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Wednesday, 7 May 2014

Pakistan plans $1bn sukuk to boost reserves

Pakistan plans to sell more than $1bn of Islamic bonds after its first overseas debt sale in seven years boosted reserves and helped the nation work toward targets under an International Monetary Fund loan programme.

The dollar-denominated notes will be marketed at the end of the third or in the fourth quarter of 2014, Finance Minister Ishaq Dar said in an interview on Monday on the sidelines of the Asian Development Bank’s annual meeting in Astana, Kazakhstan. Investor interest will determine the size of the offering which will be “much more” than $1bn and managers are yet to be appointed, he added.

The sale is part of Prime Minister Nawaz Sharif’s plan to attract investment and overhaul the economy to meet conditions on a $6.6bn IMF loan. Pakistan should be prepared to raise interest rates from a 19-month high if expected inflows are delayed, the Washington-based lender said in March.

“There is a huge appetite for an Islamic bond,” Faraz Younus Bandukda, chief executive officer at Fortune Islamic Services Pvt, Pakistan’s only Shariah-compliant broker, said by phone from Karachi. “Yields are expected to be lower than conventional bond offerings.”

South Asia’s second-biggest economy last month sold $2bn of dollar bonds after an oversubscription led officials to raise the amount from an initial $500mn. It marketed $1bn of five-year notes at a yield of 7.25% and an equal amount of 10-year debt at 8.25%.

Dar said he expects investors from the Middle East, South Asia, Europe and the US. A successful conclusion to review talks with the IMF – which began in Dubai this week and will probably end on May 10 – will hopefully result in good pricing on the debt, he added.

Pakistan aims to cut its budget deficit to 5% in the year that starts on July 1 from an estimated 6.3% in the previous 12 months. The government will also collect more tax, boost power supplies, and is in talks with militants to end violence, Dar said.

Local Islamic banks will convert their cash surpluses to dollars to buy the notes, Fortune Islamic’s Bandukda said. Shariah-compliant deposits climbed 31% from a year earlier to Rs1.01tn in December, according to central bank data.

Debt sales and inflows from donor countries helped boost foreign reserves to a one-year high of $11.8bn last month, according to official estimates. The government is aiming for a $15bn stockpile by end-September.
(Gulf Times / 06 May 2014)
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