Govt raises Rs5.8bn via Sukuk auction

KARACHI: The government on Thursday raised Rs5.8 billion by auctioning one, three and five years of variable rental rate (VRR) Government of Pakistan (GIS) Ijara Sukuk to help plug the budget gap, the central bank auction result showed.

The first-ever 12-month sovereign Ijarah Sukuk was also auctioned by the government, according to the auction result from the State Bank of Pakistan.

However, the amount generated through these auctions was significantly less than the targeted amount of Rs120 billion.

According to analysts, fewer banks participated in these auctions, because the market anticipates further policy rate increases in the next reviews of the monetary policy.

The SBP increased the benchmark policy rate by 100 basis points to 17 percent in January.

Ahmed Ali Siddiqui, the head of Shariah Compliance at Meezan Bank, said this is the first time that Pakistan is offering a one-year sovereign Ijarah Sukuk in the domestic market with a six-month rental payment.

“It will be another step towards the conversion of government financing to Islamic modes and to provide the financial sector and investors an alternative avenue to invest in Shariah-compliant Sukuk of shorter tenure,” Siddiqui said.

The Sukuk is being offered to all banks, mutual funds, pension funds, the corporate sector, and individual investors looking for Shariah-compliant attractive returns. The Sukuk can also attract high-net-worth local and international Shariah-minded investors and also those who are looking to shift from interest-based National Savings schemes, according to Siddiqui.

Previously after 2018, the finance ministry had issued over Rs2,400 billion worth of Ijarah Sukuk for five years tenure and last month the ministry also conducted the auction for the three-year Sukuk.

The shorter tenure Sukuk can provide the government an option to discontinue 12-month treasury bills after the Federal Shariat Court decision for the elimination of Riba from the financial sector and the finance minister and SBP governor’s announcement to shift to an Islamic banking system in the next five years.

Meezan Bank, along with Dubai Islamic Bank and Bank Alfalah Islamic is acting as joint financial advisor for the Sukuk transaction to the Ministry of Finance and the Sukuk is also approved by the Shariah Advisory Committee of the SBP to ensure its adherence to Islamic law.