The book building process of Sukuk II of Power Holding (PHL), a public sector entity fully owned by the Ministry of Energy, was successfully concluded today by Pakistan Stock Exchange (PSX). The issue has attracted significant interest from investors and has been heavily oversubscribed, at very attractive rates for PHL. The private placement has attracted a diverse group of investors, including banks, NBFCs, mutual funds, insurance companies, pension funds and high net worth individuals.
This is the first ever debt issuance through book building in the history of PSX and represents an important milestone in the development of debt capital markets in Pakistan. PSX is now playing a key role in helping the government raise financing for infrastructure and the power sector circular debt, in the most transparent and efficient manner.
The debt instrument is being issued to address the liquidity constraints being faced by Pakistan’s power sector. Pakistan Energy Sukuk-II (PES-II) is a Government of Pakistan (GoP) guaranteed Shariah compliant security of Rs200 billion which is 100% SLR eligible, having a 10-year maturity with semi-annual profit payment for investors. The book building process was held on 18-19 May 2020, with the bid(s) registration took place from 11 to 15 May 2020. PSX and the book runners, NBP and Taurus Securities, will present the results to the board of PHL before they are made public.
The Government of Pakistan decided to issue the debt through the Pakistan Stock Exchange to ensure transparency and competitive bidding. PSX offers a state of the art, book building mechanism which is used to determine the cut- off spread (-/+) in basis points (bps) over the 6 month Kibor rate, that the issuer will pay on semi-annual basis to successful investors. The total issue size is being offered through private placement to eligible investors, followed by a technical listing of the Sukuk on PSX.
On the occasion of this highly successful Sukuk II issuance at PSX, Farrukh H Khan, Managing Director of the Exchange said, “This Sukuk issue, for the first time undertaken through book building in Pakistan, is a watershed moment for the development of the debt market in Pakistan. The book building process is used for price discovery and follows a standardized methodology in line with international best practices. This will increase the investor base, liquidity and secondary market trading of the sukuk, enabling the GOP to borrow at the most competitive rates.”
He further added, “We commend the Ministry of Finance and PHL for selecting PSX for raising the Sukuk through a transparent book building process. The SECP greatly facilitated this process through their guidelines and proactive support. The Director General Debt was instrumental in understanding and streamlining the issuance of the Sukuk in this innovative new manner. We are also thankful to the SBP for their guidance and support. The PSX and book runners, NBP and Taurus Securities, did an admirable job considering the very tight timeline to undertake a very large, new issue. We are thankful to all of the above, and the investors, for making this issue a resounding success.”
Unlike the Sukuk issuance by PHL last year, investors who could participate in this issue included Banks, Financial Institutions, Companies or Corporate Bodies (as per Companies Act 2017), Mutual Funds, Voluntary Pension Schemes, Private Funds being managed by NBFCs, Insurance companies, Securities Brokers, Funds and Trusts (as defined in the Employees Contributory funds), and Individual Investors having net assets of at least PKR 2Million. By widening the scope of potential investors, the issuer benefits as it increases the likelihood of more accurate price discovery, while a larger group of investors will benefit from this investment opportunity. Given that it is a Government backed security, such an issuance is generally considered risk free and provides stable returns in the long run.
After the security is listed, investors throughout Pakistan and abroad can buy or sell units of the Sukuk on the PSX BATS trading platform through their broker. This will provide liquidity and investors will be able to buy or sell the Sukuk in line with their investment objectives. In the long run, having a larger investor base will help the government to successfully raise funds from the market at the most competitive rates.