The federal government will raise Rs100 billion through Ijarah Sukuk auction against 3 highways including Islamabad-Peshawar highway, Pindi Bhattian-Faisalabad motorway and Hassanabdal-Mansehra highway.
The State Bank of Pakistan (SBP) will conduct two auctions on September 30, 2021 for the sale of 5-year Ijara Sukuk worth Rs 100 billion to all Islamic Banks & Commercial banks with Islamic Banking Branches against these three assets.
According to the auction target calendar issued by SBP, some Rs75 billion will be raised through auction of Variable Rental Rate (VRR) Sukuk and Rs 25 billion through Fixed Rental Rate (FRR) Sukuk.
Industry sources said that this is a positive development for the Islamic Banking industry of Pakistan as the fresh Sukuk auction has been announced after a gap of 7-month. M-1 (Islamabad-Peshawar highway and M-4 (Pindi Bhatian-Faisalabad Motorway) are being re-auctioned, while E-35 (Hassanabdal-Mansehra highway) is the new asset for the Ijara Sukuk.
SBP on Monday also issued a transaction structure for the issuance of Government of Pakistan Ijarah Sukuk against these three identified assets. Valuation of the assets is to be carried out by two Pakistan Banks Association (PBA) approved independent evaluators, and the lower of the two valuations will be accepted as the sale price of these assets.
As per transaction structure, Sukuk investors will be identified through auction. Non-competitive bidders may also submit their bid for the Sukuk. For this purpose, non-competitive bidders will authorize any of the primary bidders through signing of an Authorization Form.
Following the purchase of the Sukuk Assets and obtaining possession, the Pakistan Domestic Sukuk Company Limited (PDSCL), acting on behalf of the investors, will enter into an Ijarah Agreement with GoP. These Assets will be leased for a fixed period of 3/5 years or any other agreed tenure and will be divided in rental periods of six months against lease rental payments in accordance with the terms and conditions as specified in the Ijarah Agreement.
Under the terms and conditions of the Ijarah Agreement, GoP will be allowed to nominate any of its affiliates e.g. NHA to use, operate and maintain the proportionate share of investors in the identified/specified assets as its nominee.
The Lease Rentals for each Rental Period will comprise an amount equal to the product. In case of variable rate, the rental rate for such period will be weighted average yield of 6-month T-Bill as decided in last auction or 6-month tenor rate plus the margin as decided in auction of Sukuk.
In case of fixed rate, the rental rate has to be decided in the auction of Sukuk issue and applicable for the entire lease term. The number of days in such rental period divided by 365, and the face value of the Sukuk issue.
The Ijarah Agreement(s) provide that it will automatically terminate if a total loss event occurs and the lessor will be entitled to any insurance/Takaful proceeds payable as a result of the Total Loss Event.
All routine maintenance is to be done by the Lessee whereas all major maintenance will be the responsibility of the Lessor. In case any major maintenance is required, the Service Agent would be under obligation to obtain prior permission from the Lessor, to incur the necessary expenses for carrying out such major maintenance.
The Joint Financial Advisors (JFAs) of GoP will be responsible for proper execution and the legal documentation as per the approved Shariah Structure to ensure Shariah compliance and seamless management throughout the tenor of the Sukuk and at the time of the maturity of the Sukuk. Accordingly, the JFAs will submit a compliance report to Islamic Banking Department of State Bank of Pakistan for each issuance & at the maturity of the Sukuk, and as and when required by Islamic Banking Department of State Bank of Pakistan.
Subsequent to the issuance of first Ijarah Sukuk issue if the GOP is in need of additional funds and instead of issuance of a new Sukuk wishes to raise new funds by way of re-opening, then the State Bank of Pakistan will conduct an auction for reopening of the existing Sukuk Issue.