Diversification of Islamic Financial Insturments

Sukuk

The Sukuk segment in the Pakistan Islamic capital markets industry consist of sovereign

(Government of Pakistan –issued) Sukuk, government backed Sukuk and corporate Sukuk.

Both listed and unlisted Sukuk are issued in Pakistan, mostly based on the structures Ijarah,

Diminishing Musharakah and Mudarabah. The common practice is to list the profit rates using

the Karachi Interbank Operating rate (KIBOR) with a premium, e.g. 6 month KIBOR + 0.70%

The SECP issued Sukuk rules in the year 2015. The Government of Pakistan entered the Sukuk

market in June 2014, with the issue of a PKR 49.5 billion Ijarah Sukuk. Later in November

2014, it entered the international Islamic Sukuk market with its first foreign currency Sukuk

issue: a 5 year Ijarah Sukuk of USD 1 billion. This was at a profit rate of 6.75% (50 basis points

less than the rate offered on Eurobond in April 2014), and was pledged against the Islamabad-

Lahore Motorway. This attracted a wide international investor base, with 35% subscriptions

from Europe, 32% from the Middle East and 20% from North America. In December 2015, the

GoP (government of Pakistan) issued a local currency Ijarah Sukuk, this time on the Jinnah

Airport Terminal in Karachi, to raise PKR 300 billion (USD 2.86 billion, about 14 times greater

than the Britian Sukuk). This provided the local Islamic FIs with much needed investment

opportunities in government securities, as they had about PKR 225-220 billion in excess

liquidity at the time, unable to invest in the conventional Treasury bills and government

securities and hence being at a significant disadvantage with the local conventional finance

industry

WAPDA (Pakistan’s Water and Power Development Authority) then issued a ten year PKR 100

billion Sukuk on the Neelum Jhelum Hydropower plant (NJHP) in April 2016, to raise finance

for the hydel project. This was rated at 0.113 basis points over the 6-month KIBOR, and was

backed by a sovereign guarantee from the GoP (government of Pakistan). Private corporations

in Pakistan can also issued Sukuk, with the legal framework developed by the Islamic Banking

Department of the SBP. K-Electric issued a PKR 22 billion 7-year Musharakah-Sukuk in May

2015 to help repay its long term debt via the Karachi Stock Exchange, with HBL and Meezan

Bank as its lead arrangers, and this was reportedly the largest listed corporate Sukuk in the

country at the time. In October 2016, the GoP issued another foreign currency 5-year

sovereign Ijarah-Sukuk of USD 1 billion

. By the end of 2015, Pakistan had outstanding Sukuk

worth USD 2.92 billion, and outstanding Islamic mutual funds assets worth USD 1.32 billion.

The Table below lists the different corporate and sovereign Sukuk issued in 2016.

Source:

website.

Pakistan Islamic Finance Country Report 2016, pages 56-57