Pak Govt Plans Rs125-150 Billion Ijara Sukuk Issue by July

KARACHI: The government is looking to raise as much as Rs150 billion by issuing fresh Ijara Sukuk in the domestic market in July 2017 to help finance its growing budget deficit, industry officials said on Tuesday.

The planned 18th Ijara Sukuk could be issued against the assets of M1 motorway Peshawar-Islamabad and M3 Pindi Bhattian to Faisalabad. One of the previously issued Sukuk is maturing next month.

The finance ministry has appointed a consortium of three financial advisors to help execute upcoming Sukuk transaction for raising funds from the capital market, according to a banker connected to a deal.

“Meezan Bank, Bank Alfalah and Dubai Islamic Bank have been hired by the Pakistan Domestic Company Limited to make all arrangements necessary for the floatation of the bond,” the banker said.

“The financial advisors have started working on the structure and valuation process of the planned issuance… and we expect the government will be in a position to launch this [Sukuk] by the start of next fiscal year, hopefully in July.”

The banker said the expected three-year Shariah-compliant paper would also provide Islamic lenders an avenue to park their surplus funds.  “We [financial advisors] are suggesting three to five years tenors for the said issuance but there-year is most likely as an issuer usually chooses three-year tenor.”

Bankers said the long awaited move is encouraging as the Islamic banks need Shariah-compliant instruments to place their surplus liquidity. The issue is expected to provide some relief to Islamic banks in managing their excessive funds.

“This is a positive development for the industry … more Sukuks and liquidity deployment solutions are needed for the development of the Islamic banking industry,” said Azhar Aslam, head of Islamic banking at Standard Chartered Bank.

Pakistan has seen strong growth of Islamic investment funds which has fueled demand for Sukuk. Islamic mutual funds held 242.7 billion rupees ($2.3 billion) in assets as of December, or 37 percent of the total.

Around two-thirds of assets in the country’s voluntary pension system are now managed under Islamic principles. Still Islamic banks are facing difficulties in managing their huge deposits in the absence of fresh Islamic paper by the government. The government raised Rs866 billion funds through the sale of the Government Ijara Sukuk (GIS) between September 2008 and March 2016.

There were only two new issues of Ijara Sukuks during the last year.   The share of the Islamic banking institutions (IBs) in the domestic debt is less than four percent, while the rest of 96 percent accounts for the conventional banks.  However, the Islamic banking industry is growing at 13 percent.

Originally published on www.thenews.com.pk