KSE-100’s unstoppable surge tops historic 66,000 mark

As expected, extraordinary response to first one-year sovereign Islamic paper bidding at local exchange, says analyst

December 09, 2023
Digital monitor showing the share prices at the Pakistan Stock Exchange (PSX) in Karachi. — INP/File

KARACHI: The first auction of a one-year listed domestic sukuk, held at the Pakistan Stock Exchange (PSX) on Friday, drew a strong demand from investors, as it was oversubscribed by 13 times, receiving bids more than Rs400 billion, bankers said.

The government intended to raise Rs30 billion through this auction, but a banker said bids totaling Rs396 billion were received; hence, the auction was about 13 times oversubscribed considering the value of the sukuk’s asset.

The bankers anticipate that this paper will yield between 19 and 20 percent, even though the finance ministry has not yet revealed the specifics about the funds raised via the sale of sukuk and the cut-off yields the government intended to pay the investors on these investments.

“As expected, extraordinary response to the first one-year sovereign Islamic paper bidding at the local exchange,” said Mohammed Sohail, the CEO at Topline Securities.

“Total participation of Rs479 billion compared to the target of Rs30 billion. Soon, the government will decide the amount to raise and cut off yield,” Sohail added.

The sovereign sukuk is backed by Islamabad Metro (Islamabad Portion) and uses the Ijarah structure, a sharia-compliant sale and lease-back of underlying assets. The joint financial and Shariah advisors for the issuance are Meezan Bank Limited, Dubai Islamic Bank (Pakistan) Limited, BankIslami Pakistan Limited, and Bank Alfalah Limited.

The government plans to raise a total of Rs90 billion through three government Ijarah sukuk auctions between December 2023 and February 2024.

On Friday morning, caretaker Prime Minister Anwaar ul Haq Kakar launched the sukuk at the PSX.

Addressing the ceremony marking the first auction of the government Ijarah Sukuks issued on the local bourse, he said it was the collective responsibility of the stock brokers, SECP, and other participants to promote the upcoming primary market auctions to a diverse group of investors, as it is a remarkable achievement for the entire market ecosystem.

According to a statement issued by the PSX, the primary market auction of Government Debt Securities (GDS) will now also be held at the PSX.

This follows the change in rules by the cabinet to enable government debt to be raised from the capital markets, in addition to the State Bank of Pakistan.

For the first time, one year GoP Ijarah Sukuk will be launched from the Stock Exchange platform in the first phase. In this context, the PSX has notified, in coordination with the Debt Management Office of the Ministry of Finance, a quarterly auction calendar whereby the first primary market auction will be held via the Capital Market Infrastructure Institutions (CMIIs) on December 8, 2023.

Caretaker Federal Minister for Finance, Revenue, and Economic Affairs Dr. Shamshad Akhtar welcomed the prime minister and said, “It is a momentous occasion for the financial markets and the economy of Pakistan where the government machinery, particularly the Debt Management Office at the Ministry of Finance, has taken the necessary steps enabling primary market auction of Government Debt Securities at the PSX.

“This step is expected to enhance and augment the efficiency, flexibility, registering, trading, and transferring of the GDS. We are proud of this achievement as this will revolutionise the way primary market auctions will henceforth be held through the capital market ecosystem. The Ijarah Sukuk is a monumental and innovative product. It is the first time that a breakthrough has been achieved whereby the Ijarah Sukuk auction will be held through the capital market ecosystem from today onwards. My compliments to the SECP chairman and the CEO PSX, their teams, as well as my colleagues in Islamabad, particularly the Debt Management Office, who worked tirelessly for this remarkable achievement”.

Chairman SECP Akif Saeed stated that government securities were an important tool for the development of the capital market and that the launch of GDS at PSX was just the beginning.

He urged the PSX, brokers, insurance companies, and asset managers to concentrate their efforts on marketing to attract new investors to the capital market.

Welcoming the guests at the gong ceremony, MD and CEO of PSX Farrukh H. Khan stated, “It is a very exciting moment for the Exchange whereby the primary market auction of GDS will now take place through the Exchange platform as well. The amendment to the existing Government of Pakistan Market Treasury Bills 1998 and Government of Pakistan Ijarah Sukuk Rules 2008 made this possible which means PSX, in addition to the State Bank, will also be responsible for the primary market auction of GDS. We welcome the fact that the Pakistan Stock Exchange’s platform will be utilised for the primary market auction of the first phase of the one-year GoP Ijarah Sukuk by leveraging the capital market ecosystem comprising of state of the art auction system of PSX, settlement system of NCCPL and the custodial services of CDC. This will generate interest from a wider investor base, enhance transparency, result in competitive pricing of the GDS, and lower the cost of debt for the government.”

Pakistan opened up the Islamic bond market to retail investors with first listed sukuk. This will also help diversify government funding sources, boost Islamic finance, and develop a Sharia-compliant capital market.

Meanwhile, the stocks reached a record high on Friday, breaking two key resistance levels in one session, as investors cheered the falling oil prices, foreign buying and strong domestic liquidity.

They said the market witnessed another historic day, as the benchmark index shattered two psychological thresholds, soaring past 65,000 and 66,000 points during intraday trading to close at an unprecedented high.

The Pakistan Stock Exchange’s benchmark KSE-100 index gained 2.33 percent or 1,505 points to close at 66,223.63 points, the highest level ever recorded. It also posted the fifth-largest daily point gain in its history and the largest weekly point gain of 7.34 percent.

The index gained 4,532.38 points this week, surpassing the previous weekly point gain record achieved in April 2020. The index sustained its winning streak for the tenth consecutive week, the longest since 2021.

The market’s bullish momentum was evident from the opening bell, with the index swiftly breaching the 65,000-point mark. The rally continued unabated in the second half, propelling the index beyond 66,000 points.

Analysts said there was a flush of domestic liquidity pouring into the market as investors were rightly focusing on the cheap valuations, a reasonably settled top-down environment, and lots of room for institutional money to rotate into equities.

Mohammed Sohail, Chief Executive of Karachi-based brokerage firm Topline Securities, attributed the bull run to declining oil prices and continuous foreign buying.

He noted that investors had a new-found confidence in the direction of economic policies and were taking advantage of low valuations as the market, even with its gains, was trading at a cheap price-to-earning ratio.

Analysts also attributed the bullish trend in the market to the latest development on the IMF front after it praised the actions and policies of the Pakistani authorities, attributing them to the overall enhancement of the economic situation.

The IMF’s executive board is scheduled to meet on January 11, 2024, to consider final approval for disbursement of the next $700 million tranche from its current loan program.

“Stocks closed new record surge and new all-time high amid rupee stability and government’s plan to launch of Rs90 billion auctions on Islamic Ijarah Sukuks to retail investors to diversify funding,” said Ahsan Mehanti at Arif Habib Corp.

He said that the falling external debt, positive outcome of SIFC initiatives and expectations for a current account surplus in November 2023 played a catalytic role in the new record close at PSX.

The index remained positive throughout the day, showing an intraday high of 66,273.73 (+1,555.65) and a low of 65,055.17 (+337.10) points. The total volume of the KSE-100 index surged to another record high of 818.337 million shares.

Of the 100 index companies, 66 closed up, 24 closed down, one was unchanged, while nine remained untraded.

The index was supported by commercial banks with 695.74 points, fertilizer with 183.92 points, oil & gas exploration companies with 181.05 points, oil & gas marketing companies with 97.48 points, and power generation & distribution with 92.57 points.

The index was let down by automobile assembler with 11.38 points, refinery with 2.01 points, glass & ceramics with 1.09 points, vanaspati & allied industries with 0.54 points, and woollen with 0.1 points.

Companies adding points to the index were MCB with 166.44 points, HBL with 150.02 points, BAHL with 105.17 points, UBL with 101.44 points, and EFERT with 88.76 points. Companies that dragged the index lower were SYS with 22.13 points, MTL with 14.06 points, LUCK with 10.66 points, BWCL with 6.28 points and UPFL with 5.59 points.