Meezan Bank plans to raise Rs7bln through Tier 1 Sukuk

KARACHI: Meezan Bank Limited was planning to raise up to Rs7 billion by issuing Tier 1 Islamic bond or Sukuk in the coming few months, industry officials said on Wednesday.

“The issue will be first Shariah-complaint Tier 1 Sukuk in Pakistan, while the aim for selling a Sukuk from the bank is to shore up its capital adequacy ratio,” a source, familiar with the matter, told The News.

“The bond will be issued by the way of book building, possibly in June or July. The deadline for receiving expression of interest from the investors is May 30, 2018.”

An industry official said the Sukuk would be a privately placed, tradable, and unlisted based on Mudarabah structure—a type of investment management partnership. “The Sukuk will be offered to selected corporate entities banks, financial institutions and pension funds etc,” the official added.

According to the details of the structure as provided by the source, the total issue would be Rs5 billion with a green show option of Rs2 billion. The minimum investment is set to be 1.0 million. Tenure is perpetual and can be converted into share as per central bank's regulation.

The bond will offer profit payment monthly. The rate of return on the Sukuk will be 3-month KIBOR plus 1.75 percent based on profit weightages assigned in the Mudarabah pool.

The bank expects the bond to be the oversubscribed due to its attractiveness to the Islamic banks, windows, Takaful companies, Mudarabah companies, pension funds, Shariah Compliant investment by companies and entities.

The State Bank of Pakistan (SBP) and the bank’s board had already approved plans for the issuance.

Islamic banking institutions in Pakistan need to strengthen their capital adequacy position in view of evolving regulatory requirement till 2019.

The SBP had implemented Basel III reforms to further enhance the capital related rules in 2013 in a phased manner with full implementation intended by December 31, 2019.

Basel III, aimed at developing more resilient and sustainable financial sector focused on liquidity risk management along with improving the quality and quantity of capital, is a reflection of this.

With the lack of Shariah-compliant liquidity management instruments or equivalent government securities and money market instruments, Islamic banking operations in the country face a liquidity bottleneck, which places them at a competitive disadvantage with respect to their conventional counterparts.

The SBP also said the Islamic banking industry was facing dearth of Shariah compliant investment opportunities, limited availability of Shariah-compliant money markets and instruments, and alternate of standing facilities.

The Islamic banks are using the local currency Sukuk market to raise instruments that boost their capital. They are also selling bonds that enhance core Tier 1 capital.

The capital adequacy ratio of Meezan Bank is at 12.89 percent in 2017.

According to the bank’s annual report for 2017, its total assets grew 19 percent to reach Rs781 billion in December 2017, compared to Rs658 billion in 2016.