ISLAMABAD, Jan 18: Pakistan on Tuesday accepted $600 million worth of bids for its first ever Islamic bond "Sukuk" that was closed in London and attracted a total subscription of $1.2 billion.
A decision to this effect was taken here by the Economic Coordination Committee (ECC) of the cabinet presided over by Prime Minister Shaukat Aziz, which noted that Sukuk pricing was better than Eurobonds.
Mr Masud said the ECC noted with satisfaction that Pakistan's Sukuk bond received overwhelming response from the investors and emerged as the largest ever Islamic bond launched by any country. The maturity period of $600 million Sukuk is five years which means its repayment would mature in 2010.
He said Pakistan has decided to take only half of the $1.2 billion investment offers in the bond which was priced at 220 basis points compared with last year's Eurobond that was priced at 375 basis points. He was, however, not clear whether these basis points were calculated on a three year or five year interest rates.
He said the Sukuk attracted 60 per cent investment from Middle East investors followed by 20 per cent each from European and Asian investors. He declined to reveal the names of public sector assets that backed these bonds.
Responding to a question, Mr Masud said the $500 million Eurobond launched last year was priced at higher rate of 375 basis points although it was oversubscribed to the extent of $2 billion but subscription of Sukuk was $1.2 billion because the total number of Islamic investors was comparatively less.
Informed sources, however, said the price guidance for Sukuk was 220 basis points over the six-month London Inter-bank Offered Rate (Libor). The Sukuk would be backed by public sector assets like Lahore-Islamabad Motorway, which is owned by the National Highway Authority, to comply with Islamic principles.
The government has established a new company called Pakistan International Sukuk Company Limited which would issue the trust certificates through the lease agreement. On dissolution, Pakistan will undertake irrevocably to purchase the land at the agreed exercise prices.
The President of Pakistan is obliged to make periodic payments on the trust certificates, known as Ijara, in the form of rent. Since the bond is an Islamic financial product, the periodic payments on certificates would not be called interest but rentals on these assets.
