Ijarah Sukuk achieves record sale, Raises Rs 371 Billion

Karachi- The Federal Government of Pakistan has achieved a remarkable milestone by raising an unprecedented Rs 371 billion (equivalent to over $1.29 billion) through the successful sale of Government of Pakistan (GoP) Ijarah Sukuk.

This historic issuance marks the highest ever sale of Sukuk in a single auction by the federal government since the inception of the GoP Ijarah Sukuk program in 2008, as reported by The Business Recorder.

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The underlying asset for this Sukuk issuance was the Islamabad Expressway, utilizing an Ijarah Sale and Lease Back transaction structure. The Shariah compliance framework underpinning the Sukuk was meticulously reviewed and approved by the esteemed Shariah Advisory Committee of the State Bank of Pakistan.

Meezan Bank Limited, in conjunction with Dubai Islamic Bank Pakistan Limited and Bank Alfalah Limited, spearheaded the transaction as the Joint Financial Advisors.

During the auction held on August 3, 2023, various prominent banks participated with a keen interest in investing in the GOP Ijarah Sukuk. The auction encompassed six distinct denominations, offering 1-, 3-, and 5-year Fixed Rental Rate (FRR) Sukuk with a target of Rs 90 billion, and 1-, 3-, and 5-year Variable Rental Rate (VRR) Sukuk with an auction target of Rs 150 billion.

The initial intention was to raise a total of Rs 240 billion from this auction; however, the overwhelming response saw a subscription rate exceeding 200 percent, with total bids surpassing Rs 508 billion, equivalent to approximately $1.77 billion.

Based on the officially announced cutoff rates, Sukuk valued at Rs 371 billion were successfully issued across five different denominations. Regrettably, all bids against the 5-year FRR denomination were declined.

The breakdown of funds raised is as follows: Rs 100.346 billion from the sale of 1-year VRR, Rs 2.161 billion from the 1-year FRR, Rs 5 billion from the 3-year VRR, and a significant Rs 195.25 billion for the 5-year VRR. An additional Rs 68.385 billion was secured through the auction of the 3-year FRR denomination. The cumulative sum accepted and procured from this auction amounted to Rs 371.142 billion.

The rental rates associated with the aforementioned Sukuk offerings varied, ranging from 18.49 percent per annum to 23.62 percent per annum, contingent upon the specific tenure of the Sukuk. Rental payments are slated to be disbursed on a semi-annual basis, with the redemption of Sukuk upon maturity.