03 Mar

Pakistan Issues First-Ever RS 200 Billion Energy Sukuk

In order to address the longstanding circular debt issue, the federal government on Friday issued the first-ever Pakistan Energy Sukuk-I (PSE-I) worth Rs 200 billion. The issuance of Shariah bond will provide the much-needed liquidity to the power sector and help the government resolve the circular debt faced by Pakistan's economy.

A Shariah-compliant instrument has been issued by Power Holding Pvt Limited (PHPL), fully owned by Ministry of Energy Power, with the approval of Meezan Bank's Shariah Board. A consortium of Islamic banks is led by Meezan Bank Limited helped the government structure the Sukuk. The consortium comprises Bank Islami Pakistan, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank, Al-Baraka Bank, UBL Islamic, and National Bank Islamic banking.

Backed by a government guarantee, the entire financing generated through the sale of these Sukuk has been provided to Power Holding Pvt Limited. The Meezan Bank has also act Shariah Advisor, investment agent and trustee of the Sukuk.

The Sukuk is asset-based and comprises of assets of power companies. The PES-I is based on Ijarah and has a 10-year maturity with semi-annual rental payment. Energy Sukuk will have a rental return of a Karachi Interbank Offered Rate (Kibor) plus a margin of 80 basis points.

In December last year, the federal government and a consortium of Islamic banks were agreed to launch an Islamic bond of Rs 200 billion to support the power sector entities facing cash constraints due to circular debt.

Meezan Bank Limited has provided financing Rs 88 billion for Pakistan Energy Sukuk-I, while, Faysal Bank Limited Rs 35 billion, Bank Islami Pakistan Rs 35 billion, Dubai Islamic Bank Pakistan Limited Rs 14.15 billion, MCB Islamic Bank Limited Rs 10 billion, Al Baraka Bank Pakistan Limited Rs 8.85 billion, United Bank Limited (Islamic Division) Rs 5 billion and National Bank of Pakistan (Islamic Division) Rs 4 billion.

The financing has also been declared statutory liquidity ratio eligible and accordingly, the SBP has notified on Friday. According to a circular issued on Friday, in terms of Government of Pakistan's Notification No. S.R.O. 255 (I)/2019 dated February 26, 2019, the Pakistan Energy Sukuk issued by Power Holding Private Limited (PHPL) will be approved security for maintenance of Statutory Liquidity Requirement (SLR) under sub-section (1) of Section 29 of the Banking Companies Ordinance, 1962.

As per terms and conditions, the assets will remain mortgaged in favor of the financiers and the bond will be backed by a government guarantee. Pakistan Energy Sukuk-I will be secured against a Government of Pakistan Guarantee and Finance Division will ensure that government's guarantee is arranged within 30 days of such disbursement.

Originally published on www.brecorder.com

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