Auction will offer three-year and five-year papers with both fixed and variable rates 
An investor talks on his phone at the Pakistan Stock Exchange. — AFP/File
KARACHI: The government will hold an auction for local currency Sukuk, or Islamic bonds, worth Rs100 billion at the Pakistan Stock Exchange (PSX) on Tuesday, as it seeks to diversify its debt portfolio and tap into the growing market for Shariah-compliant financing.
The auction will offer three-year and five-year papers with both fixed and variable rates, as well as a one-year Government of Pakistan Ijarah Sukuk with a fixed rate, bankers said "The Ministry of Finance has decided to increase the number of Sukuk offers at PSX, and the papers will be offered to institutional and retail investors at the PSX," said a senior banker.
The three- and five-year Sukuk will be issued at face value, while the one-year Sukuk will be issued using a discount methodology. The outcome of the auction will be used to calculate the rental rate, he added.
Meezan Bank Limited, along with Dubai Islamic Bank, Bank Alfalah Islamic, and BankIslami Pakistan Limited, is the issue's joint financial and Shariah advisor.
The government successfully auctioned a one-year sovereign Sukuk at PSX worth Rs30 billion in December of last year. The last issue was oversubscribed by more than 12 times. The government was able to raise the Shariah-complaint fund at a rate that was 2.5 percent lower than the policy rate.
In the previous auction, the one-year instruments' cut-off yields were set at 19.52 percent, which was 174 basis points less than the secondary market yields that were prevalent at the time.
The overall total Sukuk issuance in Pakistan has reached over Rs5 trillion and the government has also saved a significant amount in terms of financing cost when compared to interest-based treasury bills and Pakistan Investment Bonds.
“This move is a correct step in the right direction from the government which is required as per law and Federal Shariat court decision to move away from interest-based borrowing and is much needed as Interest is prohibited in Islam for all Muslims and is against the religious requirement,” said the banker.
“It is hoped that this strategy of increasing Shariah-compliant financing to replace the conventional loans of the government will contribute to economic development, financial inclusion, and growth of Islamic finance in the country.”
