Wapda will issue a 10-year domestic Islamic bond, or Sukuk, worth at least Rs 8 billion ($132 million) next month to partly fund projects and for other needs, a senior official said on Thursday.
The Water and Power Development Authority (Wapda), has mandated Dubai Islamic Bank, National Bank of Pakistan and Standard Chartered Bank (Pakistan) Ltd to arrange the issue jointly, said Imtiaz Anjum, Member Finance at Wapda House.
"We plan to sell our Sukuk in June, and it will be worth at least 8 billion rupees," Anjum told Reuters. "However, we can go beyond this figure as well, depending on the situation at that time."
The issue will be backed by government guarantee and will be eligible for inclusion in the statutory liquidity reserves (SLR) of Islamic banks as well as conventional banks having Islamic banking windows. "The paper will be priced at 25 basis points below the six-month Kibor (Karachi Interbank Offered Rate) per annum, " said Anjum. The benchmark six-month Kibor was at 10.21 percent on Thursday.
Proceeds from the Sukuk would be used to fund development projects as well as other financing needs of the power utility. This would be the second Sukuk issuance by Wapda, which also issued seven-year debt in January last year.
The Wapda Sukuk plan also comes days after state-run Karachi Shipyard and Engineering Works (KSEW) said it would float a similar eight-year bond worth up to 4.2 billion rupees.
But the Wapda issue has been priced significantly cheaper than the KSEW one, which offers a return of 40 basis points above Kibor to investors. Still, analysts believe there was enough demand and liquidity in the market for the issue to be successful.
"The assets of Islamic banks have been growing at a sharp pace in recent years, while there is a scarcity of Shariah compliant SLR eligible papers," said Zaheerudin Khalid, head of research and product development at Al-Meezan Investment Management.
"In addition, there are a number of Islamic funds as well as Takaful companies who are looking for such papers," he said. "Hence, the appetite is pretty high, and even though the return on Wapda's planned Sukuk is not very high it should get a healthy response."
Deposits of Islamic banks in Pakistan totalled more than 83 billion rupees as of December 31, 2006, up from Rs 50 billion a year earlier. Central bank data showed and analysts expect this pace of growth to continue in coming years.
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