4 new assets to add to Sukuk’s structure: Rs 300-400 billion borrowed from sector IB to fill budget gap

KARACHI: The government has decided to add four new assets to Ijara Sukuk’s transaction structure aimed at more borrowing from the Islamic banking sector to fill the budget deficit.

To affect the inclusion of 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, in accordance with the arrangement of Sukuk’s transaction structure, upon reopening, an additional undivided share of new assets may be purchased (individually or jointly) and added to Sukuk’s asset pool of from time to time through one or more reopening transactions in accordance with the approved mechanism.

As a result, some four new assets have been identified which can be added when the M-3 (Lahore-Abdul Hakeem highway), M-5 (Punjab portion) and M-5 (Sindh portion) reopen. Four new assets include M-4 (Faisalabad-Multan), CPEC-WC (Hakla-DI Khan Motorway), M-8 (Khuzdar-ShahdatKot-Qubo Saeed Khan – Wangu Hill Motorway) and CPEC-NC (Havelian-Thakot-Hazara Autoroute) under the authority of the National Highway Authority.

Industry sources have said that with the addition of these four new assets, the government will be able to borrow an additional amount of some Rs 300 to Rs 400 billion from the Islamic banking sector.

The SBP also prescribed a transaction structure for the issuance of GOP Ijara Sukuk (GIS) against underlying assets. According to the structure, the valuation of the assets should be carried out by two independent valuers approved by the PBA, and the lower of the two valuations will be accepted as the selling price of the assets.

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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.

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

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

After the issuance of Ijarah Sukuk’s first issue if the GOP needs additional funds and instead of issuing a new Sukuk wants to raise new funds by way of reopening, the State Bank will conduct an auction for reopening the existing Sukuk problem.

In the Islamic context, the steps for reopening an existing sukuk are similar to issuing an entirely new sukuk, i.e. at the time of reopening the sukuk, the transaction is concluded. by purchasing an additional share of the identified asset on the basis of Musha which is then donated out of the rent / Ijarah and a separate Ijarah agreement is executed.

However, since the underlying asset, maturity date, rental rate, and rental payment frequency remain the same at the initial issue, the new issue would therefore be referred to as Sukuk reopening instead of a new show from Sukuk.

Copyright Business Recorder, 2021

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