KARACHI, Oct 29 The government has decided to raise Rs80 billion by issuing Ijara Sukuk during next two months, the State Bank announced on Friday.

The SBP announced the issuance of a new 3-year government of Pakistan Ijara Sukuk under which the federal government plans to raise Rs80 billion in the second quarter of the current fiscal.

The government's desperation to reduce the increasing fiscal deficit found another source of borrowing, while its borrowing through the central bank has reached new high in first three and a half months of this fiscal.

Pressure is mounting on Pakistan by the IMF to cut the fiscal deficit, which rose to 6.3 per cent last year, while the current fiscal is facing significant fall in revenue generation along with poor economic growth as predicted by the central bank.

So far, the government has borrowed Rs208 billion from the State Bank since July 1, which is against the last year's borrowing pattern as the net government borrowing was minus Rs82 billion during the same period last year. However, it made record borrowing of Rs309 billion from scheduled banks during FY10.

Under the calendar, two auctions will be conducted in the second quarter of FY11 with a total auction target of Rs80 billion. First auction will be conducted on Nov 8, and the second on Dec 13. Target for both the auctions is Rs40 billion each. Total value of the asset under the present issuance programme of Ijara Sukuk by the government is Rs191.43 billion.

This is the second issuance after the successful launch of the first ever 3-year GOP Ijara Sukuk in Sept 2008 under which the government raised Rs42.2 billion from the 4 auctions conducted from Sept 2008 to Sept 2009.

This is the first time an auction calendar has been announced for GOP Ijara Sukuk along the same lines as for Treasury Bills and Pakistan Investment Bonds.

A Special Purpose Company, wholly owned by the ministry of finance, has been formed to act for and on behalf of sukuk holders, namely, Pakistan Domestic Sukuk Company Limited (SPC).

The State Bank will conduct an auction by which sukuk investors will be identified. Pursuant to the Certificate Subscription Undertaking, sukuk investors will appoint the SPC as investment agent.

The SPC will enter into a purchase agreement with Civil Aviation Authority (CAA) or Government of Pakistan (“GOP”) for purchase of certain pre-identified tangible assets, such as Airport land for the first sukuk issue (sukuk assets) at an agreed price equivalent to the sukuk issue amount.

The CAA will enter into an Ijara agreement with GOP (as lessee) wherein CAA will lease the sukuk assets for a fixed period, being 3 years in case of the first sukuk issue.

Lease rentals will be paid on a semi-annual basis, i.e. a total of 6 lease rental periods for the first sukuk issue. Major maintenance, repair and insurance responsibilities will be undertaken by the CAA.

At maturity or upon an event of default, the GOP undertakes to purchase the sukuk Assets at the 'Exercise Price'.

The SPC (as issuer) will issue sukuk certificates, the proceeds of which it will use to purchase the sukuk assets. Each sukuk certificate will represent an undivided interest in the sukuk assets.