Khashif Talks Unlock Knowledge & Explore with Khashif Talks!
Introduction of Concept Papers
The Securities and Exchange Commission of Pakistan (SECP) has issued two concept papers aimed at enhancing the development of the short-term sukuk (Islamic bonds) market. These papers are intended to initiate public consultation and propose regulatory measures to promote the listing of short-term sovereign and corporate sukuk instruments.
Objectives and Rationale
The primary goal of these papers is to foster a dynamic short-term sukuk market, which would offer Shariah-compliant borrowing solutions to both the government and the corporate sector. A robust market segment for short-term sukuk would provide various Shariah-compliant financial solutions and meet the needs of both issuers and investors, as highlighted by the SECP.
Current Market Dynamics
Since December 2023, Pakistan has been actively issuing sovereign Ijara sukuk instruments to raise funds from the capital market. The government has secured approximately Rs713 billion through 11 auctions of these instruments with varying maturities (one, three, and five years) via the Pakistan Stock Exchange (PSX).
Challenges and Proposed Solutions
The concept papers address the increasing popularity of short-term sukuk among investors and the preference of corporates for privately placed, unlisted instruments. The papers propose measures to enhance the appeal and efficiency of listing short-term sukuk on the stock exchange.
Sovereign Sukuk
For sovereign sukuk, the papers suggest structural innovations to introduce tradeable short-term sukuk. It is recommended that the Debt Management Office (DMO), Joint Financial Advisors of the DMO, SECP representatives, and selected market participants develop a roadmap for issuing both tradeable and non-tradeable short-term sovereign sukuk.
Initially, non-tradeable short-term sukuk could be issued through the PSX, Central Depository Company, and the National Clearing Company of Pakistan Limited, with clear indications that these instruments will not be tradeable and will only be redeemable at maturity.
Corporate Sukuk
The paper on short-term corporate sukuk highlights the need to facilitate the issuance and listing of these instruments efficiently and cost-effectively. The aim is to support corporates in tapping a larger pool of investors through the stock exchange.
