KARACHI, Feb 11: Wapda has issued first local currency Islamic certificates, Sukuk, which is a historic initiative for the debt market in Pakistan and it may start race to tap funds waiting to flow under the Islamic mode of investment.
Wapda First Sukuk Company Limited, a wholly owned subsidiary of the Pakistan Water and Power Development Authority, launched its long-term Government of Pakistan Guaranteed Sukuk (Trust) certificates worth Rs8 billion, including a green-shoe option of Rs3 billion.
The decision to issue these certificates was taken in beginning of the new fiscal 2005-06 and the government had also decided to convert Rs21 billion worth of Wapda loans into federal government equity.
The Sukuk certificates will mature on October 22, 2012. Market sources said the issue was structured by Citibank while joint mead managers were Citibank N.A, Jahangir Siddiqui and Company Limited and MCB Bank Limited.
The certificates benefit from an unconditional and irrevocable first demand guarantee from the GoP through the ministry of finance. The SBP has approved the issue as Shariah compliant as well as Statutory Liquidity Reserve (SLR) eligible instrument for Islamic banks and banks with Islamic banking branches in Pakistan.
Given the strong market response, Wapda has decided to exercise the green-shoe option and issue Sukuk certificates worth Rs8 billion. In addition to Islamic banks, the GoP-guaranteed Shariah-compliant security also appealed to other investors that included large public sector organizations, private sector investors, employee benefit funds and mutual funds.
The sources said that Wapda would utilize the funds to partially finance its Mangla dam raising project. Participants in this issue are part of Pakistan’s first-ever local currency Islamic Sukuk. The issue’s structure and documentation was also approved by the Shariah board of Citi Islamic Investment Bank.
Under the structure, Wapda First Sukuk Company Limited has issued Sukuk certificates to investors worth Rs8 billion and has utilized the proceeds to purchase identified hydel power generation turbines from Wapda. The assets thus acquired are held in Trust by the Wapda First Sukuk Company Limited, for the benefit of the certificate holders, till such time that the Trust is dissolved.
Subsequent to this purchase, the Sukuk company and Wapda have entered into an Ijara agreement, whereby Wapda has leased these turbines from Wapda First Sukuk Company for a period of approximately seven years, during which the latter will receive, on a semi-annual basis, lease rentals equal to six-month Kibor plus 35 basis points of the purchase consideration.
Wapda has also entered into a purchase undertaking with the company, under which it is obligated to purchase the hydel power generation turbines at the exercise price on the dissolution date, being the end of the lease term.
The exercise price equals Rs8 billion, net of all taxes and expenses of Wapda First Sukuk Company. Sukuk investors will earn periodic distribution amounts, on their certificate holdings, being equal to the lease rentals received by the company.
The government guarantees Wapda’s obligations to the company under the Ijara agreement and purchase undertaking.
This transaction has allowed Wapda to capitalize on the appetite of Islamic investors and tap an alternate source of funding. It has also served to create a template for future issuances in Pakistan.
