ISLAMABAD: The government on Tuesday was able to obtain long-term borrowing below the Kibor due to a significant interest from investors in the Power Energy Sukuk–II (PES).
The Rs200bn sukuk was oversubscribed to Rs339 billion, around 70 per cent above the target offer, at minus 0.10pc for six months Kibor.
However the PHL, a state-owned enterprise, approved the 10-year government guaranteed debt instrument with semi-annual profit payments for investors amounting to Rs199.96bn only. The instrument was issued to address liquidity constraints faced by the power sector.
This is the first time ever that the government has been able to borrow long term at less than the Kibor.
By raising funds in the above manner, the government saved the cost of debt by 0.88pc in comparison to the last issuance of PES-I at a cost of Kibor plus 0.8pc.
This has resulted in approximate saving of Rs17.6bn over a period of 10 years on account of debt servicing cost.
In addition, this is the first time ever that the book building mechanism for spread discovery of any debt instrument has been done through the country’s capital markets. Bidding process aimed at spread discovery in relation to six months Kibor basis on Reverse Dutch Auction method.
Securities and Exchange Commission of Pakistan (SECP) Chairman Aamir Khan said the overwhelming success of the issue with broad-based participation from diversified investor classes clearly establishes the transformative role of capital market in the economic development of the country.
He further said that the SECP is in the process of liberalising the initial public offering (IPO) regime with special focus on the debt capital market.
“Besides in the long run, having a larger investor base will help the government to successfully raise funds from the market at the most competitive rates,” SECP chairman added.
The sukuk offering will be placed for technical listing at the Pakistan Stock Exchange. “This will increase the investor base, liquidity and secondary market trading of the Sukuk, enabling the government to borrow at the most competitive rates.” Mr Khan said.
“By widening the scope of potential investors, the issuer benefits as it increases the likelihood of more accurate price discovery, while a larger group of investors will benefit from this investment opportunity.”
Unlike the Sukuk issuance by the PHL last year, investors who could participate in this issue included banks, financial institutions, companies, mutual funds, voluntary pension schemes, private funds being managed by the non-bank financial companies, insurance companies, securities brokers, funds and trusts (as defined in the Employees Contributory funds), and Individual Investors having net assets of at least Rs2 million.
Given that it is a government-backed security, such an issuance is generally considered risk free and provides stable returns in the long run. Once the security is listed, investors throughout the country or residing abroad can buy or sell units of the Sukuk on the PSX trading platform through their broker.
Published in Dawn, May 20th, 2020