The Pakistani government is set to conduct an auction for local currency Sukuk, also known as Islamic bonds, worth Rs100 billion at the Pakistan Stock Exchange (PSX). This move is part of the government’s broader strategy to diversify its debt portfolio and tap into the expanding market for Shariah-compliant financing.
The upcoming auction will include three-year and five-year papers, offering both fixed and variable rates. Additionally, a one-year Government of Pakistan Ijarah Sukuk with a fixed rate will be presented. Institutional and retail investors at the PSX will have the opportunity to participate in this auction.
A senior banker revealed, “The Ministry of Finance has decided to increase the number of Sukuk offers at PSX, and the papers will be offered to institutional and retail investors at the PSX.” The three- and five-year Sukuk will be issued at face value, while the one-year Sukuk will follow a discount methodology. The rental rate calculation will be based on the auction outcome.
The joint financial and Shariah advisors for this Sukuk issuance include Meezan Bank Limited, Dubai Islamic Bank, Bank Alfalah Islamic, and BankIslami Pakistan Limited.
This move follows the successful auction of a one-year sovereign Sukuk at PSX worth Rs30 billion in December of the previous year. The oversubscription of more than 12 times demonstrated the growing appetite for Shariah-compliant financial instruments. Importantly, the government managed to secure funds at a rate 2.5 percent lower than the prevailing policy rate.
In the prior auction, the cut-off yields for the one-year instruments were set at 19.52 percent, indicating a reduction of 174 basis points compared to the secondary market yields at that time.
The overall Sukuk issuance in Pakistan has surpassed Rs5 trillion, showcasing the country’s commitment to Shariah-compliant financing. The government’s transition away from interest-based borrowing aligns with legal requirements and decisions from the Federal Shariat Court. The strategy aims to contribute to economic development, financial inclusion, and the overall growth of Islamic finance in Pakistan.
The banker emphasized, “This move is a correct step in the right direction from the government, which is required as per law and Federal Shariat court decision to move away from interest-based borrowing and is much needed as Interest is prohibited in Islam for all Muslims and is against the religious requirement.” The government’s commitment to increasing Shariah-compliant financing is expected to have positive implications for the nation’s economic landscape.
