KARACHI: Pakistan plans to sell Islamic bonds, known as sukuk, in the local debt market in the next three months, said Asad Qureshi, executive director of financial markets and reserve management at the central bank.
“The idea is to expand the yield curve both ways” by issuing both short- and long-term sukuk, Qureshi said in an interview in Karachi yesterday. Pakistan may also sell notes that “mimic” conventional treasury bills, he said.
Pakistan, South Asia’s second-biggest economy, is looking to raise funds to finance a budget deficit that is widening as the government boosts spending to fight the Taliban insurgency in the northwest tribal areas. The deficit will widen to 5.3 percent of gross domestic product in the year ended June 30 from 5.2 percent last fiscal year, according to the finance ministry.
The Islamic republic, which has a population of more than 150 million, turned to the International Monetary Fund for an $11.3 billion bailout in 2008 after reserves plunged 75 percent.
The government has Rs 42.2 billion ($503 million approx) of outstanding sukuk sold in the domestic market in 2008, six years after the country introduced Islamic financing in 2002. Islamic law, or Shariah, bans the payment of interest and stipulates agreements be based on the transfer of goods or services.
By selling short-term sukuk, “the government will be meeting demand from Islamic investors, who are looking for new avenues and instruments,” said Muhammad Asad, who manages Rs 10 billion of Islamic funds as chief investment officer at Al Meezan Investment Management Co. in Karachi.
‘Nascent Phenomenon’: Assets held by Islamic financial institutions may rise five-fold to more than $5 trillion from $950 billion last year, according to a Moody’s Investors Service report dated April 6. It didn’t give a timeframe.
Global sukuk sales may climb 24 percent this year, led by Asia as the region’s expansion helps lead the world out of recession, CIMB Group Holdings Bhd., last year’s top sukuk underwriter, said in February. Such sales rose 43 percent to $20.2 billion in 2009 and totaled almost $2 billion so far this year, according to data compiled by Bloomberg.
Regulators around the world, including Bahrain and Malaysia, are looking for ways to make Islamic finance products more suitable to investors globally. The International Islamic Financial Market, the Bahrain-based organization seeking to set standards for Islamic securities, said this month it will issue new global guidelines for Shariah-compliant bonds.
The Pakistani government may sell sukuk in international markets in six months to a year, Qureshi said.
‘Not Conducive’: “It is not a very conducive time to go to the international market now,” he said. “We are working on it.”
Pakistan sold $600 million of sukuk in overseas markets for the first time in January 2005, backed by assets including the country’s highway projects.
The finance ministry has said that it plans to issue as much as $1 billion in debt globally and sell state assets to shore up its finances. Credit-default swaps protecting Pakistan’s debt have fallen from 3,084.3 basis points on Jan. 1, 2009, to 706.7 on April 7, according to prices from CMA DataVision in New York.
State Bank of Pakistan last sold Rs 65.37 billion of conventional treasury bills on April 7, including issuance of three-month bills at a yield of 12.09 percent.
The government may reduce the number of maturities it offers on treasury bills and so-called investment bonds to not more than eight, Qureshi said. Pakistan has issued more than Rs 1 trillion of treasury bills with three maturities and Rs 480 billion of investment bonds with seven due dates, according to the central bank. It sells treasury bills fortnightly and investment bonds quarterly.
“This will deepen the market by reducing the volatility in price and attracting more liquidity,” Qureshi said. “We want each point in the yield curve to be liquid.” coutesy bloomberg