Circulars/Notifications - Financial Markets Strategy & Conduct Department  
 FSCD Circular No. 13
September 06, 2008 

All Banks/DFIs/NBFIs
Government of Pakistan Ijara Sukuk

The notification of the Government of Pakistan Ijara Sukuk Rules, 2008 (the “Rules”) is enclosed for your information (Annexure “A”). Consequently, the detailed instructions and guidelines regarding issuance and other operational details of GOP Ijara sukuk are enclosed as under:-

1. All commercial banks including Islamic Banks (and Non-banks subjected to SLR and entitled to open current account with SBP) will be eligible to open Subsidiary General Ledger accounts (SGLA) with State Bank of Pakistan for the Ijara Sukuk. Commercial Banks having Islamic branches will have to maintain separate SGLA’s to clearly distinguish between the holdings of the Islamic branch and its conventional counterpart.

2. All Islamic banks and commercial banks with Islamic Branches will be designated as primary dealers for the purpose of participating in the auction of GOP Ijara Sukuk to be announced by the State Bank of Pakistan. Islamic Branches will not be allowed to separately place bids in the auction.

3. The Sukuk will be issued at face value.

4. GOP Ijara Sukuk will be sold via competitive auctions held by State Bank of Pakistan in which participation will be restricted to the above mentioned primary dealers.

5. As per the Rules, the maturity period of the first Sukuk issue will be for three years from the date of issue. The profit on the Sukuk shall be paid semi-annually on the basis of rental rate announced by the State Bank of Pakistan prior to start of each half year. The semi-annual profit will be benchmarked against the latest weighted average yield of the 6 month Market Treasury Bills determined one day prior to the start of each 6 month Rental Period (commencing from the issue date of Sukuk) and determined in the same manner at the start of each half year. In case the last held Market Treasury Bill auction the 6 month tenor is either rejected by the State Bank of Pakistan or there is no participation from the market, State Bank of Pakistan will use the 6 month tenor as given on the Reuters PKRV page (121-180 days) as the above benchmark determined one day prior to the start of each 6 month rental period.

6. Primary Dealers will be required to place bids as margin over / under the benchmark 6 month Treasury Bill weighted average yield. Minimum Bid size will be PKR 100,000 and in multiples thereof. Primary Dealers will be free to place multiple bids. Margin has to be specified in terms of bps over / under the benchmark rate upto a maximum of two decimals points.

7. State Bank of Pakistan will have the sole discretion to accept / reject any bid without assigning any reason thereof. The highest margin over the six month Treasury Bill weighted average yield (at and below which SBP decides to accept all bids) will apply uniformly to all accepted bids. This margin will remain fixed over the entire tenor of the Sukuk. This can be explained by the following example

GOP Ijara Sukuk Required amount: PKR 10,000 million
Bid No. Primary Dealer Amount Commulative Profit Rate
Bank A
TBill - 10.00 bps
Bank B
TBill - 5.00 bps
Bank C
TBill + 0.00 bps
Bank D
TBill +5.00 bps
Bank E
TBill +10.00 bps
Bank F
TBill + 15.00 bps
Bank G
TBill + 20.00 bps

a. For example, the required amount is PKR 10 billion and bids are received from seven banks totaling PKR 20 billion.
b. The primary dealers will be ranked and selected in the competitive auction on the basis of lowest profit rate. Banks A-D qualifies for the issue.
c. Accordingly cut off will be established at bid no. 4 and each bank A-D will be awarded the Sukuk at TBill + 5 bps.

8. In order to ensure that there is no over concentration, holding of any commercial bank including Islamic banks cannot exceed 25% of the issue amount as of close of any business day. In case of commercial banks with Islamic branches this holding restriction will be applied on a combined / amalgamated basis.

9. A Tender Notice inviting sealed bids from the primary dealers would be broadcasted on SBP’s REUTERS page SBPK16 / Newspapers and will give details of the auction program.

10. All primary dealers are required to send their bids as per required format. (Copy of Specimen Tender Form enclosed as Annexure “B”).

11. The Auction result would be announced through SBP’s REUTER Page SBPK17.

12. The legal structure of the Sukuk and the related documentation is explained in Annexure “C”.

13. Successful bidders would be required to duly execute, within one day of announcement of Auction result, a Certificate Subscription Undertaking through their authorized signatories at the premises of the State Bank of Pakistan Banking Services Corporation (“SBP BSC”), Karachi (copy of draft Certificate Subscription Undertaking enclosed in Annexure “D”) to subscribe to the Sukuk and deposit the requisite amount for settlement of the accepted bids on the settlement date of the auction.

14. The settlement date will be the date of issue of the Sukuk.

15. As mentioned in the Rules Ijara sukuk will be scripless and held in the SGLA accounts of commercial banks. Sukuk can be traded in the secondary markets and are transferrable through SGLA. Primary dealers are free to sell Ijara sukuk to eligible investors as described in the Rules. In such cases all banks will be required to open IPS accounts of their customers reflecting the customer holdings of Ijara sukuk. In this regard, the current procedures applicable for IPS accounts will also apply to that of Ijara sukuk.

16. The detailed procedures covering all operational aspects and requisite forms are available on SBP website.

Annexure “A” – Copy of Government of Pakistan Ijara Sukuk Rules
Annexure “B” – Specimen Tender Form
Annexure “C” – Structure and Documentation Brief
Annexure “D” – Draft “Certificate Subscription Undertaking”
Annexure “E” – Draft “Certificate Issuance Undertaking”

Yours Sincerely,


(Athar Ghafoor)
Jr. Joint Director

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