PIA weighs Rs20bln sukuk to overcome liquidity crisis

KARACHI: Loss-making Pakistan International Airlines (PIA) is expected to raise up to Rs20 billion through sukuk with BankIslami to act as the financial adviser and joint bookrunner, people familiar with the matter said on Monday.

Sources said the proceeds from the issue are expected to lower the losses of the state-owned airline. Amir Ali said it is sort of corporate sukuk as the issuer is a company incorporated under the laws of Pakistan.

“We are coming up with privately-placed listed sukuk for the aviation industry in addition to the Islamic commercial papers and short term sukuk,” Ali told The News without disclosing the name of the issuer. However, it is clear that the issuer will be PIA.

“Since the sukuk is backed by the government of Pakistan guarantee and that the issuer is also majority-owned by GoP therefore it may be classified as sovereign sukuk,” Ali said. Islamic banking industry in Pakistan is growing at a fast pace and so is the demand for the Islamic investment products. In Pakistan, the Islamic banking industry has now grown to more than 16 percent of the overall banking sector and it is expected to grow to 20-25 percent by the year 2023.

“All these efforts are perceiving well for the sukuk market which has been continuously gaining ground in Pakistan’s growing Islamic finance industry considering the higher liquidity and ever rising demand of the shariah-compliant investment products to add on not just the corporate investors, even the government of Pakistan is now more inclined towards Islamic product development and issuance of sukuk, based on different Islamic products to fulfill their financing requirements, to achieve twin objectives of stimulating trading in shariah-compliant debt securities and help plugging the monetary deficiencies,” Ali said.

Furthermore, K-Electric recently launched a listed sukuk of up to Rs25 billion for a period of seven years and also much awaited and anticipated Pakistan energy sukuk – II worth Rs200 billion just marked its first trading day on September 7, 2020 at Pakistan Stock Exchange.

“Point to be noted here is that the sukuk industry has always been lucrative and is one of the most venerated modes for raising funds,” Ali said. “The regulators are immensely supporting Islamic banks in the development of the debt capital market of the country and upgrading of the overall investment standards in Pakistan. It is to be noted that in Pakistan energy sukuk – II, there were a total of 334 participants which were corporate entities and it also included 190 non-banking financial institutions which is quite positive and broadening the investor base by providing much needed depth to the Islamic capital and sukuk market along with competitive price discovery through book building system.”

“We still have a long way to go where the trading systems needs to be aligned with the trading requirement of the sukuk industry, more awareness and training sessions and further easement in the regulations along with shortening of timeliness to broaden the sukuk capital industry which will be essential and prolific for the growth of entire economy and may also support in boosting savings environment in the country,” he said.