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Tuesday, 8 April 2008

Pakistan: Six banks short listed for rupee sukuk

(Daily Times, 8 Apr 08)

KARACHI: Pakistan has shortlisted six banks to manage a local currency Islamic bond, or sukuk, and a mandate for the transaction is likely to be awarded soon, government and banking sources said on Monday.

This will be the first sukuk issue by the government in the domestic market, though it raised $600 million through an Islamic bond in the international market in 2005.

“We have shortlisted six banks for this local issuance, and a mandate for that should be awarded in a week to 10 days,” a senior government official told Reuters.

The sukuk would be issued in the fiscal year ending June 30, but no decision had been taken on the size and tenure of the issue, former Finance Minister Salman Shah had told Reuters last month.

Banking sources said the banks shortlisted were ABN Amro Pakistan, Dubai Islamic Bank, Meezan Bank, MCB Bank, Standard Chartered Bank Pakistan and United Bank Ltd.

A banker familiar with development said that the issue was estimated to be of at least 20 billion Pakistani rupees ($318 million).

“The official position is that the size would be determined by the prevailing market conditions, but we were indicated that the size should be at least 20 billion rupees,” he said.

Analysts said the government should not face any trouble attracting investors to the sukuk, as Pakistan’s market for Islamic finance is growing.

In calendar 2007, assets of Islamic banks grew by about 74 percent to 205 billion rupees—from 118 billion rupees in December 2006—which equates to a 4.2 percent share of Pakistani banks’ total assets, State Bank of Pakistan data showed.

Pakistan plans to issue a US dollar bond, likely to be exchangeable in stocks of a state-owned company, in the international market before the end of fiscal 2007/08.

Our staff reporter adds: An official at one of the short listed banks told Daily Times that the State Bank has expressed its reservations about giving the mandate for managing the bond issue to banks.

The bond’s tenure may be three or five years, said the official. He said the government would pledge some asset to sell the bond. “Its coupon rate will be linked to either six-month kibor or six-month treasury bill,” he said. “The government might raise Rs 10-20 billion through the auction.” He said more such bonds would be coming in the future in quick succession.

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