By Staff Reporter
KARACHI: Pakistan’s first auction of a one-year listed domestic sukuk, or Islamic bond, was oversubscribed by more than 15 times on Friday, as retail investors flocked to the sharia-compliant debt instrument that offers a higher return than conventional bonds.
The government accepted bids worth Rs36.07 billion for the sukuk, which carries a profit rate or yield of 19.52 percent, against a target of Rs30 billion, according to the Pakistan Stock Exchange (PSX), where the auction was held for the first time.
The total bids received amounted to Rs478.78 billion, indicating strong demand for the sukuk, which is backed by the Islamabad Metro project and uses the Ijarah structure, a sale and lease-back of underlying assets.
The sukuk is part of the government’s plan to raise Rs90 billion through three auctions of government Ijarah sukuk between December 2023 and February 2024, to diversify its funding sources, boost Islamic finance, and develop a sharia-compliant capital market.
The caretaker Prime Minister Anwaar ul Haq Kakar launched the sukuk at the PSX on Friday morning, and hailed it as a “remarkable achievement” for the entire market ecosystem.
The PSX said the primary market auction of government debt securities (GDS) will now also be held at the exchange, following a change in rules by the cabinet to enable the government to raise debt from the capital markets, in addition to the central bank.
“In coordination with the Debt Management Office of the Ministry of Finance, a quarterly auction calendar whereby the first primary market auction will be held via the Capital Market Infrastructure Institutions (CMIIs) on December 8, 2023,” the PSX said in a statement.
The caretaker finance minister Shamshad Akhtar, said the move was expected to enhance and augment the efficiency, flexibility, registering, trading, and transferring of the GDS.
“We are proud of this achievement as this will revolutionise the way primary market auctions will henceforth be held through the capital market ecosystem,” Akhtar said.
“The Ijarah Sukuk is a monumental and innovative product. It is the first time that a breakthrough has been achieved whereby the Ijarah Sukuk auction will be held through the capital market ecosystem from today onwards.”
Pakistan has a sizeable Islamic banking sector, with 22 percent of the total banking assets being sharia-compliant as of June 2023, according to the central bank.
The country also has a history of issuing sovereign sukuk in the international market, with the latest issuance of $1 billion in Januray 2022.
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