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$15b reserves target: $1b Sukuk bonds at 6.75% interest rate offered for 5 years

$15b reserves target: $1b Sukuk bonds at 6.75% interest rate offered for 5 years

LONDON: Federal Finance Minister Ishaq Dar has expressed the confidence that the government would achieve $15 billion foreign reserves target by December 31 this year as response to Sukuk would far exceed the interest evinced in Euro Bonds.

Pakistan raised $1 billion from the international Islamic bond market on Wednesday by selling its Sukuk papers at 6.75 per cent profit rate.

With the proceeds, the country’s foreign exchange reserves are estimated to touch $14.1bn on Dec 1. And after the disbursement of $1.1bn by the International Monetary Fund (IMF) expected in the second week next month, the country is set to cross the $15bn reserves barrier and will be eligible to benefit from the concessionary development lending window of the World Bank — International Bank for Reconstruction and Development.

“Pakistan successfully returned to the international Islamic bond market with the issuance of US dollar-denominated Sukuk notes under Reg-S/144a format (a regulatory requirement of US law),” said an official statement.

The last international Sukuk was issued nine years ago.

Eulogising the role played by the overseas Pakistanis to offset negativities of two sit-ins, the Minister said the remittances sent by expatriate countrymen would also help us achieve the $15 billion forex reserve target by year end.

Meanwhile, over 25 representatives of international investment companies called on Ishaq Dar in the roadshow on Pakistan International Sukuk offering.

The finance minister was accompanied by the deputy governor of the State Bank of Pakistan and additional secretary (external finance) in the meetings with the investment companies, according to a message received here from London.

The finance minister, along with his team, briefed the international investors during the day-long meetings. Most of the investors had invested in the international bond issued earlier this year. The investors were provided with an update on macroeconomic progress made by Pakistan since the roadshows for the Euro Bond in April earlier this year.

The finance minister’s spokesman, Rana Assad Amin, said the deal reduced Pakistan’s domestic debt by Rs102bn and annual debt-servicing cost by Rs5bn for five years. He said the country was paying about 11.5pc return on the five-year Pakistan Investment Bond while Sukuk had been sold at 6.75pc profit, thus causing a 5pc reduction in debt-servicing cost.

International investors had showed interest in higher amount of bond subscription at 7pc and higher return, but the government was advised to remain on the lower side to remain competitive in the international market.

The government initially sought to raise $500 million, but then decided to go for a higher amount to compensate for the setback in capital market transaction of Oil and Gas Development Company last month.

According to the official statement, the government received a subscription of $2.3bn, which was nearly five times the targeted amount. “The government decided to accept offers of $1bn for a five-year term at a profit rate of 6.75pc, which is 50 basis points lower than the price at which the five-year Euro bond was priced in April this year,” it said.

The offers came from diverse regions of the world. About 35pc subscription came from Europe, 32pc from the Middle East, 20pc from North America and 13pc from Asia.

“The order book comprised top quality investors from all parts of the globe,” the finance ministry said.

Finance Minister Dar termed the launch of Sukuk a successful transaction and reflection of international investors’ confidence in the leadership of Prime Minister Sharif and his economic policies.

He said the 6.75pc profit rate compared favourably with the average weighted cost of comparable domestic debt of about 11pc. It will help the country save about Rs5bn annually in debt servicing.

The Sukuk proceeds will go to the State Bank and the rupee proceeds of an equivalent amount will be used for retirement of domestic debt.