Rs200b Sukuk issued to reduce circular debt

Eight Islamic banks buy bonds, proceeds of which go <br /> to IPPs, oil and gas firms

KARACHI: The Ministry of Energy has floated Sukuk (Islamic bonds) worth Rs200 billion for Islamic banks in order to partially pay off the circular debt owed to independent power producers (IPPs) and oil and gas utility firms in Pakistan.

“A consortium of eight banks has purchased part of assets of power generation and distribution companies by disbursing Rs200 billion for a period of 10 years at the rate of Kibor plus 0.8%,” a banker involved in the issuance of Sukuk told The Express Tribune.

The ministry has paid the amount to the state-owned Central Power Purchasing Agency (CPPA), which gave it to 65 to 70 IPPs from which the agency had purchased electricity for power distributors and end-consumers.

Accordingly, Pakistan State Oil (PSO), which supplies furnace oil and diesel to the IPPs, got over Rs60 billion. Similarly, the IPPs cleared part of the debt owed to Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL), he said.

“Banks will receive profit (Kibor plus 0.8%) every sixth months under the Shariah-compliant Ijarah (rental income) regulations,” the banker added. “The Sukuk issue has increased working capital of the public utility firms.”



The circular debt stood at Rs1.4 trillion at the beginning of 2019 compared to Rs1.14 trillion sometime during the tenure of previous Pakistan Muslim League-Nawaz government, which completed its term in May 2018.

The debt has piled up due to electricity leakages, theft and low recovery of bills from many state-owned offices, schools, police stations, mosques, monuments and others.

The Ministry of Energy, through Power Holding Private Limited (PHPL), which is 100% owned by the government of Pakistan, issued the first Pakistan Energy Sukuk of Rs200 billion, Meezan Bank, the lead manager and single largest investor in the Sukuk, said in a statement.

“The Sukuk has been declared SLR (statutory liquidity requirement) eligible by the State Bank of Pakistan for all banks in the country,” it said.

“The ministry is also planning to get the Sukuk listed on the Pakistan Stock Exchange (PSX) and a large category of investors will be eligible for investment in the instrument, which will help in the growth of Islamic capital market,” it said.

“The present government has shown keen interest in shifting government borrowing to Islamic modes and the Ministry of Finance and Ministry of Energy are also planning another Sukuk issue of around Rs200-300 billion in coming months,” said Meezan Bank.

“Meezan Bank was appointed as the Shariah adviser to the Sukuk and structured the transaction to ensure its Shariah compliance with the approval of its Shariah board,” it said.

The consortium of eight Islamic banks included Meezan Bank, which provided Rs88 billion through the Sukuk, and Faysal Bank, which invested Rs35 billion.

BankIslami Pakistan bought Rs35 billion worth of Sukuk, Dubai Islamic Bank Pakistan Rs14.15 billion, MCB Islamic Bank Rs10 billion, Al Baraka Bank Pakistan Rs8.85 billion, United Bank Ameen Islamic Banking Rs5 billion and National Bank of Pakistan Aitemaad Islamic Banking Rs4 billion, according to the statement.

Published in The Express Tribune, March 3^rd, 2019.

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