance firms, stockbrokers, funds and trusts as defined in the Employees Contributory Funds, and even individual investors having net assets of at least Rs.2 million.