Govt to raise Rs150 billion via Islamic bonds auction at PSX

KARACHI: The government is set to raise Rs150 billion through the auction of one-, three-, and five-year fixed and floating rate local currency Sukuk, or Islamic bonds, at the Pakistan Stock Exchange (PSX) on February 20.

The auction will be held for five denominations of Sukuk: one-year discounted Government of Pakistan Ijarah Sukuk (GIS), three-year variable rate, three-year fixed rate, five-year variable rate, and five-year fixed rate Sukuk, according to an auction calendar issued by the PSX.

Meezan Bank Limited is leading the transaction as a joint financial adviser and Shariah adviser for the issue of Sukuk, along with Dubai Islamic Bank Pakistan, BankIslami Pakistan Limited, and Bank Alfalah Islamic.

This will be the third issuance through PSX, after successful issuances in December 2023 and January 2024, where the government was able to raise approximately Rs30 billion and Rs80 billion respectively.

The Sukuk auction will provide investors an opportunity to invest in a Shariah-compliant instrument and earn returns of up to approximately 20 percent with investments as low as Rs5,000 only.

In contrast to conventional interest-based Treasury bills and Pakistan Investment Bonds, bankers stated that the government is diversifying its funding sources and reducing considerable debt costs with the successful issuance of Sukuk through the local bourse.

Along with this, there appears to be a shift towards Shariah-compliant financing, after the Federal Shariat Court's directive to remove Riba/interest from the financial system by December 2027.

Bankers said the one-year discounted Ijarah Sukuk will be under fresh issuance, while the issuance of three

and five-year variable and fixed rate bonds will be against the reopening of Sukuk issued in the January 2024

auction. This will be the first time a Sukuk will be reopened through auction at PSX.

Reopening of Sukuk is similar to that of issuance of a completely new Sukuk, where the transaction is concluded by purchasing additional shares in the identified asset, which is then leased out via a separate Ijarah agreement executed with the government.

In case of reopening, the investors bid on the purchase price of the Sukuk instead of the rental rate (which is the usual practice), as the rental rate is kept the same as announced for the initial issue, which is being reopened.

The underlying asset, maturity date, rental rate, and rental payout frequency of the reopened Sukuk are kept the same as that of the initial issue.