June 18, 2014 / 4:37 AM / in 4 years

Pakistan to auction local-currency sukuk

June 18 (Reuters) - Pakistan’s central bank will auction a three-year local currency sukuk, or Islamic bond, more than a year after it last issued such an instrument, adding a much needed liquidity management tool for domestic Islamic banks.

The central bank did not give a target size for the sukuk, which will be backed by motorway assets in Punjab province and use an ijara structure, a sharia-compliant sale and lease-back contract. No date for the sale was announced.

Pakistan issued a 43 billion rupees ($438 million) three-year sukuk in March last year, using a similar structure.

A local currency sukuk would be welcome by the country’s five full-fledged Islamic banks and 15 others offering Islamic finance services, as a key tool to help manage their short-term liquidity needs.

Net investments made by Pakistan’s Islamic banking industry declined by 17.7 percent or 76 billion rupees in the 12 month period ending in March.

This was mainly due to a lack of any new government issuance of sukuk, the central bank said in its latest Islamic banking bulletin.

As of March, Islamic banking assets posted a 20 percent growth year on year, while their net financing and investment dropped 0.7 percent in the same period.

Pakistan’s finance ministry has also said it is considering issuing an Islamic bond denominated in dollars. ($1 = 98.2000 pakistani rupees) (Editing by Kim Coghill)

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