Pakistan raises PKR 2 trillion through Sukuk auctions during 2024

The Pakistani government raised PKR 2 trillion through Sukuk auctions using the Pakistan Stock Exchange auction system across 15 auctions during 2024.

The largest amount was raised in the final auction of the year on December 3, totaling PKR 353 billion, with 60% of funds raised in 10-year Sukuk.

Over the year, 38% or PKR 0.8 trillion was raised in five-year Sukuk, with 74% of these being variable rate Sukuks and 26% fixed rate, a report issued by Topline Securities noted.

Meanwhile, 28% or PKR 548 billion was raised in one-year discounted Sukuk. Additionally, 19% and 16% of the funds were raised in 10-year and three-year Sukuk, respectively.

In all 15 auctions, the government received participation of PKR 6.2 trillion against a total target of PKR 2.1 trillion and raised PKR 2.0 trillion.

The rental rate (yield) on one-year discounted Sukuk averaged 90 basis points lower than conventional 12-month treasury bills, with the highest discount of 184 basis points seen on November 6, when the government raised PKR 339 billion, including PKR 116 billion from 12-month Sukuk.

The yield on one-year Sukuk dropped from 19.5% to 10.99%.

In October 2023, the caretaker federal cabinet had approved amendments to the Government of Pakistan Market Treasury Bills 1998 and Government of Pakistan Ijara Sukuk Rules 2008.

These changes aimed to enhance efficiency and provide flexibility for issuing, registering, trading, and transferring government securities, as well as to expand the investor base and reduce borrowing costs.

Following these changes, the government conducted the first primary auction of one-year discounted GOP Ijara Sukuk (GIS) through the PSX auction system on December 8, 2023, targeting PKR 30 billion.

The government received bids of PKR 396 billion and picked up PKR 28.9 billion at a cut-off rental rate of 19.5%. At that time, the one-year T-bill was yielding 21.2%, reducing the government's cost by over 150 basis points.

Since then, all auctions of one-year GIS Sukuk have been conducted through the PSX auction system. The first auction of three-year and five-year GIS in both variable and fixed rates was held on January 23 this year, alongside the one-year discounted GIS. The target for three-year and five-year Sukuks was PKR 60 billion cumulatively.

The auction saw participation of PKR 296 billion, and the government picked up PKR 81 billion.

The fixed rate Sukuk cut-off was 16.05% and 15.49% for three-year and five-year Sukuks, respectively, which was 2-79 basis points lower than the secondary market rates. The spread over the reference rate for floating rate Sukuks was initially +15 basis points, which lowered to -89 basis points by the last auction.