Treet Corporation plans Rs539 million capital-boosting perpetual sukuk

KARACHI: Treet Corporation Limited, a company specialises in manufacturing high quality razors, has planned to issue capital-boosting Islamic bonds with a perpetual tenor, it said on Thursday.
In its first foray in the Islamic debt capital market, the company plans to raise Rs539.507 million in the form of perpetual and convertible instruments of redeemable capital, Treet said in a bourse filing.
“The overall objective of the proposes issue is to meet the working capital requirements of various business segments of the company and its subsidiary entities, which form part of Treet Group of Companies” Rana Shakeel, Director Finance at Treet Corporation said.
The company has called a meeting on March 31 and it would seek shareholder approval to raise the amount. The sukuk will be issued after approval of the relevant authorities, he added.
Issuance of corporate sukuk is gathering pace, helping broaden country’s Islamic capital market, which in recent years has relied on the government for the bulk of such deals.
Last month the capital market regulator had also announced rules for the issuance of sukuk as part of efforts to strengthen governance and broaden their appeal to investors. The current pipeline of sukuk includes K-Electric, Pakistan Mobile Communications (Mobilink) and Bank Islami Pakistan. The K-Electric planned sukuk worth Rs22 billion would be the country’s largest corporate sukuk to date.
Shakeel said the management is confident that planned financial scheme will reduce company’s conventional borrowings and financial risk resulting in increased profitability.
The sukuk will be listed on the local bourse and could be converted into ordinary shares.
Shakeel said the issue would help removal of mark-up based debt with profit sharing for working capital and expansion requirements. “Convertible sukkuk will reduce borrowing costs, annual financial charges, both in terms of mark-up payments and principal payments,” he added.
In addition to facilitating on-going expansion and working capital management, the issue would also promote broader based equity ownership and increase the free float of the company.
In contrast to the broader market, which closed 0.38 percent up, shares of Treet Corporation fell 1.30 percent following announcement. The share closed at Rs117.65.
Sukuk, Islamic bonds based on religious guidelines such as bans on interest and monetary speculation, have gone mainstream over the years, as borrowers have sought to tap the country’s Islamic financial market’s huge cash pool.
Demand for sukuk is expected to stay solid because Islamic banks, unlike conventional peers, are barred from interest-bearing securities. Besides, higher regulatory capital requirements have put them on the look-out for high-grade Shariah-compliant assets, says a banker.