Issuance of PKR 200 bn Pakistan Energy Sukuk II – Islamic finance delivers another milestone transaction for Pakistan in difficult times

June 9th, 2020

Meezan Bank, Pakistan’s first and largest Islamic bank has played a leading role in successfully concluding the issuance of Pakistan Energy Sukuk (PES) II worth approximately PKR 200bn by Power Holding Limited (PHL), a public sector entity fully owned by the Ministry of Energy and Government of Pakistan. The milestone transaction, powered by the key Islamic finance players of the country was concluded successfully in May 2020.

The Sukuk aims to help the Government in addressing the challenges for resolving circular debt in the country’s power sector. Meezan Bank acted as an Investment Agent and Trustee for this issue. In addition, Meezan Bank was also the Joint Financial Advisor along with Dubai Islamic Bank Pakistan and Bank Alfalah Islamic. This is the second issuance of this series of Sukuk, bringing the total size of Shariah-compliant Energy Sukuk to approximately PKR 400bn. National Bank Limited along with Taurus Securities Limited led the Book Building process to conduct Pakistan’s first and largest book building for a Sukuk issue through Pakistan Stock Exchange (PSX). This issue could not have been possible without the support of the Securities and Exchange Commission of Pakistan (SECP), State Bank of Pakistan (SBP) and Ministry of Finance also played a significant role in the successful conclusion of the transaction.

The Sukuk issue was 1.7 times over-subscribed and the rate of return paid by PHL was very competitive and saved the Government significant financing cost. The Sukuk issuance is a strong indicator of the potential and feasibility of Islamic finance and promises immense potential for delivering large ticket deals to the Government for the benefit of the economy. It will also enable the Government to move away from interest-based borrowing and shift towards Shariah-compliant financing as per the requirement of the constitution of Pakistan.

The underlying Shariah Structure of the Sukuk is based on Ijarah Sale and Lease Back. Transaction is structured for 10 years, with six monthly profit (rental) payments at a rate equivalent to 6 Month KIBOR -10 bps, as determined through the book building process. The entire issue would be redeemed at maturity i.e. after the completion of 10 years.