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Pakistan launches $1billion Ijara Sukuk in global market

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Pakistan launches $1billion Ijara Sukuk in global market

Khaleeq Kiani
January 25, 2022
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ISLAMABAD: Pakistan on Monday launched the $1 billion Islamic bond — Ijara Sukuk — in the global capital market at 7.95 per cent return payable on a semi-annual basis with a maturity of seven years i.e. January 31, 2029.

Listed at the London Stock Exchange, the latest Sukuk bond turned out to be the most expensive Islamic paper Pakistan has raised in recent years. Earlier, a five-year Sukuk bond of same denomination had envisaged 6.8pc return in December 2014, followed by 5.5pc in October 2016 and 5.6pc 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 5.6pc 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 7.95pc return.

There was no official announcement on the transaction because of an agreement with book runners and financial managers that bared Pakistani authorities (the client) 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 dollar-denominated international Islamic product was launched through Pakistan Global Sukuk Programme Company (special purpose vehicle or 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 bond. The authorities have set a target of about $3bn 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 dollar-denominated trust certificates (Sukuk) issuance by the government of Pakistan through Pakistan Global Sukuk Programme Company Limited (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.

Published in Dawn, January 25th, 2022
 

muhammadhafeezmalik

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"The SBP is also playing a gamble by offering 7% interest on loans that Pakistan is raising through Roshan Digital Accounts. The government is also using nearly $5 billion private foreign exchange reserves of the citizens parked in commercial banks at almost zero cost. But it has paid nearly 8% cost to foreigners in the shape of interest on Sukuk and 7% on Roshan Digital Account."

So overseas Pakistanis are minting money through Roshan Digital Accounts??
 

Wood

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7.95% o_O

This Ponzi scheme cannot continue indefinitely.

"The SBP is also playing a gamble by offering 7% interest on loans that Pakistan is raising through Roshan Digital Accounts. The government is also using nearly $5 billion private foreign exchange reserves of the citizens parked in commercial banks at almost zero cost. But it has paid nearly 8% cost to foreigners in the shape of interest on Sukuk and 7% on Roshan Digital Account."

So overseas Pakistanis are minting money through Roshan Digital Accounts??
At some point, the rate is withdrawal from the Roshan accounts will become equal to the deposits made. After that, the scheme will not be attractive for the government to run. India started the FCNR accounts at 3 to 4% rate, but has now reduced it to 2% rate. Pakistan will also do the same as soon as it's forex situation gets stability.
 
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Norwegian

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"The SBP is also playing a gamble by offering 7% interest on loans that Pakistan is raising through Roshan Digital Accounts. The government is also using nearly $5 billion private foreign exchange reserves of the citizens parked in commercial banks at almost zero cost. But it has paid nearly 8% cost to foreigners in the shape of interest on Sukuk and 7% on Roshan Digital Account."

So overseas Pakistanis are minting money through Roshan Digital Accounts??
Yes, just like your favorite overseas Sharif mafia family minted money from Pakistan and then ran away
 

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Pakistan raised $1b through Sukuk bond​

Govt to pay 7.95% interest on 7-year tenor asset-backed bond

photo afp

PHOTO: AFP

ISLAMABAD:
Pakistan on Monday raised a $1 billion loan through the Sukuk bond at a 7.95% interest rate -- which is the highest cost that the country has agreed to pay in its history on an Islamic bond.
The government went to international capital markets after it consumed nearly $2 billion out of the $3 billion borrowed from Saudi Arabia one-and-half months ago. This pulled down the gross official foreign exchange reserves to $17 billion as of January 14.
Pakistan has issued the 7-year tenor asset-backed Sukuk bond to raise $1 billion at an interest rate of 7.95%, the Ministry of Finance confirmed to The Express Tribune.
The rate is almost half per cent higher than even the 10-year Eurobond that the government had floated in April last year.
The key difference between the Islamic Sukuk and traditional Eurobond is that the Islamic bond is backed by an asset that attracts less interest rate. However, the government has paid the interest rate on an asset-backed bond, which is higher than the traditional tenor bond.
Pakistan has agreed to pledge a portion of the Lahore-Islamabad motorway (M2) in return of the loan -- a national asset built in the 1990s that is now used to raise debt from the international capital markets.
However, the Ministry of Finance officials said that a nearly 8% interest rate should be seen in the context of a rise in the interest cost around the globe after the US Federal Reserve indicated increasing the interest rates from March.
The ministry officials further said that the country had to raise the loan to keep the official foreign exchange reserves at their levels ahead of some major foreign loans repayments.
The Ministry of Finance received over $3 billion bids at the indicated rates. Bloomberg had first reported to its investors that the government of Pakistan has set the benchmark rate in the range of 8.25% to 8.375%. But the government managed to strike the deal at a lower range -- at nearly 8% interest rate.
In the fiscal year 2017, Pakistan had borrowed $1 billion for five years through Sukuk at a 5.625% interest rate -- which at that time was 5% higher than the benchmark five-year US paper.
Nearly 8% interest rate is not only significantly higher by the previous Islamic bond deal but is also nearly 6.3% higher than the seven-year US benchmark rate.
It is the highest rate that Pakistan has ever paid in its history on an Islamic bond, which indicates the desperation of the country that has long been building its official foreign exchange reserves by taking expensive foreign loans.
Last month, Pakistan had taken a $3 billion Saudi loan on very tough conditions after its official gross foreign exchange reserves dipped below $16 billion. However, the reserves again fell slightly over $17 billion as of January 14, indicating that the government has already eaten up nearly $2 billion of Saudi loan.
The current account deficit has widened to $9.1 billion during the first half of the current fiscal year -- a figure that is almost equal to the level State Bank Governor Dr Reza Baqir had projected for the full fiscal year.
In August last year, Dr Baqir had told a gathering of journalists that the current account deficit would remain in the range of $6.5 billion to $9.5 billion in the current fiscal year 2021-22. But the threshold is almost breached six months before the close of the fiscal year.
The SBP is also playing a gamble by offering 7% interest on loans that Pakistan is raising through Roshan Digital Accounts. The government is also using nearly $5 billion private foreign exchange reserves of the citizens parked in commercial banks at almost zero cost. But it has paid nearly 8% cost to foreigners in the shape of interest on Sukuk and 7% on Roshan Digital Account.
Compared with short-term expensive commercial borrowing, long-term bonds are considered the preferred choice of instruments due to their longer maturity and no conditions attached. However, the kind of interest rates that the PTI government is offering to foreign investors is unprecedented in the history of the country.
It is the second time in the current fiscal year that the government is conducting the capital market transaction. Earlier it had raised $1 billion in July last year.
The government has set the $3.5 billion borrowing target through the issuance of the international Euro and Sukuk bonds during the current fiscal year.
The government chose to test the global markets just four days before the executive board meeting of the International Monetary Fund that will review Pakistan’s request to revive the stalled programme and consider approving the $1 billion next loan tranche.
Out of $6 billion, the government has so far remained able to avail only $2 billion of the IMF package due to its inability to meet the agreed conditions. Out of the two major conditions set for the approval of the loans, so far, one condition to get the approval of the SBP amendment bill remains partially implemented. The Senate has not yet approved the SBP bill.
The government is heavily dependent on external borrowings to meet its financing needs and to keep the gross official foreign exchange reserves at a minimum threshold. Despite claims about an increase in exports, the earnings are not sufficient to finance the growing import bill.
The foreign direct investment also remained shy of $2 billion annually -another area where the PTI has badly failed despite changing many chairmen of the Board of Investment in the past three and half years.
Pakistan’s foreign exchange reserves are currently sufficient for 10 weeks of import cover amid a surge in the import bill that crossed remained on an average at $7.8 billion during the past two months. The reserves remain low despite the SBP has offered abnormally high-interest rates to overseas Pakistanis investing in government securities.
The rupee is currently depreciating against the US dollar and is trading at around Rs176 to a dollar.
 

Patriot forever

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Wow, this is way to expensive at 8%. PTI is doing exactly what they blamed previous governments for. Taking expensive short term loans for next govt to pay.

With the federal reserve planning to raise policy rate 4 times this year. Inflation is the real reason for raised bond rates, western markets have not seen this kind of inflation for decades and bond yields are adjusting to it.

$1b has just been paid back a few months ago.
You need to look at stock markets where they are heading globally to look at where the liquidity is going. They are pulling out and the market is correcting itself.

Besides it's a 7 year bond.

It is cheaper than previous expected rate of 8.25-8.35%. They did good given the market conditions.
 

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Saudi gave at 4%. This is double of that. Maybe could have asked Saudis to give another billion at 4%.
 

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Pakistan launches $1billion Ijara Sukuk in global market

Khaleeq Kiani
January 25, 2022
-

ISLAMABAD: Pakistan on Monday launched the $1 billion Islamic bond — Ijara Sukuk — in the global capital market at 7.95 per cent return payable on a semi-annual basis with a maturity of seven years i.e. January 31, 2029.

Listed at the London Stock Exchange, the latest Sukuk bond turned out to be the most expensive Islamic paper Pakistan has raised in recent years. Earlier, a five-year Sukuk bond of same denomination had envisaged 6.8pc return in December 2014, followed by 5.5pc in October 2016 and 5.6pc 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 5.6pc 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 7.95pc return.

There was no official announcement on the transaction because of an agreement with book runners and financial managers that bared Pakistani authorities (the client) 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 dollar-denominated international Islamic product was launched through Pakistan Global Sukuk Programme Company (special purpose vehicle or 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 bond. The authorities have set a target of about $3bn 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 dollar-denominated trust certificates (Sukuk) issuance by the government of Pakistan through Pakistan Global Sukuk Programme Company Limited (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.

Published in Dawn, January 25th, 2022

As per this dawn article, Pakistan has also pledged couple of motorways as collateral for this loan.


The seven-year dollar-denominated international Islamic product was launched through Pakistan Global Sukuk Programme Company (special purpose vehicle or SPV) by pledging a couple of motorway projects owned by the National Highway Authority.

So will Pakistan really give away the motorways if it cannot pay back the loan with interest at the end of 7 years?
 

Norwegian

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As per this dawn article, Pakistan has also pledged couple of motorways as collateral for this loan.


The seven-year dollar-denominated international Islamic product was launched through Pakistan Global Sukuk Programme Company (special purpose vehicle or SPV) by pledging a couple of motorway projects owned by the National Highway Authority.

So will Pakistan really give away the motorways if it cannot pay back the loan with interest at the end of 7 years?
No. It's just a collateral on paper
 

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No. It's just a collateral on paper
Any collateral remains on paper till it is needed. Or if it is something else, please explain.
Like if we take a mortgage against a home we live in, the home will still be under our possession as long as we pay the installments and the principal on time.
 

Norwegian

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Any collateral remains on paper till it is needed. Or if it is something else, please explain.
Like if we take a mortgage against a home we live in, the home will still be under our possession as long as we pay the installments and the principal on time.
Yes, nobody is losing motorways in case of default on loans
 

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