Prime Minister Imran Khan on Wednesday hailed the "landmark financial innovation" whereby the government raised Rs200 billion through sukuk issue via competitive book building at the Pakistan Stock Exchange (PSX).

Taking to Twitter, the premier said the move had led to his government saving Rs18bn which could now be used for the people's welfare.

A day earlier, Dawn reported that the government had obtained 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 70pc above the target offer, at minus 0.10pc for six months Kibor. This is the first time ever that the government has been able to borrow long term at less than the Kibor.

Commenting on the development, PM Imran said the oversubscription reflected "strong market confidence in the government's policies".

The PM's adviser on finance, Abdul Hafeez Shaikh, had also commented on the development late last night, lauding the government for raising the hefty amount below Kibor for the first time ever.

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.

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.

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. The bidding process was aimed at spread discovery in relation to six months Kibor basis on the Reverse Dutch Auction method.

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.