Karachi
The government is set to raise Rs150 billion with the reopening of its existing five-year Ijarah Sukuk issuance, maturing in July 2025, a circular issued by the central bank said on Wednesday. The move could support the budgetary position and deepen the Islamic banking industry, it added. The Sukuk was originally issued last month. “Subsequent to the issuance of first Ijarah Sukuk issue, if the Government of Pakistan is in need of additional funds and instead of issuance of a new Sukuk wishes to raise new funds by way of reopening, then the State Bank of Pakistan will conduct an auction for reopening of the existing Sukuk issue,” the SBP said in a circular.
The central bank also released the auction target calendar for the sale of fixed and variable rental rate Government Ijarah Sukuk (GIS) from August to October 2020. The auction will be the reopening of July 29 issuance.
The reopening of the previously issued Islamic bonds will be against Jinnah International Terminal. Pre-auction target was set at Rs60 billion for fixed rental rate Sukuk for August-October. The target for the variable rental rate Sukuk has been fixed at Rs90 billion.
The SBP said in the Islamic context the steps of reopening of existing Sukuk is similar as that of issuance of a completely new Sukuk, ie, at the time of reopening of Sukuk, the transaction is concluded by purchasing additional share in the identified asset on Musha basis, which is then given on rent / Ijarah and a separate Ijarah agreement is executed. However, since the underlying asset, maturity date, rental rate and rental payout frequency is kept the same as the initial issue; therefore, the new issue would be called reopening of Sukuk instead of a new Sukuk issuance, it added.
The transaction flow for the reopening of Sukuk would remain the same as that of an approved structure of the fresh issue, it said. At the time of reopening of Sukuk, a fresh purchase agreement would be executed between Pakistan Domestic Sukuk Company Limited (PDSCL) on behalf of investors and the government at an agreed purchase price for the purchase of a new / additional share in the asset.
Subsequently, PDSCL would enter into an Ijarah agreement; wherein, the new / additional assets would be leased to the government for a fixed period, which would be ending on the scheduled maturity date of the first issue, the central bank added.
“However, the structure of reopening of Sukuk might differ from the structure of the first issue in ways as for the first rental period the rental amount of the reopened Sukuk in absolute terms would be the same as the first issue,” it noted. For the subsequent period, the rental rate for the reopened Sukuk would be the same as that of the first issue. Similarly, the maturity of the reopened Sukuk would also be the same as the first issue.
For the determination of the bid price the investors at the time of reopening would take into consideration the known rental rate (in terms of benchmark), the remaining tenor of the issue and the higher first rental amount.
The purchase price (at which settlement will take place) would have three components, which can be referred to individually or collectively for the reporting purpose such as face value of Sukuk, market premium / discount and the price premium due to higher first rental, the circular read.
—Courtesy International The New
