In an attempt to resolve Pakistan’s circular debt, the Ministry of Energy issued a Rs200 billion ‘Pakistan Energy Sukuk’, which, according to a statement shared by Meezan Bank Limited (MBL), is “the first of its kind”.
As per the statement, the sukuk was issued through Power Holding Private Limited, a company entirely owned by the government, and is a Shariah-compliant instrument.
A meeting of the Economic Coordination Committee (ECC) on January 29 had formally allowed the power division of the energy ministry to proceed with raising Rs200bn Syndicated Islamic Term Finance Facility from Islamic banks against already approved term sheets for cash settlement of the circular debt, including Rs47bn to provincial governments on account of net hydel profit.
The funds to be raised through Islamic banks would be used to ease out the liquidity crunch engulfing the entire energy sector, including oil and gas suppliers, distribution companies, the Water and Power Development Authority and power producers.
According to the Meezan Bank statement, a consortium of Islamic banks led by MBL helped structure the sukuk. Additionally, MBL is acting as the investment agent and trustee of the bond.
The financing has been declared a statutory liquidity ratio (SLR) eligible product by the State Bank of Pakistan (SBP) for all banks in the country. The sukuk is asset-based and comprises of the assets of power distribution companies.
It is based on the Ijarah or Islamic leasing structure and has a 10-year maturity with semi-annual rental payment.
The bond will be listed in the Pakistan Stock Exchange and, according to the statement, a large category of investors will be eligible to invest in it.
“The sukuk will provide much-needed liquidity to the energy sector and help the government to resolve the circular debt crisis,” the statement read.