PSX sukuk auction fetches Rs36.07bn for govt, beats target and yield

KARACHI: The government raised Rs36.07 billion from its first auction of one-year Islamic bonds at the Pakistan Stock Exchange (PSX), exceeding its target of Rs30 billion, a finance ministry statement said late on Friday.

The cut off yield for the listed domestic sukuk, or Islamic bond, was 19.52 percent, lower than the 21.4300 percent yield for the conventional one-year treasury bills auctioned last week.

The total bids received amounted to Rs478.78 billion, reflecting a high demand for the sukuk, which is backed by the Islamabad Metro project and uses the Ijarah structure, a sale and lease-back of underlying assets.

The sukuk is part of the government’s plan to raise Rs90 billion through three auctions of government Ijarah sukuk between December 2023 and February 2024, to diversify its funding sources, boost Islamic finance, and develop a sharia-compliant capital market.

The Ijarah Sukuk auction at the PSX ended the monopoly of banks in the bond market as they were investing depositors’ money in government papers instead of extending financing to the private sector for economic activities.

Now, the heavy profit which banks were making alone from the bond market, will reach the common man as well, who can make investment of as low as Rs5,000.

The caretaker Prime Minister Anwaar ul Haq Kakar launched the sukuk at the PSX on Friday morning, and hailed it as a “remarkable achievement” for the entire market ecosystem.

The PSX said the primary market auction of government debt securities (GDS) will now also be held at the exchange, following a change in rules by the cabinet to enable the government to raise debt from the capital markets, in addition to the central bank.

“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,” the PSX said in a statement.

Pakistan has a sizeable Islamic banking sector, with 22 percent of the total banking assets being sharia-compliant as of June 2023, according to the central bank.

The country also has a history of issuing sovereign sukuk in the international market, with the latest issuance of $1 billion in January 2022.