Government of Pakistan currently offers, Government Ijarah Sukuk (GIS) & Government Hybrid Sukuk (GHS).

GIS is shariah-compliant asset-backed, Sovereign debt instrument issued by the GoP. GIS are based on the Islamic principle of Ijarah (leasing), where investors earn returns from rental income generated by underlying tangible assets owed by Government of Pakistan (GoP).

GHS is shariah-compliant instrument comprises an Ijarah Sale and Lease Back (Ijarah SLB) Transaction and Commodity Murabaha Transaction.

Government Ijarah Sukuk (GIS): These are shariah-compliant Islamic bonds. Unlike conventional interest-bearing bonds, they represent joint ownership in a tangible, underlying asset. Instead of paying interest, they generate periodic rental income for investors.

Government Hybrid Sukuk (GHS): These are also shariah-compliant instruments; however, they utilize a "hybrid" structure (e.g., a mix of Ijarah and Murabaha or Wakala) to better manage the government’s debt obligations across differing state assets.

Conventional Bonds: Conventional Bonds are debt obligations where the issuer promises to pay a set face value at maturity along with periodic fixed or floating interest payments (coupons). They do not require underlying physical assets.

Transaction structure of GIS is based on Ijarah (Sale & Lease Back of underlying assets).

Transaction structure of GHS is based on Hybrid structure comprises an Ijarah Sale & Lease Back (Ijarah SLB) Transaction and Commodity Murabaha Transaction with 55% of the Sukuk proceeds utilizes for the Ijarah SLB transaction while 45% of the Sukuk proceeds utilizes for Commodity Murabaha Transaction.

Pakistan Domestic Sukuk Company Limited (PDSCL) - a wholly owned subsidiary of Ministry of Finance (MoF), Government of Pakistan issues GoP Sukuk through Capital Market Infrastructure Institutions [CMIIs]; PSX, NCCPL and CDC.

PSX – Provides Auction platform to all eligible participants for placement of bids on auction day.

NCCPL – Ensures settlement of funds and securities through its automated system.

CDC - Manages electronic book-entry, ISIN creation, and security registration of GoP Sukuk.

Meezan Bank Limited, Dubai Islamic Bank (Pakistan) Limited, Bank Islami Pakistan Limited, and Bank Alfalah Limited.

Face Value of GoP Sukuk is PKR 5,000.

There are four types of GIS/GHS offered till now:

• Fixed Rate Discounted (FRD) GIS/GHS – FRD is a 1-Year, shariah-compliant instrument issued by the government at a discount to its face value. Investors purchase these securities below par (e.g., at PKR 91 instead of PKR 100) and receive the full-face value at maturity, with the profit fixed at the time of auction. The difference between investment value & face value at maturity is the Ijarah Profit.
• Fixed Rental Rate (FRR) GIS/GHS – FRR are shariah-compliant, tradable fixed income instruments with a fixed, predetermined rental rate for their entire maturity period determined at the time of auction.
• Variable Rental Rate (VRR) GIS/GHS – VRR are shariah-compliant, tradable fixed income instruments with profit rates that adjust periodically based on the weighted average yield of 6-month Treasury Bills plus a specific margin determined at the time of auction.
• Fixed Rate – Zero Coupon (FRZ) GIS – FRZ is a shariah-compliant, 10-year government fixed income instrument issued at a discount with a single payment. It pays a fixed profit (rental) only at maturity, calculated as the difference between the face value and the discounted investment value.

Primary market auction is the initial sale of newly issued securities directly from the issuer to investors.

• At present, 1-Year Fixed Rate Discounted and 10 Year VRR are issued twice a month while 3&5 Year FRR and 10 Year FRZ are issued once a month.
• Debt office communicates the auction calendar plan to PSX normally at the start of each quarter and PSX notifies the market participants accordingly.
• PSX also notifies the market participants regarding auction details along with Term Sheets and Transaction Structure before the auction.

All Broker Clearing Members (BCMs), Non-Broker Clearing Members (NBCMs) of NCCPL, Professional Clearing Member (PCM) and CDC Investor Account Services (CDC-IAS) are eligible participants of primary market auction at PSX.

Yes, 10% advanced amount is applicable for BCMs, NBCMs of NCCPL (other than Commercial Banks and Mutual Funds) and CDC Investor Account Services. The advanced amount requirements are waived for NBCMs of NCCPL (Banks and Mutual Funds) after submission of necessary documentation i.e. submission of Standing Instructions (SI) by the banks and submission of Irrevocable Undertaking by the CDC Trustee on behalf of respective mutual funds.

Yes, the requirement is applicable for all types and tenors of GoP Sukuk.

Illustration:

If the auction bid of an investor or participant is successful, eligible participant will provide a balanced 90% amount to NCCPL on settlement date of auction i.e. on next business day of auction. In case of unsuccessful bid, the amount will be refunded by NCCPL on auction settlement date.

Auction settlement day is generally the next business day of auction. However, Debt Management Office (DMO) of the Ministry of Finance may advise different settlement dates that may be notified to market participants through Auction Calendar.

Eligible investors for GoP Sukuk primary auction are as follows:

• Individuals, High Net worth Individuals, Financial Institutions including banks, non-banking finance companies, insurance and Takaful companies irrespective of their residential status and Mutual Funds.
• Roshan Digital Account (RDA) Customers through CDC Investor Account Services (CDC-IAS).
• Non-Resident Pakistanis (NRPs) through CDC.
• Foreign Individuals and Foreign Corporates through SCRA Accounts.

An investor may approach a Broker Clearing Member OR Non-Broker Clearing Member of NCCPL to participate in the bidding process.

Yes, participation is permitted even if the investor does not maintain a trading account/CDC Sub account with Securities Broker OR IAS account with CDC. To accommodate such unregistered investors, CDC establishes Customer Facilitation Account, enabling seamless participation in the auction.

The GoP Sukuk will be credited into Customer Facilitation Account, and investor will be given a 40 day time period by CDC during which he/she has to open its CDC account either with broker or with CDC and intimate CDC accordingly. The GoP Sukuk will be transferred into investors’ newly opened CDC account by CDC accordingly.

Participants are required to provide following mandatory details to PSX/NCCPL via emails docs@nccpl.com.pk and trading@psx.com.pk.

• Participant / CM ID
• Participant / CM Name
• Contact Person Name
• Contact Person Email ID
• Contact Person Mobile #
• Instrument ID & Name - in which they are willing to participate

PSX registers the eligible participants in PSX’s Auction System, and the credentials (User ID & Password) receives by the contact person of eligible participants on his/her registered email address & PIN on registered mobile number.

Investor profile is created by the eligible participants through Auction System Client module. Participants also assign the required auction instrument and advance amount to the investor as per the requirement.

Following information is mandatory and required to be provided by an investor to its participant:

• Investor Name
• CNIC No. (In case of Individual entity)/ Company Registration No. (In case of corporate entity)
• IBAN (Must be Active and 24 digits)
• Email Address
• Mobile #
• NTN (In case of Corporates only)
• CDC Participant ID (If investor is not maintaining any CDC account, leave this field blank)
• CDC Sub account OR CDC Investor Account. In case no CDC Sub Account or Investor Account, participant simply input “00000” in CDC participant ID field and leave CDC Sub Account or Investor Account fields as Blank.

Through GDS Margin Deposit Screen provided by NCCPL on their NCSS terminals.

A participant or an investor cannot go beyond their assigned limits. There are pre-validation checks implemented on PSX’s Auction System.

Competitive Bid: A competitive bid is one wherein an investor specifies the price or yield at which he/she wishes to purchase GIS/GHS. In competitive bidding, bids are accepted in order, starting with the price higher than the minimum acceptable price or the yield.

Non-Competitive Bid: A non-competitive bid is an offer to purchase GIS/GHS made by the smaller investors. Non-competitive bidders do not specify the price or terms of security. Instead, the terms are set by a competitive bidding process. Allocation happens on the single cut-off price determined by the competitive bidding.

Yes, participants and investors have to acknowledge the Terms & Conditions (T&C) placed on Bid Screen. Without T&C, bid will not be submitted.

Bids are placed on the basis of Face Value (Rs.) of GoP Sukuk.

An investor can participate by investing a minimum amount of PKR 5,000 or any amount specified in Term Sheet of GoP Sukuk.

In competitive bidding process, there is no maximum limit of placement of bid. An investor can place bid of any amount in the same instrument even can place multiple bids on same price.

In non-competitive bidding, the maximum limit is 0.25% of target auction amount. The maximum limit is notified by MoF through Term Sheets published on Sukuk webpage.

In competitive auction, an investor can place multiple bids across all participants.

In non-competitive auction, an investor can place single bid in one tenor across all participants.

A Dutch Auction methodology is being followed wherein the sukuk are allocated to the successful bidders on single cut-off rate/price as accepted by MoF.

In this specific case, the pro-rata allocation follows.

Successful participants & investors are informed via their registered email address. Secondly, participants can also download successful Bidders Report by logging into their Front Office terminal.

The Sukuk is settled as per the settlement date mentioned in the auction calendar notified to the market participants.

Profit on debt is calculated for each investor of GoP Sukuk based on their holding period & NCCPL computes and subtracts withholding tax on profit of debt in accordance with the requirement prescribed under Income Tax Ordinance 2001. At investor level either on disposal of GoP Sukuk in secondary market or reaching the maturity stage.

There isn’t a compulsory deduction of zakat at source & a sahib-e-nisab may pay zakat on his/her own according to Shariah.

GIS cannot be attained in physical form. GoP Sukuk are script-less securities & are electronically available in a CDS account.

The Sukuk is redeemed by the GoP on maturity. The underlying asset of Sukuk is purchased by the GoP at the issue price in accordance with the purchase undertaking, while the profit component is paid as Ijarah Rental by GoP.

The benchmark rate is defined as the weighted average yield of 6-months T-Bill as may be decided in last auction or 6-months tenor rate as given on the Reuters PKRV page (121-180 days) in terms of SBP-FSCD Circular No. 13 dated September 6, 2008.

The applicable rate can be accessed at following link at the start of each period:

• For Weighted Average Rates ( https://www.sbp.org.pk/DFMD/pma.asp )
• For PKRV Rates ( https://www.mufap.com.pk/industry.php )

If the government wants to raise additional funds on the same underlying assets on which it previously raised funds (contingent to cushion left in the underlying assets), the government will have to go through the process of ‘re-opening’.

For example, the value of the underlying assets is PKR 100 billion and government raised Rs. 60 billion in the first auction, GoP can still raise PKR 40 billion on these underlying assets via re-opening.

The following are some of the key features related to re-opening of GoP Sukuk:

• Re-opening can only be done on those instruments which have been issued earlier in the same underlying.
• The Issue Date, Maturity Date, Rental Rate and Rental Payout frequency would remain the same as it was in the fresh issue. However, in the fresh auction, rental rate was decided by the government as ‘cut-off’ rate.
• Re-opening auctions may be conducted for both Fixed & Variable Rental Rate GoP Sukuk.
• Bidders of GoP Sukuk submit bids in terms of Price, per PKR 100 of face value, up to four decimal points. The bid price must not include ‘price premium due to higher first rental’.
• The settlement amount of re-opening auction to be paid by successful bidders is equal to the amount calculated as per accepted (cut off) bid price plus price premium due to higher first rental. The price premium due to higher first rental is calculated for the number of days lapsed from start of the rental period of original issue based on applicable rental amount to the settlement date (the day count convention will be Actual/ 365).
• Re-opening auctions of GoP Sukuk is conducted through uniform price competitive bidding auction process. The cut-off bid price, at which GoP decides to accept bids, in the re-opening auction will apply uniformly to all accepted bids.
• The Non-Competitive Bids (NCBs) of reopened GoP Sukuk is accepted at cut-off bid price determined through cut-off in the competitive price auction.

Bai’ Mu’ajjal is a shariah-compliant sale contract where the payment for an asset is made at a later date, while the asset is delivered immediately. In the context of GIS/GHS, Bai’ Mu’ajjal may be used for the purchase of underlying Sukuk by the Government/ issuer, allowing the government or issuer to acquire assets now and pay for them over an agreed period. This ensures the transaction complies with Islamic finance principles while supporting the structure of the Sukuk.

It’s a deferred payment sale where the assets are delivered immediately, but payment is made on later/future date. This helps Sukuk issuers acquire assets in a shariah-compliant way.

It allows the government to purchase assets now, pay later, and structure the Sukuk in line with Islamic principles, providing investors with compliant returns.