The cash-starved government has identified six key unencumbered assets that will be utilised for issuing the domestic and international Ijara Sukuk in order to meet budgetary needs and promote Islamic banking in Pakistan.
These assets include the unencumbered portions of GT Road and Islamabad Expressway, Makran Coastal Highway (N-10) and Indus Highway (N-55), and Islamabad Sports Complex.
Other assets include the unencumbered portions of West Wharf and East Wharf, Karachi, land and hotels of Pakistan Tourism Development Corporation and infrastructure of Islamabad Metro.
The cabinet has allowed the Finance Division to execute a plan in this regard.
In a recent meeting, the Finance Division informed the cabinet that in order to support the budgetary position and promote the Islamic banking industry, the division intended to continue its domestic and international Ijara
Sukuk programmes.
Tangible assets are utilised to structure the Ijara Sukuk transactions.
The meeting was told that so far the Finance Division had undertaken 52 domestic and five international Ijara Sukuk transactions, amounting to Rs3,157 billion and $4.6 billion respectively.
Furthermore, the government issued two Energy Sukuks of Rs200 billion each in 2019 and 2020 to settle the power sector arrears.
In addition to those, the Ijara Sukuk amounting to Rs95 billion was issued to the power producers in 2021 and 2022.
For the domestic Ijara Sukuk, the government has utilised different assets such as the Jinnah International Airport, Karachi, Allama Iqbal International Airport, Lahore, Multan International Airport, and National Highway Authority (NHA) highways and motorways in the past.
For the international Ijara Sukuk, the government has utilised various sections of the M-2 motorway.
After approval of the federal cabinet in its meeting on March 31, 2020, the government initiated a domestic Ijara Sukuk programme, backed by the unencumbered land of Jinnah International Airport, Karachi equivalent to Rs756 billion.
Similarly, with the approval of federal cabinet in June 2021, the government was allowed to continue the Sukuk programme by using the unencumbered sections of NHA highways and motorways, and the assets of Civil Aviation Authority (CAA) as the underlying collateral.
The unencumbered sections of highways and motorways had been almost fully utilised for the issuance of domestic Ijara Sukuk worth Rs1,111 billion, and the structuring of Islamic Naya Pakistan Certificates (NPCs) of around Rs43 billion.
Furthermore, the government used the CAA assets for its ongoing Ijara Sukuk programme with a total value of Rs672 billion. Given the planned Sukuk auctions, it was expected that those assets would be fully exhausted by the end of
June 2022.
After the full utilisation of CAA assets, there will be an urgent need to identify the new unencumbered assets to ensure the uninterrupted issuance of Ijara Sukuk in the domestic as well as international
capital markets.
This will enable the government to meet its target of having 10% Shariah-compliant instruments in the domestic securities by the end of FY23 compared to 6.4% at the end of March 2021.
The Finance Division said that the government may prefer to undertake Sukuk transactions as much as possible, as apart from being an important funding source, it would help in obtaining better pricing as compared to other avenues of raising domestic and external resources like treasury bills (T-bills), Pakistan Investment Bonds (PIBs) and conventional Eurobonds.
It was essential that new assets were identified for the continuation of domestic and international Sukuk programmes, said the Finance Division, which would also explore the possibility of issuing Sukuk using the Asset Light Structure to reduce the volume of assets being consumed in the transactions in future.
Keeping that in view and the urgent need to continue the domestic and international Sukuk programmes and the issuance of Islamic NPCs, the federal cabinet was requested to permit the Finance Division to utilise the identified assets without any conditions.
The cabinet’s approval was also solicited for the issuance of domestic and international Ijara Sukuk, once the unencumbered assets were made available to the
Finance Division.
All transactions will be undertaken after the clearance of documents by the Ministry of Law and Justice and the Attorney General of Pakistan (in the case of international Sukuk).
The size, tenor and rental rate of each transaction will be determined based on the market response received at the time of the issuance.
The cabinet considered a summary titled “Issuance of domestic and international Ijara Sukuk against unencumbered assets of the government”, submitted by the Finance Division, and approved
the proposal.
Published in The Express Tribune, June 30th, 2022.
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