ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued two concept papers to further the development of the short-term listed sukuk (Islamic bonds) market.
These papers aim to initiate public consultation on key issues and suggest customised regulatory interventions to promote listing short-term sovereign and corporate sukuk instruments.
Pakistan’s capital market provides Shariah-compliant borrowing solutions to the government and the corporate sector. Therefore, a vibrant, listed short-term sukuk segment would enable various Shariah-compliant financial solutions and would better cater the needs of issuers and investors, said an SECP press release.
Since December 2023, Pakistan has been actively raising funds from the capital market through the issuance of sovereign Ijara sukuk instruments. The government has raised about Rs713 billion through 11 auctions by issuing different types of sovereign Ijara sukuk instruments of varying maturities (one, three and five years) through the Pakistan Stock Exchange (PSX).
Govt raises Rs713bn through PSX since December 2023
Short-term sukuk are becoming increasingly popular amongst capital market investors. Corporates prefer structuring such short-term instruments as privately placed and unlisted, even though this limits their ability to raise funds from a larger pool of investors.
The concept paper on listing short-term corporate sukuk advocates avenues for making listings of such sukuk more appealing in terms of efficiency, procedural convenience and cost.
The paper points out that global practices have observed that most short-term sovereign sukuk are based on structures that are not tradeable (Murabaha, Salam, Istisna). Therefore, structural innovation is required for the introduction of sovereign short-term tradeable sukuk.
It suggests that the Debt Management Office (DMO), the Joint Financial Advisors of the DMO, the representatives of SECP, and selected market participants can devise a road map for structuring short-term sovereign sukuk.
This may include identifying propositions available for issuing short-term tradeable and non-tradeable sukuk and documenting process flows with indicative timelines for the issuance of sovereign sukuk.
In the first phase, the government may consider issuing non-tradeable short-term sukuk, with auctions taking place through the PSX, the Central Depository Company, and the National Clearing Company of Pakistan Limited. Infrastructure for auctioning GOP sukuk instruments is already available. Prior to the auction, it can be clearly indicated that such sukuk will not be tradeable and can only be redeemed on maturity.
The concept paper on listing short-term corporate sukuk at the stock exchange suggests that considering corporates’ renewed interest in the sukuk market through the issuance of short-term sukuk, there is a need to facilitate corporates’ issuance and listing of short-term sukuk in a cost-effective and efficient manner.
Published in Dawn, August 11th, 2024
