ISLAMABAD - The ministry of finance on Monday recommended to issue Rs200 billion Sukuk bonds for the second time to pay the dues of circular debt in energy sector.

The amount of Islamic Sukuk bonds would be spent to pay the circular debt of energy sector. Finance Secretary Naveed Kamran Baloch has chaired the meeting, which was attended by the heads of the banks. The ministry of finance has recommended the Economic Coordination Committee (ECC) of the Cabinet to give approval to issue Rs200 billion Sukuk bonds for the second time to pay the dues of circular debt in energy sector. The ECC would likely to meet within this week to consider the proposal, an official of the ministry of finance told The Nation.

The consortium, led by Meezan Islamic Bank, comprises nine other commercial banks including Habib Bank, Bank Alfalah, Bank Islami, Dubai Islamic Bank, Bank Al-Habib, Bank Albaraka, National Bank of Pakistan, United Bank and Faisal Islamic Bank. This will be the second Sukuk financing worth Rs200 billion for the power sector in less than six months. Earlier, the government had adopted the option of Islamic financing through Sukuk bonds in January this year and an amount of Rs200 billion was raised from Islamic banks as fresh facility through Power Holding (Private) Limited by issuance of Sukuk (Sukuk-I) under government guarantee for payment of rental and purchase price at maturity. This financing facility was at cheaper rates as compared to the late payment charges being made by the sector to various sectoral entities including the Independent Power Producers (IPPs).

It is worth mentioning here that the ECC had approved in principle up to Rs400 billion Islamic financing for the power sector in February this year in two phases, but a fresh approval by the ECC as well as the cabinet was required for the second tranche because of changed financing costs arising out of more than 500 basis points increase in the central bank’s policy rate to 13.25pc under the IMF programme.

In the first phase, Meezan Bank was appointed as the Shariah Advisor of the Sukuk and structured the transaction to ensure its Shariah Compliance with the approval of its Shariah Board. A consortium of Islamic banks has been led by Meezan Bank Limited (MBL) which helped the government to structure the historic Sukuk. The other members of the consortium comprises Bank Islami Pakistan Limited (BIPL), Faysal Bank Limited (FBL), MCB Islamic Bank Limited (MIB), Dubai Islamic Bank Pakistan Limited (DIBPL), Al Baraka Bank Pakistan Limited (ABPL), United Bank Limited Ameen Islamic Banking (UBL) and National Bank of Pakistan Aitemaad Islamic Banking (NBP). MBL was also the largest investor in the Sukuk with a participation of Rs88 billion,  while other banks which invested in the Sukuk includes FBL with Rs35 billion, BIPL with Rs35 billion, DIBPL with Rs14.15 billion, MIB with Rs10 billion, ABPL with Rs8.85 billion, UBL Ameen with Rs5 billion and NBP Aitemaad Islamic with Rs4 billion. The ministry was also planning to get the Sukuk listed on the Pakistan Stock Exchange (PSX) so a large number of investors could be eligible for investment in the instrument, which would help the Islamic capital market grow.