Pakistan launches most expensive Ijara Sukuk

Pakistan on Monday launched the US$1 billion Islamic bond — Ijara Sukuk — in the global capital market at 7.95% return payable on a semi-annual basis with a maturity of seven years, January 31, 2029. Listed at the London Stock Exchange, the latest Sukuk turned out to be the most expensive Islamic paper Pakistan has raised in recent years. Earlier, a five-year Sukuk of the same denomination had envisaged 6.8% return in December 2014, followed by 5.5% in October 2016 and 5.6% in December 2017.

Pakistan launched the Islamic bond in the international market after little over four years. The last five-year Islamic debt instrument was secured at 5.6% return in December 2017, which matured last month and was required to be replaced by a fresh paper — in this case with seven-year maturity and 7.95% return.

There was no official announcement on the transaction because of an agreement with book runners and financial managers that bared Pakistani authorities from making any public comment. The issue date for the bond is January 31, 2022. The joint lead managers and book runners for the transaction included Dubai Islamic Bank, Standard Chartered Bank, Credit Suisse and Deutsche Bank AG.

The seven-year US$-denominated international Islamic product was launched through Pakistan Global Sukuk Program Company Limited (PGSPCL), special purpose vehicle (SPV) by pledging a couple of motorway projects owned by the National Highway Authority.

Two leading international rating agencies — Moody’s and Fitch Ratings — had a few days ago also issued fresh but unchanged ratings for Sukuk. The authorities have set a target of about US$3 billion from the international capital market during the current fiscal year. Islamic bond is usually cheaper than traditional Eurobond.

New York-based Moody’s Investors Service had assigned a B3-backed senior unsecured rating to the US$-denominated trust certificates (Sukuk) issuance by the government of Pakistan through PGSPCL.

The SPV is wholly owned by the GoP and its debt and trust certificate issuances are ultimately the obligation of the state, Moody’s said. The assigned rating to Sukuk mirrors the GoP’s current issuer rating. The trust certificates will constitute direct, unconditional and unsubordinated obligations of the GoP, it added.

Fitch Ratings — another New York-based rating agency — had also maintained sovereign global Sukuk certificates’ rating at ‘B-’. It said PGSPCL was a legal entity in Pakistan and the issuer and trustee of Sukuk, incorporated primarily for the purpose of participating in the Sukuk transaction. It is wholly owned by Pakistan.

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