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KARACHI: The government has decided to add four new assets to the transaction structure of Ijara Sukuk aimed at more borrowing from the Islamic Banking sector for bridging fiscal deficit.

To affect the inclusion of the additional underlying assets in the GOP Ijara Sukuk (GIS) structure, an Addendum to the Transaction Structure has been issued by the State Bank of Pakistan (SBP).

According to the State Bank as per the provision of the Sukuk transaction structure, at the time of reopening additional undivided share of new assets may be purchased (individually or jointly) and added to the Sukuk Asset pool from time to time by way of single or multiple reopening transactions in line with the approved mechanism.

Accordingly, some four new assets have been identified that can be added at the time of reopening M-3 (Lahore-Abdul Hakeem Motorway), M-5 (Punjab Portion) and M-5 (Sindh Portion). Four new assets include M-4 (Faisalabad-Multan), CPEC-WC (Hakla-D.I. Khan Motorway), M-8 (Khuzdar-ShahdatKot-Qubo Saeed Khan - Wangu Hill Motorway) and CPEC-NC (Havelian-Thakot-Hazara Motorway) under the authority of National Highway Authority.

Industry sources said that with the addition of these four new assets, the government will be able to borrow an additional amount of some Rs300 to Rs 400 billion from the Islamic banking sector.

The SBP has also prescribed transaction structure for the issuance of GOP Ijara Sukuk (GIS) against underlying assets. As per structure valuation of the Assets is to be carried out by two PBA approved independent valuators, and the lower of the two valuations will be accepted as the sale price of the Assets.

Three major roads: Govt to raise Rs100bn thru sukuk auction

The State Bank will conduct an auction through which Sukuk investors will be identified. Non-competitive bidders may also submit their bid for the Sukuk.

The Investors will execute the Sukuk Subscription Undertaking to record the commitments of the Investors to subscribe to the Sukuk to be issued by Pakistan Domestic Sukuk Company Limited (“PDSCL”).

Under the Sukuk Subscription Undertaking, the Investors may appoint PDSCL as their agent for purchase of the Assets on their behalf and for the purposes set out in Sukuk Issuance Undertaking. The primary dealers will also sign the Sukuk Subscription Undertaking on behalf of successful non-competitive bidders.

Subsequent to the issuance of first Ijarah Sukuk issue, if the GOP is in need of additional funds and instead of issuance of a new Sukuk wishes to raise new funds by way of re-opening, the State Bank will conduct an auction for reopening of the existing Sukuk Issue.

In the Islamic context, the steps of reopening of existing Sukuk are similar as that of issuance of a completely new Sukuk, ie, at the time of reopening of Sukuk the transaction is concluded by purchasing additional share in the identified asset on Musha basis which is then given on rent/Ijarah and a separate Ijarah agreement is executed.

However, since the underlying asset, maturity date, rental rate and rental payout frequency is kept same as the initial issue, therefore the new issue would be called reopening of Sukuk instead of a new Sukuk issuance.

Copyright Business Recorder, 2021

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