The Pakistan Stock Exchange (PSX) is scheduled to hold its next auction to sell one to five-year Sukuks on Tuesday (February 20), helping the cash-strapped government raise a targeted Rs150 billion at apparently comparatively lower rates of return.
This would be the third auction in a row since December 2023. The key element to be observed by financial experts would be to see the cost of financing, which remains the single most important element of shifting such auctions to the national bourse from the State Bank of Pakistan (SBP).
The availability of ample liquidity with investors – from various financial institutions – at the stock market has helped in borrowing the required financing at relatively lower rates in the previous auctions held in December 2023 and January 2024 at PSX compared to conventional one-year T-bills and three to five-year Pakistan Investment Bonds (PIB).
The auctions arranged by the central bank to sell T-bills and PIBs did not mostly receive bids from investors like asset management companies, mutual funds, pension funds, high net worth individuals, and retail investors, and the participants in the auction mostly remained commercial banks.
In a comment, a joint issuer of the Sukuk, Meezan Bank official Ahmed Ali Siddiqui said, “With the successful issuance of Sukuk, the government is not only saving significant costs as compared to interest-based T-bills and PIBs but also shifting towards Shariah-compliant financing in line with the Federal Shariat Court decision to eliminate riba/interest from the financial system by December 2027.”
Read Govt raises Rs86b in Sukuk auction at PSX
In the previous two auctions at PSX, the Ministry of Finance has successfully raised approximately Rs30 billion and Rs80 billion in December 2023 and January 2024, respectively.
The auction scheduled for Tuesday will sell five Sukuks, namely one-year discounted Ijarah Sukuk, three-year variable rate Ijarah Sukuk, three-year fixed-rate Ijarah Sukuk, five-year variable rate Ijarah Sukuk, and five-year fixed-rate Ijarah Sukuk.
The one-year discounted Ijarah Sukuk will be under fresh issuance, while the issuance of three and five-year variable and fixed-rate Sukuks will be against the reopening of Sukuk issued in the January 2024 auction. This will be the first time a Sukuk will be reopened through auction at PSX.
The reopening of Sukuk is similar to that of the issuance of a completely new Sukuk where the transaction is concluded by purchasing an additional share in the identified asset, which is then leased out via a separate Ijarah agreement executed with the government of Pakistan.
Published in The Express Tribune, February 18th, 2024.
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