The State Bank of Pakistan (SBP) has announced that it is introducing three-year Fixed Rental Rate Government of Pakistan (GOP) Ijara Sukuk (FRR-GIS). Presently, Variable Rental Rate GOP Ijara Sukuk (VRR-GIS) is being auctioned and its rental rate is being fixed every three months on the basis of Market Treasury Bills' cut-off yield. However, on the request of Islamic Banking Industry, SBP has decided to launch Fixed Rental Rate GOP Ijara Sukuk for market development.
Sources said that for the first time in the banking history, rental rate for long-term Islamic instrument will be fixed for a period of three years on the basis of Pakistan Investment Bonds' margin. The rental rate decided in the auction will be applicable to the entire tenor of FRR-GIS and will be paid to FRR-GIS holders on semi-annual basis, they said. "The federal government is likely to auction FRR-GIS against Jinnah International Airport, Karachi as underlying asset amounting to Rs 100 billion soon and Islamic banks will get a better rent on FRR-GIS," they maintained.
According to SBP circular issued on Wednesday, pursuant to the Government of Pakistan Ijara Sukuk Rules 2008, it has been decided to introduce Fixed Rental Rate GOP Ijara Sukuk, which will be in addition to the Variable Rental Rate GOP Ijara Sukuk already introduced in 2008.
As per instructions and guidelines, the FRR-GIS will be issued at face value with a maturity period of three years from the date of issue and the FRR-GIS will be scrip-less and held in the special Sukuk account (SGLA). These Sukuks can be traded in the secondary markets and are transferable through SGLA. The FRR-GIS will be sold via competitive auctions held by the State Bank of Pakistan and all Islamic banks and commercial banks with Islamic banking branches designated as primary dealers for the purpose of participating in the auction of FRR-GIS to be announced by the State Bank. However, Islamic banking branches will not be allowed to separately place bids in the auction.
Primary dealers will be required to bid rental rate (% p.a.) and amount (face value) as per the format provided. Minimum bid size will be Rs 100,000 and in multiples thereof. Primary dealers will be free to place multiple bids. Rental rate (% p.a.) has to be specified up to a maximum of two decimals points. Bids can be rejected without assigning any reason thereof. The auction process will be uniform based, where cut-off rental rate will be awarded to all successful bidders. The rental rate decided in the auction will be applicable to the entire tenor of FRR-GIS and will be paid to FRR-GIS holders on semi-annual basis.
According to SBP, in order to ensure that there is no over concentration, holding limits prescribed earlier will also apply to FRR-GIS. The legal structure of the FRR-GIS will be Jinnah International Airport, Karachi as underlying asset. Successful bidders would be required to duly execute, within one day of the announcement of the auction result, a certificate subscription undertaking through their authorised signatories at the premises of the State Bank of Pakistan, Karachi. The settlement date will be the date of issue of the FRR-GIS. The SBP mentioned that all other rules and regulations applicable to variable rental rate GOP Ijara Sukuk will also be applicable to fixed rental rate GOP Ijara Sukuk.
Comments
Comments are closed.