In a first, the Pakistan Stock Exchange (PSX) is all set to facilitate the government in raising Rs30 billion through the auction of one-year Ijarah Sukuk on Friday (today), potentially at a lower rate of return, which the common man can buy with investment of as low as Rs5,000.
Talking to The Express Tribune, lead adviser to the issue Meezan Bank Senior Executive Vice President and Head of Shariah Compliance Ahmed Ali Siddiqui said that it would be a one-year Sukuk with fixed rate of return. “The fixed rental rate (rate of return) will be determined through the auction.”
He hoped that rental payment would be lower compared to the one given by conventional banks and the Shariah-compliant banks in recent auctions as too much liquidity was available and a large number of investors were active at the PSX.
“There is strong expectation the Sukuk (Shariah-compliant bond) will be oversubscribed,” he said, adding that the development of a Shariah-compliant capital market would push down rental rate over a period of time.
On social media platform X, Topline Securities CEO Mohammed Sohail said “we expect the Sukuk yield to stay between 20% and 22% in Friday’s auction.”
He called it a major development where the government was auctioning Sukuk through the PSX. “This is for the first time such a bond auction will be held at the PSX. Earlier, banks used to conduct this.”
The bonds would also be traded at the bourse and would help in the much-needed development of bond market, he said. Now, thousands of retail investors, who invest in stocks through brokers, can also buy the Sukuk.
Arif Habib Limited economist Sana Tawfik said the Sukuk auction would provide an opportunity to investors to lock returns at a fixed rate in the range of 20-22% for one year while the central bank was expected to cut its policy rate by seven percentage points to 15% during 2024.
Read: Significance of Sukuk in Pakistan
Auction prospectus elaborates that a bid can be placed for a face value of Rs5,000 or in multiples of Rs5,000. Rental payment will be made “on maturity”, meaning the fixed return will be given to investors at the completion of one year. For competitive bids, there is no maximum amount. For non-competitive bids, the maximum limit per investor is Rs500 million.
Pakistan Domestic Sukuk Company Limited, a wholly owned subsidiary of the Ministry of Finance, will issue the Rs30 billion Sukuk.
Briefing media recently on the planned launch of the government debt securities’ (GDS) platform, PSX MD and CEO Farrukh H Khan said the stock market and the State Bank of Pakistan (SBP) would jointly float debt securities like T-bills and Pakistan Investment Bond (PIBs) in the near future. So far, the central bank has been conducting the auction of T-bills and PIBs.
Recalling that the government had earlier issued Sukuk worth Rs200 billion at the PSX, Khan said the auction saved billions of rupees in profit payments as investors offered huge financing at a return almost one percentage point lower than the return on bonds issued through conventional means.
Published in The Express Tribune, December 8th, 2023.
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