Govt to launch Rs200bln second Sukuk to ease power debt

ISLAMABAD: The government is set to list another Islamic bond of Rs200 billion in the capital market in May after a similar successful launch earlier this month as it is keen to bring power sector circular debt down to Rs250 billion till the yearend, officials said on Thursday.

Officials told The News that the government is to issue another Rs200 billion ‘Pakistan Energy Sukuk-II’ in May to resolve the power sector’s ballooning circular debt.

The bond will be floated on the Pakistan Stock Exchange under over-the-counter (OTC) listing to raise proceeds. The bond would have a 10-year maturity period. Profit rate will be based on Karachi Interbank Offered Rate (Kibor) plus a margin of 80 basis points (Kibor+0.8 percent).

On March 1, the government raised the same amount from ‘Pakistan Energy Sukuk-I’.

Officials said the government targeted to curtail circular debt to Rs250 billion by December 31. Power sector’s overall circular debt currently stands at Rs1.410 trillion, which includes bank loans of Rs603 billion parked into Power Holding Private Limited (PHPL) and circular debt of Rs807 billion.

The government had already released Rs200 billion to energy companies to reduce circular debt.

Officials said the upcoming fund would be used to ease out liquidity crunch the energy sector of the country is facing. The energy sector (government) owes billions of rupees to oil and gas suppliers and other companies.

The government chose Meezan Bank as lead arranger for the upcoming issue as was the case of the last transaction, while PHPL, owned by the power division, will be the issuer. The financial institution would arrange institutional investors, including Islamic banks, mutual funds and financial investors.

Officials said the government would raise shariah-compliant financing through PHPL of power division to settle the circular debt, especially of state-owned generation companies and power distribution companies.

The latest sukuk would be OTC-listed in the stock exchange, subject to all the relevant waivers, approvals, permissions regarding compliance of all relevant regulations and payments by issuer of all related costs for OTC listing.

A senior official said the sukuk would be declared statutory liquidity requirement- eligible by the government and State Bank of Pakistan (SBP). The government would provide irrevocable and unconditional sovereign guarantee to the investors for all payments of the sukuk. All rental payments and payment at maturity will be payable at the SBP counter.

The official said the ministry of finance would give irrevocable standing instruction/direct debit authority in favour of investors to SBP. The bank would duly acknowledge in writing the confirmation of the standing instructions, the official added.