ISLAMABAD: Pakistan on Monday entered the Islamic-sect sukuk bond market after a four-year hiatus to raise $1 billion at an offering yield of 7.95 per cent against an initial price target range of 8.25 to 8.37 per cent. .
This is probably the highest return ever offered for the asset-backed Islamic sukuk bond for Pakistan. The ruling PTI had always opposed Sukuk Bond when he was sitting on the opposition bench; It had argued that the property of the country was mortgaged to get the loan. This was opposed by some cabinet members during the last 41 months of PTI's rule, whenever the summary of the sukuk bond launch was presented to them.
In view of the growing external vulnerability, Pakistan has so far raised $2 billion during the current fiscal through the introduction of international bonds against the budgetary projection to raise $3.5 billion for the current fiscal year 2021-22. Pakistan had raised $1 billion through Eurobonds in July 2021 and has now set a target of $1 billion through Sukuk bonds in January 2022.
Pakistan had launched sukuk bonds at a fixed rate of 6.75 per cent in 2014-15 to raise $1 billion. Islamabad launched a five-year sukuk bond of $1 billion in October 2016 at 5.5 percent, then in December 2017 at 5.625 percent respectively.
The highest rate ever offered on sukuk bonds is being offered despite the government's claims that the country's economy is stable. Several independent economists argued that it makes no sense to launch sukuk bonds before the revival of the IMF program.
If the IMF was on board, it could have been better priced. Pakistan has done everything to get back the IMF but there is no point in rushing to raise the cost of long-term debt.
The government gave an asset-backed guarantee of the motorway (M-2) portion to launch the $1 billion sukuk bond. It has set up a Special Purpose Vehicle (SPV) for the launch of Sukuk Bond.
Pakistan has always adopted the Malaysian model for launching its international bonds as it is linked to the US Treasury on LIBOR (London Inter-Bank Offer Rates) to provide mark-ups to investors. In the Dubai model, the construction index is developed where the mark up is combined with the increase or decrease in the construction index of any property.
The State Bank of Pakistan has more than $17 billion in liquid foreign reserves of Pakistan. Foreign exchange reserves held by SBP decreased by $562 million last week.
In the past few months, despite $3 billion in deposits from Saudi Arabia and $2 billion inflows from the IMF, foreign exchange reserves have fallen by more than $3 billion. The country's current account deficit widened to $9.1 billion in the first half (July-December) of the current fiscal and may touch $18 billion at the current pace. However, Pakistani officials are expecting that the POL prices in the international market may come down in the coming months and logistics cost via sea may also come down, hence reducing the overall pressure on imports in the coming months. .