Pakistan Energy Sukuk-II worth Rs200bln due next week

KARACHI: The government is likely to launch the second Islamic bonds ‘Pakistan Energy Sukuk-II’ worth Rs200 billion during the next week – the issuance which was initially planned in May to help pay off arrears in the power sector grappling with losses, sources said on Wednesday.

A senior financial trader at a foreign bank said all the ground works have been completed for the issuance of ‘Pakistan Energy Sukuk-II’ and “soon agreements would be signed with all the stakeholders, like issuer, adviser, buyers and the legal firms associated with the sale of these bonds”. “The consortium of banks is likely to sign an agreement this week (and) the banks and the government (are) to sign an agreement on the sale of bonds sometime next week in Islamabad,” the trader said, requesting his name to be withheld.

The government had unveiled plan to issue the sukuk in March when it raised Rs200 billion through its first ‘Pakistan Energy Sukuk-I’, which was oversubscribed by 1.5 times due to heavy participation from Islamic banks replete with the liquidity.

Sources said regulatory issues take time to get things in order as lot of the documents have to move from several authorities and due to Ramzan the working hours were short. The maturity period of the bonds would be similar to the last issue with tenor of 10 years and rate of returns of six months Karachi interbank offered rate plus 80 basis points.

Analysts said the bonds would be sold to the Islamic financial institutions, mutual funds and insurance companies as they have enough liquidity but lack avenue to park their funds.

Last time, Meezan Bank Limited provided financing of Rs88 billion, followed by Faysal Bank Limited (Rs35 billion), BankIslami Pakistan (Rs35 billion), Dubai Islamic Bank Pakistan Limited (Rs14.15 billion), MCB Islamic Bank Limited (Rs10 billion), Al Baraka Bank Pakistan Limited (Rs8.85 billion), Islamic division of United Bank Limited (Rs5 billion) and Islamic division of National Bank of Pakistan (Rs4 billion).

The government would use the raised amount to reduce the burden of debts built up in the energy chain and improve the financial health of the companies associated with the power sector, sources said.

The sources said the government is set to contain the power sector’s circular debts to Rs250 billion by December 31.

Energy Minister Omar Ayub in May put the figures of circular debts at Rs450 billion. He told a media conference that the government wanted to bring it down to zero by the end of next year. Sources said the bonds would help alleviate the liquidity crisis facing the energy sector and ease pressure on the companies to clear dues against purchases of petroleum products and liquefied natural gas. Power sector owes billions of rupees to oil and gas suppliers among other companies.