Pak Govt Plans Rs100 Billion Sukuk Boost at PSX/The Express Tribune
Pak Govt Plans Rs100 Billion Sukuk Boost at PSX
The government is gearing up for its second Sukuk auction at the Pakistan Stock Exchange (PSX), targeting to raise a substantial Rs100 billion in new domestic debt. Building on the success of the first auction held last month, where financing was secured at a favorable rate, the government aims to tap into the abundant funds possessed by both institutional and individual investors.
Investor Enthusiasm Spurs Increased Bond Auctions
Recognizing the significant liquidity in the market, the government plans to gradually expand the number of bond auctions through PSX. This move comes as investors continue to exhibit a strong interest in lending to the government. The availability of ample liquidity provides the cash-strapped government with the opportunity to secure new debt at a lower cost, potentially mitigating the annual financial burden caused by fluctuations in the country’s debt interest rates.
Analysts estimate that the government could secure the new financing at a rental payment rate ranging between 16-19%, a considerable reduction compared to the central bank’s benchmark policy rate of 22%. Lower borrowing costs could create fiscal space, enabling the government to allocate funds to economic activities that have been hindered by financing constraints after servicing debt interest payments.
Strategic Sukuk Offerings and Market Dynamics
The government plans to raise Rs40 billion through a one-year Sukuk auction at PSX, backed by the assets of the Civil Aviation Authority (CAA), specifically Islamabad airport. Additionally, four other Sukuks totaling Rs60 billion will be auctioned, including two three-year Sukuks and two five-year Sukuks. The rent for these Sukuks will be determined through the auction process.
Shariah-compliant banks, active participants in previous Sukuk auctions, have played a vital role in sustaining this market. The government’s consistent Sukuk offerings have generated a substantial amount, with a total value of Rs5 trillion at present. Encouragingly, Shariah-compliant banks purchased Rs1.7 trillion worth of new Sukuk in the past year, contributing to the growth of Islamic banking in Pakistan.