ISLAMABAD: The finance ministry has finalised plans to issue Rs100 billion Sukuk bonds before the end of current fiscal year to retire the circular debt that has been a major concern for the power generation companies, oil suppliers, refineries and exploration companies.
“The Rs100 billion denominated Sukuk bounds will be floated in May this year and the target investors are religious-minded people with cash in hand,” said a senior official of the finance ministry.
Initially the finance ministry proposed to float Islamic papers with one year maturity period, but the State bank objected saying the central bank had already floated one year Treasury Bills.
“The ministry is now considering other options for the non-interest based bond to be launched on the pattern of Pakistan Investment Bonds (PIBs), the official said. The cut-off yield on the proposed Sukuk bonds would be around 12.7 per cent as is on the PIBs.
“The Government of Pakistan will be the sovereign guarantor of the sukuk bond issue,” the official said and added that the government needed additional liquidity to check further increase in the circular debt. The circular debt has again reached to Rs150 billion mainly due to limited collections by the eight electricity distribution companies.
The official said that the sukuk bond was expected to be heavily oversubscribed due to availability of liquidity in the Islamic banking system.
“As the Islamic banks have limited options to invest in Sharia-compliant modes, these bonds would offer an attraction to them,” he added.
It is estimated that around Rs50 billion are available with the Islamic banks, but their lending ratio is low compared to the deposit ratio.
PIBs and Sukuk bond are permanent debt and this time the government wants to raise money from Islamic banks to settle the circular debt of power sector once for all. Under the IMF conditionality which requires zero borrowing from the State Bank, the government is now heavily borrowing from commercial banks.
The government had shifted Rs85 billion circular debts to the Power Holding Company through issuance of Term Finance Certificates (TFCs) last year, which were bought by the commercial banks.
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