‘Planned sukuk likely to woo foreign investors’

KARACHI: Pakistan’s planned dollar-denominated Islamic bonds are likely to attract great interest from international investors due to improving macroeconomic situation and the restoration of the International Monetary Fund’s loan programme, while the recent trends within the global sukuk markets look favorable for the bond issue, bankers and analysts said on Friday.

The government had planned to launch sukuk worth $750 million to $1 billion, but the plan was delayed after the cabinet rejected the F-9 Park in Islamabad as an asset back guarantee for the issuance of sukuk.

Sources with the knowledge of this matter said the Ministry of Finance is still identifying sufficient assets which could be used to back the sukuk.

Once the list of the assets gets finalised, the government will be in a position to move forward with the process of finalising the timeline for the bond sale.

The structuring of the sukuk and the hiring of the financial advisors for the issuance will begin once the working on the asset finalization is completed, sources said.

“The Ministry of Finance is considering new assets to support sukuk issuance, however, no potential asset has been finalised yet," the source said.

Assets such as the Islamabad Expressway, Allama Iqbal International Airport and F-9 Park can be considered as potential candidates for sukuk structures.

“The government should not ignore the F-9 Park. It must be reevaluated as its worth is estimated at Rs900 billion, which in case of floatation of the bond, will be used to pay investors as profits,” he added.

Shariah-compliant bonds pay investors with profits derived from tangible assets.

The Finance Minister Shaukat Tarin told Bloomberg a few weeks ago that the global sukuk would be launched soon.

“The plan [sukuk] is intact,” Kamran Afzal, special secretary, ministry of finance as well as the ministry’s spokesman told The News.

Sources expect the government to tap global investor appetite for the sukuk somewhere in the next fiscal year.

Muhammad Afaq Khan, the head of Islamic Banking at HBL by email said that international investors have always been supportive of the government’s issuance of sukuk bonds.

“In the future as well, the improving macro- economic situation and the re-initiation of the IMF program will further support a successful issuance for Sukuk Bonds,” Afaq said.

To question that it's the right time to tap the sukuk market, he said "when we look at the global sukuk market, we are confident that there is an ample opportunity for launching a Pakistan paper based on a portfolio allocation methodology".

“Although Pricing is ultimately determined by the market but for a book build basis, it can be a transparent process."

Samiullah Tariq, the head of research at Pak-Kuwait Investment Company said sukuks generally have good demand and better pricing for similar issuers when compared for same tenors. As it is asset backed and there are lesser options for Shariah-compliant investors.

“So I think Pakistan would get better interest and pricing would be finer compared to conventional bonds.”

In April, this year, the government raised $2.5 billion through a multi-tranche transaction of dollar-denominated Eurobonds as it entered the international capital market after a gap of over three years.