Meezan plans Pakistan's first airtime sukuk in Q4
Aug 21 (Reuters) - Pakistan's Meezan Bank plans to arrange the country's first airtime-based sukuk (Islamic bond), a format favoured by telecommunications operators wishing to tap liquidity in the Islamic capital markets.
The local-currency issuance would have a tenor of between five and 10 years and an approximate size of 7 billion rupees ($68.5 million), said Suleman Muhammad Ali, vice president of product development and sharia compliance at Meezan. The sukuk would be issued in the fourth quarter of this year.
Ali did not name the issuer. Sukuk that use intangible assets such as minutes of mobile telephone use have been tested elsewhere, allowing firms with limited physical assets to raise cash via Islamic finance, which follows religious principles such as bans on interest and gambling.
"The structure is based on ijara and sub-ijara of services. Assets are airtime (minutes) represented by prepaid calling cards and identified by the serial number of each card," Ali said.
In an Islamic ijara deal, one party leases an asset to a client for an agreed price; unlike a conventional lease, the structure does not allow a lessor to charge interest on defaulted or delayed payments.
The airtime sukuk was approved in November by the sharia board of Meezan, the country's first and largest Islamic bank. The sharia board is led by well-known scholar Muhammad Taqi Usmani.
"In terms of innovative sukuk structures, I believe that the local industry is way ahead compared to other global markets, partly due to the strict stance on tawarruq and commodity murabaha of the local sharia scholars," Ali said.
Tawarruq or commodity murabaha is a common cost-plus-profit arrangement in Islamic finance, but the practice is criticised by some scholars as not sufficiently based on real economic activity, a key sharia principle.
In recent years, telecommunications operators across the Gulf and southeast Asia have tested different structures for their sukuk, helping them offset a lack of tangible or unencumbered assets for use in their financing plans.
Malaysian mobile phone operator Axiata Group issued a two-year, 1 billion yuan ($163 million) sukuk in September last year using airtime vouchers through a wakala structure, a common agency agreement in Islamic finance.
Last August, its subsidiary Celcom Axiata raised 5 billion ringgit ($1.52 billion) through a murabaha, an Islamic contract that stipulates an agreed mark-up between parties.
The public tranche of that deal raised 3 billion ringgit from an order book of more than 10 billion ringgit, while the remaining 2 billion ringgit was placed with strategic investors.
In 2007, Saudi Arabia's Etihad Etisalat (Mobily) used airtime in a $2.85 billion sharia-compliant project financing deal, which it refinanced in 2010 with same format.
The United Arab Emirates' Etisalat set up an airtime-based sukuk programme in November 2010 but did not tap the market. (Editing by Andrew Torchia)
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