Government has borrowed some Rs 5.5 billion through the auction for the first-ever 1-year tenure Ijarah Sukuk.
The maiden auction for the first-ever 1-year tenure sovereign domestic Ijarah Sukuk was held on February 16 and was organized by the State Bank of Pakistan, according to a recent announcement from the Minister of Finance (SBP). To guarantee that the Sukuk adheres to Islamic law, it is also approved by the SBP’s Shariah Advisory Council.
The total amount of bids received, according to State Bank, for the sale of Government of Pakistan Ijara Sukuk (GIS) 1-Year, GIS 3-Year, and GIS 5-Year Variable Rental Rate (VRR) bonds were Rs 10.663 billion. These include offers for the sale of GIS 1-year, 3-year, and 5-year Sukuk totaling Rs 10.622 billion, Rs 28.10 million, and Rs 13.5 million, respectively.
In total, the sale of VRR Ijara Sukuk resulted in Rs 5.801 billion for the federal government. In contrary to the initial aim of Rs 30 billion established by the ministry of finance, about Rs 5.515 billion was borrowed through the sale of GIS 1-year. Similar to this, Rs 28.1 million and Rs 3 million in Ijara Sukuk were financed against sales of 3 and 5-year bonds, respectively. The auction for the GIS VRR also accepted non-competitive offers totaling about Rs 255 million.
Ijarah Sukuk transaction structure unveiled
The GIS Fixed Rental Rate (FRR) was also put up for auction by the SBP, and bids totaling Rs 3 million were submitted for the sale of the 1-year and 3-year GIFS FRR. Only Rs 0.5 million, however, was approved for the GIS 1-year. The Sukuk has a 17.5 p.a. return.
It will be another step towards transforming government financing to Islamic modes and offering the financial sector and investors an alternative avenue to invest in Shariah-compliant Sukuk of shorter tenure, according to Ahmed Ali Siddique, Head of Shariah Compliance Meezan Bank. Pakistan is offering a 1-year sovereign Ijarah Sukuk in the domestic market with a 6-month rental payment.
He stated that all banks, mutual funds, pension funds, the corporate sector, and private investors searching for Shariah-compliant attractive returns are being given the Sukuk. The Sukuk can also draw high-net-worth individuals who are interested in investing in Shariah-compliant securities locally and internationally, as well as those who want to switch from CDNS’s interest-based national saving programmes.
After the Federal Shariat Court’s decision to remove riba from the financial sector and the Finance Minister and SBP Governor’s announcement that the country would switch to an Islamic banking system within the next five years, Ahmed hoped that the introduction of one-year GIS would give the government an option to stop issuing 12-month T-bills.