Pakistan launches $1 billion Sukuk Bonds

Dar offers Shariat compliant bonds at lowest ever price of 5.5pc

ISLAMABAD: Despite tensions on the Line of Control (LoC) with India, Pakistan has launched the Islamic Sukuk Bond with maturity period of five years (2021) in international market to generate $1 billion at the lowest-ever price of 5.5 percent for the country, Federal Minister for Finance Ishaq Dar said.

The investors oversubscribed the Pakistani paper by almost five times by offering $2.4 billion against the initial indication of $500 million out of which Islamabad finally accepted to sell $1 billion through the Sukuk Bond.

Addressing a news conference here at the FBR headquarters on Thursday, Federal Minister for Finance Ishaq Dar said that in the wake of the lingering tension with India, all defence requirements of the armed forces would be fully met in order to give a befitting response to our arch rival.

“No one can dare harm Pakistan as we will give them a befitting response,” Dar declared while addressing a news conference along with other top economic managers on Thursday.The minister said that the government had utilised Rs250 billion for meeting all requirements to accomplish Zarb-e-Azb and now 29 more wings of civil armed forces, including 14 wings for Balochistan, would be raised for improving security.

“The resource availability for defence and security of the country will never remain a problem in future as well,” he added.Pakistan’s team comprising secretary finance and governor SBP conducted roadshows in Dubai, London, Boston and New York and met with potential investors in these major financial centres. The government had hired a consortium of leader managers comprising Standard Chartered Bank, Citibank, Deutsche Bank, Dubai Islamic Bank and Noor Bank.

The minister said that no Pakistani resident could buy this bond. He dispelled the impression that the country was desperate to get dollar inflows, saying that the country’s reserves held by the SBP stood at $19.5 billion against $4 billion when this government took reins of power in 2013.

He said that the current account deficit was projected at $3 to $4 billion, so Pakistan could meet its external requirements for the next five years, keeping in view foreign reserves level of $19.5 billion.

The minister said that Pakistan’s Sukuk Bond could achieve the desired price at 5.25 percent if there was no lingering tension with India on the LoC as Pakistan deserved better pricing after successful completion of the IMF programme on the homegrown economic reform agenda.

He said the country had completed the IMF programme end of September 2016 and achieved macroeconomic stability whereby all economic indicators showed improvements. The cabinet granted powers to the finance minister for approving this transaction but Dar had to postpone his visit to the US at the last moment on the instruction of the prime minister for participating in the All Parties Conference and then the National Security Council meeting.

So Secretary Finance Dr Waqar Masood, Governor SBP Ashraf Wahthra and Pak Ambassador to US along with Joint Lead Managers (JLM) finalised the transaction in USA.The minister said that the lead managers advised to fix the price at the higher side in the range of 6.5 to 6.75 percent keeping in view investors’ concerns on the LoC with India but the initial indicative price was fixed at 5.75 percent. The book building for Sukuk Bond started and Pakistan received offers of $2.4 billion against Islamabad’s indication of launching $500 million bond, so our paper was oversubscribed by almost five times, said the minister.

He had declared before the cabinet that pricing of the bond would be a determining factor, so it was our effort to keep the price below than Sri Lanka and Bahrain though their credit ratings were better than Pakistan.

He said that finally he advised the Pakistani team for booking investors offers at 5.5 percent despite the apprehension by lead managers and our economic team that it might cause an embarrassment but with the grace of God, only $200 million was pulled out and Pakistan received offers of $2.2 billion at the final stage. “The Sukuk Bond is Shariah compliant, so underline asset of one portion of Motorway valuing $1.6 billion was kept as guarantee but the government decided to get $1 billion through this bond,” he maintained.

He said that there were 38 percent investors belonging to Europe who invested in the Sukuk Bond, 27 percent North America, 27 percent Middle East, six percent Asia and two percent miscellaneous regions. He said that Pakistan was not desperate for getting foreign exchange but they wanted to keep the country on the radar screen of international investors.

He said that all the multilateral financial institutions, including the IMF, WB and ADB, had revised their projections for the GDP growth related to Pakistan as all of them projected the country’s entry into the digit of five percent for the current fiscal against officially envisaged target of 5.5 percent for 2016-17.

To a query regarding repayment of $1.5 billion to Saudi Arabia in the next two weeks, the minister said that Saudi Arabia had given a gift of $1.5 billion in two installments of $750 million each and there was no truth in it. He said that the government would take stern action and would ask the PTA to go against this website which was spreading false information to damage the country’s interests.

To another question regarding the rising debt, the minister said that the launching of $1 billion Sukuk Bond would not hike the public debt as the external debt would go up by $1 billion but the domestic debt would decrease by Rs104.5 billion, so the overall public debt would not increased in the aftermath of this transaction.