Govt raises Rs200bln via sukuk to fund circular debt

KARACHI: The government has raised Rs200 billion through a privately-placed Pakistan Energy Sukuk to ease off the burden of power sector’s staggering circular debt, a source privy to this matter said on Friday.

“Meezan Bank Limited has disbursed Rs200 billion to PHPL (Power Holding Private Limited) to settle the circular debt, which has surged more than one trillion rupees (Rs1.14 trillion),” the source told The News.

The issuance would be listed at the equity market within 120 days, the source said, adding that the government was likely to issue the second tranche of the sukuk soon. The government launched the sukuk with the approval of Meezan Bank’s Shariah Board.

Meezan Bank invested Rs88 billion in this sukuk out of Rs200 billion. Meanwhile, Meezan Bank in a statement said that a consortium of Islamic banks led by Meezan Bank helped the government to structure the sukuk. The consortium comprises Bank Islami Pakistan, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank, Al-Baraka Bank, UBL Islamic and National Bank Islamic banking.

The sukuk has been declared Statutory Liquidity Requirement (SLR) eligible by the central bank. The sukuk is asset based and comprises assets of power companies.

The SBP, in its circular, informed all the banks that Pakistan Energy Sukuk issued by Power Holding Private Limited (PHPL) will be an approved security for maintenance of SLR under sub-section (1) of Section 29 of the Banking Companies Ordinance, 1962.

The sukuk is based on Ijarah and has a 10-year maturity with semiannual rental payment. “The sukuk will provide the much needed liquidity to the power sector and help the government to resolve the circular debt crises,” said the statement.

The Economic Coordination Committee (ECC) of the Cabinet in late January approved the launch of Rs200 billion sukuk to help clear part of mounting circular debt in the power sector.

The Economic Coordination Committee (ECC) in November last year decided to secure up to Rs200 billion in Islamic financing on behalf of PHPL against the 43 assets of electric power generation and distribution companies i.e., Gencos and Discos.

The ECC constituted a committee to start consulting mechanism for Islamic financing facility for PHPL through a consortium of banks headed by Meezan Bank. The government is currently negotiating a new loan programme with the International Monetary Fund to ease pressure on the balance of payments. However, the higher circular debt is a source of concern for the the Fund. The Fund has asked Pakistan to formulate a comprehensive strategy to overcome circular debt woes on short-to-long term basis.