Sukuk oversubscribed by 16 times

Investors offer Rs479b at PSX auction; PM calls it remarkable achievement

KARACHI:

In line with expectations, investors on Friday offered a huge financing of Rs479 billion to the government against the target of Rs30 billion in the auction of one-year Ijarah Sukuk at the Pakistan Stock Exchange (PSX), oversubscribing the offer by 16 times, according to unofficial results.

It was the maiden auction at the PSX by the Ministry of Finance, which has so far held such auctions through the State Bank of Pakistan (SBP). The ministry was yet to announce its official results.

Market observers were keenly watching as to what would be the cut-off yield, which was the key to holding the auction at the PSX.

Two leading research houses speculated that the rate of return (cut-off yield) would be below 20%, which was significantly lower than the average 22% return on one-year T-bills. Last week, Shariah-compliant banks acquired one-year Sukuk at a variable rental rate of “T (T-bills) minus 100 basis points” at the PSX, it was learnt.

design: mohsin alam

A currency market official said the Ijarah Sukuk auction at the PSX ended the monopoly of banks in the bond market as they were investing depositors’ money in government papers instead of extending financing to the private sector for economic activities.

Now, the heavy profit which banks were making alone from the bond market, will reach the common man as well, who can make investment of as low as Rs5,000.

A banker, who was part of the auction, said it was oversubscribed by 13 times at Rs369 billion.

Caretaker Prime Minister Anwaarul Haq Kakar launched the Sukuk at the PSX. Caretaker Finance Minister Dr Shamshad Akhtar was also present.

PSX, in its statement, said that in a landmark development for financial markets, the primary market auction of government debt securities (GDS) was held at the PSX. This follows a change in rules to enable the raising of government debt in capital markets.

Read: Govt poised to float Rs30b Sukuk at PSX

Addressing a ceremony marking the first auction of Ijarah Sukuk at the PSX, PM Kakar said it was the collective responsibility of stockbrokers, SECP and other participants to promote primary market auctions among a diverse group of investors, as it was a remarkable achievement for the entire market ecosystem.

He congratulated all stakeholders for the auction, “aimed at simplifying the participation in government securities, diversifying the investor base and enhancing transparency.”

The PM emphasised that investors had regained confidence after the successful signing of a standby arrangement with the International Monetary Fund (IMF), the execution of the annual budget 2023-24 and improvement in fiscal and external accounts.

The prime minister, who later rang the gong, said it did not only herald the beginning of market transactions but was also a symphony of progress and prosperity.

“The echo reverberates not only within these walls but across the financial corridors of the nation, symbolising our commitment to fostering an inclusive and robust financial ecosystem that welcomes diverse voices and promotes economic prosperity,” he remarked.

He said initially Pakistan’s economy faced multiple challenges at the start of 2023-24, but the government addressed structural and macroeconomic issues to rectify the situation. Collective efforts of all stakeholders successfully brought the economy back on track, leading to a lower dollar rate from Rs307 on September 5 in inter-bank to Rs284 now, which also resulted in a decline in inflation, he added.

He was of the view that the bullish sentiment in the stock exchange was made possible by an improved economy, the participation of foreign investors, a high yield and a stable exchange rate.

The PM said the capital market provided fuel for businesses to expand, create jobs and contribute to the overall development of society. He reiterated the government’s commitment to fostering an environment that would nurture the resilience of the capital market.

Akhtar said “it is a momentous occasion for financial markets and the economy of Pakistan where the government machinery, particularly the Debt Management Office of the Ministry of Finance, has taken the necessary steps, enabling primary market auction of government debt securities at the PSX.” This step is expected to enhance and augment efficiency, flexibility, registering, trading and transfer of the GDS.

PSX MD and CEO Farrukh H Khan stated, “The amendment in existing Government of Pakistan Market Treasury Bills 1998 and Government of Pakistan Ijarah Sukuk Rules 2008 made this possible, which means PSX, in addition to the State Bank, will also be responsible for the primary market auction of GDS.”
(With additional input from APP)

Published in The Express Tribune, December 9^th, 2023.

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