In 2024, the Government raised Rs2tn from Sukuk auctions using the PSX auction system in 15 total auctions. The largest quantum of funds was raised in the last auction 2024, which took place yesterday, on Dec 03, 2024, fetching Rs353bn with 60% of funds raised in 10-year Sukuk. Tenor-wise, 38% of the funds or Rs0.8tn are raised in 5-year Sukuk; of this variable rate, Sukuks were 74%, and the fixed rate was 26%.
§ The Second largest amount was raised in 1 year, discounted Sukuk, amounting to Rs548bn or 28% of the total raised amount.
§ In 10-year and 3-year Sukuk, the Government raised 19% and 16% of the funds raised in the PSX Sukuk auction system during 2024.
§ In all 15 auctions, Government received participation of Rs6.2tn against total target of Rs2.1tn and raised amount of Rs2.0tn.
§ Rental Rate (Yield) on 1 Year Discounted Sukuk: Cut-off yields on 12M Sukuk have remained, on average, lower by 90bps than the conventional 12M Tbill with the highest discount of 184bps witnessed on Nov 06, 2024 Sukuk auction in which the Government raised the second highest amount of Rs339bn with Rs116bn from 12M Sukuk. Yield on 1 year of Sukuk decreased from 19.5% to 10.99%.
§ Yield on 3/5/10 Year Sukuk: Cut-off yields on 3/5/10 year Suku,k on average,e have remained lower by 60/9bps/nil than conventional 3/5/10 Year PIBs secondary market yield on the date of auction with the highest discount of 82bps was witnessed in May 09, 2024 auction. Cut-off yields on 3/5/10 year Sukuks came down by 134-455bps in 2024.
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§ In Oct 2023, the Care Taker Federal Cabinet approved to amend the Government of Pakistan Market Treasury Bills 1998 and Government of Pakistan Ijara Sukuk Rules 2008.
§ These amendments aimed to enhance the efficiency and provide flexibility for the issuance, registration, trading and transfer of Government Securities through any institution.
§ Furthermore, these changes were also supposed to help the Government expand its investor base, make participation easier for diversified investors, i.e. retail, etc. and eventually reduce the cost of borrowing by enhancing the subscriber base.
§ In line with these changes, the Government of Pakistan conducted the first primary auction of 1 year discounted GOP Ijara Sukuk (GIS) through the PSX auction system on Dec 08, 2023, with a target of Rs30bn.
§ In the first auction in 2023, the Government received bids of Rs396bn (realized value) with a rental rate of 18.5-33.42% for 1 year GIS, 13x of the amount targeted by Govt. However, the Government picked up Rs28.9bn at a cut-off rental rate of 19.5%. In the secondary market, the 1-year Tbill yielded 21.2%, thus reducing government costs by over 150bps.
§ Since then, all auctions of 1 year GIS sukuk have been done through the PSX auction system.
§ after that, the first auction of the 3-year and 5-year GIS in both variable (VRR) and fixed-rate (FRR) was conducted on Jan 23, 2024, alongside the 1-year discounted GIS. The target set for 3 years and 5 years (in both VRR and FRR) was Rs60bn cumulatively.
§ However, the auction witnessed participation of Rs296bn in the first auction of 3-year and 5-year Sukuks, 5x of the govt. Target. The government picked up Rs81bn in this auction for 3Y and 5Y maturity Sukuks. The fixed-rate Sukuk cut-off was 16.05% and 15.49% for 3Y and 5Y, respectively, 2-79bps lower than the secondary market 3Y and 5Y PIBs rate of 16.84% and 15.51%.
§ On the floater side, in the first auction, the spread over the reference rate was +15bps, while this spread lowered further in subsequent auctions and reached 89bps inn thee last auction.
Courtesy- Topline Research
