Pakistan has raised Rs239.325 billion (approximately $861.3 million) through the capital market in the inaugural issuance of short-term sovereign hybrid Sukuk, marking a significant expansion of the government’s Shariah-compliant financing program.
The Ministry of Finance (MoF), in collaboration with the State Bank of Pakistan (SBP), the Securities and Exchange Commission of Pakistan (SECP) and the Pakistan Stock Exchange (PSX), issued the first-ever three-month and six-month short-term sovereign hybrid Sukuk.
The issuance expands the range of tenors available under the Government of Pakistan Sukuk program and provides investors with additional short-term Islamic investment options.
First short-term asset-light hybrid Sukuk
Meezan Bank Limited acted as the lead joint financial adviser for the transaction, which introduced Pakistan’s first short-term asset-light sovereign hybrid Sukuk, combining Ijarah and commodity Murabaha structures.
“The instrument offers the government an innovative sovereign funding solution while strengthening liquidity management for the country’s Islamic banking industry,” Meezan Bank said.
The transaction was developed through collaboration between the Ministry of Finance, the SBP’s Islamic Finance Development Department and a consortium of Islamic financial institutions comprising Dubai Islamic Bank Pakistan, BankIslami Pakistan and Bank Alfalah Islamic.
The issuance was also supported by PSX, the Central Depository Company of Pakistan Limited (CDC) and the National Clearing Company of Pakistan Limited (NCCPL), which provided the market infrastructure required for the issuance and settlement of the securities.
Strong investor demand for short-term Sukuk
The three-month Sukuk auction attracted bids exceeding Rs153 billion against a target of Rs25 billion. The government accepted bids with a realized value of more than Rs80 billion at a weighted average yield of 11.4413%, making the issuance approximately 3.2 times oversubscribed based on the accepted amount.
The six-month Sukuk also attracted strong demand, with bids exceeding Rs41 billion against a target of Rs25 billion. The Ministry of Finance accepted bids with a realized value of approximately Rs24 billion at a weighted average yield of 11.5685%.
According to the auction results, total bids worth Rs770.234 billion in face value, equivalent to a realized value of Rs741.287 billion, were received across the Sukuk offerings. The government accepted around 32% of the total realized value of bids.
Government raises funds across multiple Sukuk tenors
In addition to the new three-month and six-month short-term instruments, the Ministry of Finance also conducted regular auctions of one-year discounted Sukuk and 10-year Variable Rental Rate (VRR) Sukuk.
The combined proceeds from the three-month, six-month and one-year discounted Sukuk amounted to Rs162.796 billion, while the 10-year VRR Sukuk accounted for Rs76.529 billion.
The one-year discounted Sukuk raised approximately Rs57.955 billion, while the 10-year VRR Sukuk raised approximately Rs77 billion, according to the transaction details.
The cut-off yield for the three-month discounted Sukuk was set at 11.4994%, while its weighted average yield stood at 11.4413%.
The six-month discounted Sukuk carried a cut-off yield of 11.6902%, with a weighted average yield of 11.5685%.
For the one-year discounted Sukuk, the cut-off yield was 11.84%, while the weighted average yield stood at 11.7526%.
The 10-year VRR Sukuk was issued at a cut-off yield of 11.5803% and a weighted average yield of 11.5580%. Its reference coupon rate was set at 11.3904%.
Revised pricing mechanism introduced
The issuance also introduced a revised allocation methodology based on a non-uniform pricing mechanism.
Under the new framework, competitive bidders are allocated securities at their accepted bid rates, while non-competitive bidders receive allocations at the weighted average price or yield.
The methodology will apply to all Government of Pakistan Sukuk issued through PSX, including Fixed Rate Discounted (FRD), Fixed Rental Rate (FRR), Variable Rental Rate (VRR) and Fixed Rate Zero Coupon (FRZ) Sukuk.
The Ministry of Finance said the introduction of short-term Sukuk is aimed at broadening investment avenues, supporting liquidity management across the Islamic financial system and deepening Pakistan’s domestic Shariah-compliant debt market.
PSX described the successful issuance as an important milestone in the development of Pakistan’s Islamic capital market and reaffirmed its commitment to promoting Shariah-compliant investment products and strengthening the country’s Islamic financial ecosystem.