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October 16, 2019
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ECC formally allows issuance of Sukuk bond to raise Rs200bn for paying circular debt

ISLAMABAD: The government gave a go-ahead for the issuance of Sukuk bond to raise Rs200 billion funds from Islamic banks for the payment of circular debt.

The decision to issue Sukuk bond for partial payment of the circular debt was taken at a meeting of the Economic Coordination Com­mittee (ECC) of the cabinet. Finance Minister Asad Umar chaired the ECC meeting.

The meeting also formally allowed the power division of the energy ministry to proceed with the raising of Rs200bn Syndicated Islamic Term Finance Facility from Islamic banks against already approved term sheets for cash settlement of the circular debt.

Power Secretary Irfan Ali told the meeting that the total circular debt as of Dec 31, 2018 stood at Rs1.415 trillion. This included old stock of Rs607bn against which syndicated term finance facilities had already been executed on behalf of the Power Holding Company Ltd (an asset-less shell company of the power division), besides the remaining and fresh build-up payables of Rs808bn.

The finance ministry and a consortium of six banks have already finalised the funding arrangement and repayment mechanism. The consortium is led by Meezan Islamic Bank and comprises Bank Islami Pakistan, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank and Al-Baraka Bank. The financing is statutory liquidity ratio (SLR) eligible product and assets of the distribution companies and generation companies would remain pledged with the banks as collateral, besides the government guarantee. The boards of generation and distribution companies are reported to have formally approved the funding and mortgage of assets.

The bond will have a 10-year maturity at a rental return of a base rate plus a margin of 100 basis points and Takaful cost. The base rate will be defined as six-month Karachi Interbank Offered Rate (Kibor) asking side prevailing on the base rate setting date, subject to a floor and cap.