Govt decides to issue GIS with further flexibility

February 15, 2023 (MLN): The government has decided to issue Government of Pakistan (GOP) Ijara Sukuk (GIS) with further flexibility in terms of tenor (including one year and above), as per the structure described in the Addendum Note to the Transaction Structure, the circular issued by the central bank on Tuesday to inform presidents and chief executives of all banks, DFIs, and NBFIs. 

"The GIS auction details such as target amount, tenor, rental rate (variable or fixed) and auction schedule, etc. will be announced by SBP on Refinitiv/Bloomberg SBPK pages," it added. 

All other instructions regarding the auction of GIS in the aforementioned circulars and issued by SBP from time to time will remain unchanged.

As per Addendum Note to the transaction, Variable Rate Sukuk or Fixed Rate Sukuk can be issued against the identified assets for the period of either 3/5 years or any other agreed tenor.

The referred Transaction Structure of the Sukuk is now updated with the following provisions, for future issuance:

Sukuk can be issued for a period of 1-5 years or any other agreed tenor but not less than 1 year on the identified Assets.

It must be ensured that at the time of reopening, the remaining tenor of the Sukuk is at least 1year or above from the date of reopening.

All other clauses of the Transaction Structure remain the same.

For the unversed, subsequent to the issuance of the first Ijarah Sukuk issue if the GOP is in need of additional funds and instead of issuance of a new Sukuk wishes to raise new funds by way of re-opening, then the State Bank of Pakistan will conduct an auction for the reopening of the existing Sukuk Issue.

In the Islamic context, the steps of reopening of existing Sukuk are similar to that of issuance of a completely new Sukuk i.e. at the time of reopening of Sukuk the transaction is concluded by purchasing an additional share in the identified asset on Musha basis which is then given on rent/ Ijarah and a separate Ijarah Agreement is executed.

However, since the underlying asset, maturity date, rental rate, and rental payout frequency are kept the same as the initial issue, therefore the new issue would be called the re-opening of Sukuk instead of a new Sukuk issuance.

The transaction flow for the re-opening of Sukuk would be the same as that of an approved structure of the fresh Issue which is re-defined briefly in the following few lines: At the time of the reopening of Sukuk, a fresh Purchase Agreement would be executed between PDSCL (on behalf of Investors) and GOP at an agreed purchase price for the purchase of a New Asset or additional share in the existing Asset.

Subsequently, PDSCL (on behalf of Investors) and GoP would enter into an Ijarah Agreement wherein the New Asset or additional share in the existing Asset would be leased to GoP for a fixed period which would be ending on the scheduled maturity date of the first issue.

The other agreements as mentioned in the Shariah Structure of the first issue would also be executed simultaneously.

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