Taking care of circular debt once and for all: Govt to float Rs 100 billion Sukuk bonds in May: Daily Times

By Sajid Chaudhry

ISLAMABAD: The Ministry of Finance is planning to float Rs 100 billion Islamic Sukuk Bond in May 2010 to meet its growing financial needs as well as to retire the mounted circular debts before June 30, 2010, official sources informed on Tuesday.

Pakistan Investment Bonds (PIBs) and Sukuk Bonds are in permanent debt and this time the government wants to raise money from Islamic banking system to finance power sector circular debts once and for all, the sources added.

In the initial proposal the Ministry of Finance suggested floating Islamic paper with one-year maturity period. However, now they are considering other options because the central bank is already floating treasury bills with one-year maturity. The non-interest bearing bond launch on the pattern of PIBs and Islamic banks acts as a primary dealer. The cut-off yield of upcoming Sukuk Bond will be equal or slightly above the average 12.7 percent yield of PIBs.

The investment made in the Islamic Bonds (Sukuk) would enable the investors to get a good return on their investment upon completion of the term to be fixed under the scheme.

The government of Pakistan is a sovereign guarantor of upcoming Islamic paper. Finance Ministry official informed a local newspaper that “it’s a reserve backing paper and Islamic banks can keep this paper to fulfil State Bank statutory liquidity requirement.” Islamic banking system has very limited options of interest-free investment. The official sources informed that the circular debt position as of February 2010 was that Pakistan State Oil (PSO) receivables stood at Rs 109 billion and its total liabilities were estimated at Rs 112.52 billion.

For more on this article, please click on the following link: Taking care of circular debt once and for all: Govt to float Rs 100 billion Sukuk bonds in May: Daily Times