KARACHI: The new government is all set to issue its first domestic sukuk of around Rs200 billion to reduce inter-corporate circular debt in the energy sector that piled up to over one trillion rupees, people familiar with the matter said on Thursday.
“The government may offer as much as Rs200 billion of energy sukuk to investors (although), the timeline for the issuance will be finalised next week,” a senior bank official, who attended a meeting in Islamabad to discuss the matter, told The News.
“The whole size and the tenors are yet to be determined,” the official added. “Financing requirement for circular debt is between Rs500-600 billion.” On Thursday, Finance Minister Asad Umar presided over a meeting of senior representatives of different Islamic banks on matters pertaining to launch of sukuk by the Power Holding Private Limited (PHPL).
“A consortium of Islamic banks has been assigned the task to coordinate with the government and facilitate it for the launch,” a finance ministry’s statement said. “He (finance minister) assured the delegation of all-out support from the government for the planned launch of Islamic sukuk which aims to generate sufficient finances to ease out liquidity of the power sector.”
Representatives of Islamic banks told the meeting that most of spadework has already been completed and only minor irritants have been left to be removed. While the circular debt has exceeded one trillion rupees, the debt parked into PHPL amounts to Rs582 billion.
Sources said the government picked six Islamic banks to arrange the maiden sukuk issuance with Meezan Bank leading the syndicate. Banks would use diminishing musharaka or ijara for the transaction. The Economic Coordination Committee (ECC) of the cabinet last month decided to secure up to Rs200 billion in Islamic financing through PHPL against the 43 assets of power generation and distribution companies.
The ECC constituted a committee to start consultation on Islamic financing facility for PHPL through a consortium of banks, headed by Meezan Bank. The committee has so far failed to finalise the mechanism for the repayment plan of power firms. Analysts said the Islamic financial industry requires shariah-compliant avenues to park their surplus funds.
“Currently, there is a dearth of shariah-compliant investment opportunities, limited availability of money market instruments and absence of Islamic SBP (State Bank of Pakistan) standing facility,” an analyst said. Analysts said Islamic lenders with surplus liquidity are forced to have lower returns than conventional peers, constricting growth of their balance sheets.
The market share of Islamic banking industry stands at 13.6 percent of total banking assets and 14.7 percent in terms of total deposits; although the industry has grown over 20 percent during the last five years. Representatives of Islamic banks apprised the finance ministry’s meeting about the progress for the sukuk launch. Finance Minister appreciated the increasing role of Islamic banks in the overall banking sector and their potential for providing strength to economy.
