‘PSX delays book building of Rs200bln energy sukuk’

ISLAMABAD: The government has delayed the book building of Energy Sukuk-II worth Rs200 billion, scheduled to start on Tuesday (today), to later this month, an official said on Monday.

“Due to coronavirus pandemic, the board of directors of power distribution companies could not hold meetings on some of the resolutions,” said a spokesman of the power division. “So, Sukuk launch has been delayed till 14-15th of this month.”

Meanwhile, Pakistan Stock Exchange (PSX) announced the listing of Energy Sukuk-II worth Rs200 billion to help the government curtail swelling financial liabilities of power sector chain.

“Power Holding Limited (PHL), a public sector entity fully owned by the ministry of energy, is issuing a debt instrument to address the liquidity constraints being faced by Pakistan’s power sector,” PSX said in a statement. “This will be the first ever debt issuance through book building in PSX’s history and represents an important milestone.” It didn't disclose book building schedule.

Pakistan Energy Sukuk-II (PES-II) is a government-guaranteed shariah-compliant security of Rs200 billion, having a 10-year maturity with semi-annual profit payment for investors. This is the second issue of the energy sukuk by PHL. In October last year, PSX listed Rs200 billion Energy Sukuk-I.

PSX said the local bourse is playing a key role in helping the government overcome one of its biggest economic challenges i.e. power sector circular debt.

The government decided to issue the debt through the PSX to ensure transparency and competitive bidding. PSX offers a state of the art, book building mechanism which will be used to determine the cut-off spread in basis points over the six months Karachi interbank offered rate that the issuer will pay on semi-annual basis to successful investors. The total issue size will be offered through private placement to eligible investors, followed by a technical listing of the sukuk on PSX.

Farrukh Khan, managing director of PSX said the sukuk issue on PSX through the book building system is a watershed moment in the development in the debt market in Pakistan.

“The government, finance ministry and SECP (Securities and Exchange Commission of Pakistan) are focused on developing the capital market and this is an important step in that direction. We thank them for their support and are grateful that they have taken this important step,” said Khan. “Pakistan is finally following the globally accepted best practice of using a book building methodology to raise debt, which benefits both issuers and investors by bringing transparency and price discovery to the center of the debt raising process. The book building process through the Stock Exchange will benefit the issuer in that it will enable price and demand discovery. Furthermore, it will give access to a wide investor base which will enhance liquidity and secondary market trading. “

Unlike the sukuk issuance by PHL last year, investors who can participate in this issue include banks, financial institutions, companies or corporate bodies, mutual funds, voluntary pension schemes, private funds being managed, insurance companies, securities brokers, funds and trusts, and Individual Investors having net assets of at least Rs2 million. “By widening the scope of potential investors, the issuer will benefit as it increases the likelihood of more accurate price discovery, while a larger group of investors will benefit from this investment opportunity. Given that it is a Government backed security, such an issuance is generally considered risk free and provides stable returns in the long run,” PSX said.

After the security is listed, investors throughout Pakistan and abroad can buy or sell units of the sukuk on the PSX trading platform through their broker. This will provide liquidity and investors will be able to buy or sell the sukuk in line with their investment objectives. In the long run, having a larger investor base will help the government to successfully raise funds from the market at the most competitive rates.