DAWN.COM

Today's Paper | November 21, 2024

Updated 27 Sep, 2016 07:37am

Govt to raise up to $1bn through sukuk issue in US

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Monday finalised plans for immediate launch of $500 million to $1 billion Islamic bonds (sukuk) in the US capital market and reduced fertiliser prices further by Rs110 per bag to offload huge stocks.

Presided over by Finance Minister Ishaq Dar, the ECC decided to start process for the launch of sukuk in Washington on Tuesday and wind up the transaction by Oct 5, 2016. The timing of the bond launch has been selected to coincide with successful completion of its programme with the International Monetary Fund (IMF) that is expected to release its last $102m tranche of the $6.64bn programme on Sept 28.

The government plans to be active on the international bond market to meet upcoming repayment obligations, starting next year and address worries caused by expanding trade deficit. The sukuk issuance would attract investors from Europe, USA and the Middle East.

The government has already hired a consortium of five banks – Citibank, Standard Chartered, Deutsche Bank, Dubai Islamic and Noor Islamic – as financial advisers to complete the sukuk transaction as the country’s foreign exchange reserves come under pressure amid falling remittances and exports.

Two of these banks are also lending loans to the government including Standard Chartered that lent more than $980m last year at 3.25pc London Interbank Offered Rate (Libor) and Noor Bank’s $340m at Libor plus 4.1pc. Majority of these banks also advised last year in launch of $1bn previous sukuk in Nov 2014 at an interest rate of 6.75pc which was widely criticised by private economists for being expensive.

Being Islamic mode, the bond is being raised against Lahore-Islamabad Motorway as collateral that should keep pricing slightly lower than conventional bonds. The government would decide about the exact size of the bond on the basis of investor response and pricing but would remain within $500m-$1bn band, an official said.

The finance ministry said since the international rating agencies had improved the ratings of Pakistan, the current issue of the sukuk was expected to bring in a better yield/pricing. It said the ECC also exempted certain taxes and duties for making the sukuk a desirable transaction for the foreign investors.

UREA PRICES: The ECC also cut urea price by Rs110 to Rs1,200 per 50kg bag because the government told the parliament last week that nobody was ready to purchase the commodity at Rs1,310 per bag because of super abundance of the fertiliser. The government wanted to offload 1.5 million stocks currently available with National Fertiliser Marketing Company Limited (NFML).

The urea price in the international market is current around Rs800 per bag. Last month too, the government had cut fertiliser price by about 27pc from Rs1,786 per bag with Rs2.6bn subsidy but could not lay-off substantial stocks.

Published in Dawn, September 27th, 2016

Read Comments

Cartoon: 19 November, 2024 Next Story