Govt will issue Rs200 bn Sukuk-II to ease power sector circular debt

ISLAMABAD: Pakistan is likely to issue another Rs200 billion ‘Pakistan Energy Sukuk-II’ after Eid (third week of August) to resolve the country’s power sector’s ballooning circular debt issue, official of the Ministry of Finance said on Monday.

For this purpose to discuss the modalities of the transaction, the Secretary Finance Division held a meeting with the presidents of the commercial banks constituting a consortium led by the Meezan Bank. The other banks include Habib Bank, Bank Alfalah, Bank Islami, Dubai Islamic Bank, Bank Al-Habib, Bank Albaraka, National Bank of Pakistan, United Bank and Faisal Islamic Bank.

The News, when contacted Secretary Power Division, he was not willing to talk on this issue, however said that the meeting has been held in the Finance Division and that [Finance division] is working on it.

It is worth mentioning that on March 1, the government had issued the same amount of 'Pakistan Energy Sukuk-I’ for the same purpose. The government has targeted to curtail circular debt to Rs250 billion by December 31, 2019.

An official of the Power Division said that power sector’s overall circular debt currently stands at around Rs1410 billion. The banks’ loan stands at Rs603 billion parked into Power Holding (pvt) Ltd and circular debt is Rs807 billion. Already the government had released Rs200 billion to energy companies to reduce circular debt.

The Sukuk amount would be used for easing out the liquidity crunch the energy sector of the country is facing. As the energy sector (government) owes billions of rupees to oil and gas suppliers and other such companies.

For this transaction too, Meezan Bank Ltd would be as lead arranger, while Power Holding (pvt) Ltd. (PHPL) owned by Power Division is the issuer.

This would be floated on the Pakistan Stock Exchange (PSX) under over-the-counter (OTC) listing to raise proceeds. This would have 10-year maturity period. Profit rate will be Karachi Interbank Offered Rate (KIBOR) plus a margin of 80 basis points (KIBOR+0.8pc), official said.

The government would raise shariah-compliant financing/Sukuk through PHPL of Power Division to settle the circular debt, especially of state-owned Generation companies (GENCOs) and power distribution companies.

The Sukuk would be OTC listed in Pakistan 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.

Official said that the Sukuk would be declared Statutory Liquidity Requirement (SLR)-eligible by the government and State Bank of Pakistan. Under it, 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 SBP counter.

Official said that 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.