Govt mulls pledging five federal assets to issue sukuk

KARACHI: Cabinet on Tuesday approved the issuance of domestic and sovereign sukuk, signifying need to raise funds from local and international debt markets to fix deteriorating finances and boost the Islamic finance industry.

Islamic banking experts said it seems that the government has given the finance ministry go-ahead to take measures aimed at issuing Ijara sukuk in the domestic market and sovereign sukuk in the international market.

The government has yet not disclosed information about the assets against which the planned sukuk would be issued.

However, sources said the collateral against sukuk would be five federal assets, including the East and West Warf of Karachi Port, parts of GT Road with no legal hindrances, Islamabad Expressway, Sports Complex, and the Makran Highway.

A senior banker said the government would focus more on sukuk issuance instead of interest-based borrowing, which was good for the economy, would save cost, promote financial inclusion and also help the government comply with Federal Shariat court decision to eliminate interest from the economy. The government looks to borrow more from Islamic banks to meet its funding requirements. It raised Rs67 billion through the auction of fixed and variable rates Ijara sukuk on Monday.

The government has recently added Islamabad International Airport as a new asset to the transaction structure of the domestic sukuk. Now the assets include Allama Iqbal International Airport, Multan International Airport, and Islamabad International Airport.

Planning Minister Ahsan Iqbal in a press conference following the cabinet meeting said official information regarding assets and other details would be available on the Finance Division website soon.

Fitch Ratings sees sovereign sukuk issuance to rise due to high gross financing needs. “Pakistan’s Sukuk market is developing with outstanding volumes of $11 billion at end-1Q22, with 82 percent in local currency. Also, guidelines on issuing green Sukuk and bonds were issued in 2021 by the Securities and Exchange Commission of Pakistan,” said Fitch in a report.