KARACHI: The government is preparing for the second auction of Sukuks at the Pakistan Stock Exchange (PSX) with the goal of raising Rs100 billion in new domestic debt.
The decision to increase bond auctions through PSX is driven by the substantial funds available from both institutional and individual investors, providing the government with an opportunity to secure new debt at a lower cost.
According to Meezan Bank’s Senior Executive Vice President and Head of Shariah Compliance, Ahmed Ali Siddiqui, the government may secure the new financing at a rental payment (rate of return) in the range of 16-19%, significantly lower than the central bank’s benchmark policy rate of 22%.
This lower rate would create fiscal space for the government to finance economic activities that have been hampered by the lack of financing after interest payments on debt.
In the previous auction, the government raised Rs30 billion for one year at a cut-off yield of 19.5%, 1.5 percentage points lower than the one-year T-bill rate at that time. With the T-bill rate having further fallen recently, it is anticipated that the government may raise the targeted Rs100 billion at an even lower price in the upcoming auction.
Siddiqui mentioned that the government plans to raise Rs40 billion through a one-year Sukuk at PSX with the Civil Aviation Authority’s (CAA) assets, particularly Islamabad airport, as the underlying asset.
Additionally, four other Sukuks worth Rs15 billion each will be auctioned, including two three-year Sukuks and two five-year Sukuks, with Karachi Port Trust’s (KPT) assets as the underlying assets.
The auction is open to anyone, allowing participation with a minimum investment of Rs5,000 in the Sukuk. However, the government’s introduction of different methodologies for the auction, such as discount methodology and face value methodology, may complicate the process and potentially reduce the interest of the common man in the debt market at PSX.
