Home Islamic banking & Finance Sukuk issuance for Diamer-Bhasha Dam

Sukuk issuance for Diamer-Bhasha Dam

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Pakistan Engineering Council (PEC) has demanded government to launch ‘Diamer-Bhasha Dam (DBD) public limited company’ and float its shares in the market for public subscription to generate funds for the mega project. These shares may be issued on the pattern of sukuk (Islamic bonds). It has been claimed that by doing so the dam component cost – which has been estimated close to Rs500 billion – could be reduced by about Rs200bn.

After getting Prime Minister Imran Khan’s green light, Finance Minister Asad Umar has said that in next few weeks the government would issue dollar-denominated Sukuk bonds to generate finances from overseas Pakistanis.

Looking at Primary issuance of Sukuk by GCC entities, including Central Banks Local Issuances, GCC Sovereign and Corporate Issuances it has totaled $174.17 billion in 2017, a 3.96 per cent increase from the total amount raised in 2016.

Sovereign issues continued to dominate the GCC Sukuk market in 2017 contributing 62.6 per cent to the overall market with a total value of $65.28 billion as compared to $65.82 billion in 2016. Total value raised by corporate entities in 2017 increased by 6.46 per cent, to $38.98 billion in 2017 from $36.61 billion in 2016.

Issuances with tenures of six to ten years raised the highest amount, $42.9 billion, through 35 issuances, representing 41.2 per cent of the total amount raised. However, maturities of five years or less increased to $39.79 billion representing 38.2 per cent of the market as compared to $11.93 billion in 2016 representing 11.4 per cent.

Comparing Pakistan, it can once again tap international capital market to issue sukuk within next couple of months to generate at least $ 1-2 billion or more to build the country’s foreign exchange reserves. Likewise ‘Diamer-Bhasha Dam (DBD) public limited company’ can also issue Sukuk to meet its demand guaranteed by the government
Up till Dec 2017, Government has already issued 3 years Ijarah Sukuk in the domestic market to the amount of Rs 385 billion. From external sector it has raised $ 7.3 billion through Sukuk.

They mostly carry profit margin running between 5.625% and 6.875% using KIBOR or LIBOR. For external sector Sukuk Pakistan has used 5 years tenor. As far as geographical interest of investors is concerned it were well distributed with 35% subscriptions coming from Europe, 32% from the Middle East, 20% North America and 13% from Asia. Last time the sukuk was five times oversubscribed with offers of 2.3 billion against initial size of $500M which was upped to $1B. The Sukuk were issued as per governing law over the Purchase Agreement and the Lease Agreement Laws of Pakistan.