Govt Raised Rs. 2 Trillion Via Sukuk Auctions At PSX in 2024

In 2024, the Government raised Rs. 2 trillion from Sukuk auctions using the PSX auction system in 15 total auctions. According to Topline Securities, the largest quantum of funds was raised in the last auction of 2024, which took place yesterday, on December 03, 2024, fetching Rs. 353 billion with 60 percent of funds raised in 10-year Sukuk. Tenor-wise, 38 percent of the funds, or Rs. 0.8 trillion are raised in 5-year Sukuk, of this variable rate Sukuks were 74 percent and the fixed rate was 26 percent. The second largest amount was raised in 1 year discounted Sukuk amounting to Rs. 548 billion or 28 percent of the total raised amount. In 10-year and 3-year Sukuk, the government raised 19 percent and 16 percent of the funds raised in the PSX Sukuk auction system during 2024. In all 15 auctions, the Government received participation of Rs. 6.2 trillion against the total target of Rs. 2.1 trillion and raised an amount of Rs. 2.0 trillion. Cut-off yields on 12M Sukuk have remained on average lower by 90bps than conventional 12M Tbill with the highest discount of 184bps witnessed on Nov 06, 2024 Sukuk auction in which the government raised second highest amount of Rs. 339 billion with Rs. 116 billion from 12M Sukuk. Yield on 1 year of Sukuk came down from 19.5 percent to 10.99 percent. Cut-off yields on 3/5/10 year Sukuk on average have remained lower by 60/9bps/nil than conventional 3/5/10 Year PIBs secondary market yield on the date of the auction with the highest discount of 82bps was witnessed in the May 09, 2024 auction. Cut-off yields on 3/5/10 year Sukuks came down by 134-455bps in 2024. In October 2023, the Caretaker Federal Cabinet granted its approval to amend the Government of Pakistan Market Treasury Bills 1998 and Government of Pakistan Ijara Sukuk Rules 2008. These amendments aimed to enhance the efficiency and provide flexibility for the issuance, registration, trading, and transfer of Government Securities through any institution. Furthermore, these changes were also supposed to help the Government expand its investor base, make participation easier for diversified investors i.e. retail, etc., and eventually reduce the cost of borrowing by enhancing the subscriber base. In line with these changes, the Government of Pakistan conducted the first primary auction of 1 year discounted GOP Ijara Sukuk (GIS) through the PSX auction system on December 08, 2023, with a target of Rs. 30 billion. In the first auction in 2023, the Government received bids of Rs. 396 billion (realized value) a with rental rate of 18.5-33.42 percent for 1 year GIS, 13x of the amount targeted by Govt. However, the Government picked up Rs. 28.9 billion at a cut-off rental rate of 19.5 percent. At that time, in the secondary market, 1-year Tbill was yielding 21.2 percent, thus reducing Government cost by over 150bps. Since then all auctions of 1 year GIS sukuk have been done through the PSX auction system. Thereafter, the first auction of the 3-year and 5-year GIS in both variable (VRR) and fixed-rate (FRR) was conducted on January 23, 2024, alongside the 1-year discounted GIS. The target set for 3-year and 5-year (in both VRR and FRR) was Rs. 60 billion cumulatively. However, the auction witnessed participation of Rs. 296 billion in the first auction of 3-year and 5-year Sukuks, 5x of the government’s target. The government picked up Rs. 81 billion in this auction for 3Y and 5Y maturity Sukuks. The fixed-rate Sukuk cut-off was 16.05 percent and 15.49 percent for 3Y and 5Y, respectively 2-79bps lower than the secondary market 3Y and 5Y PIBs rate of 16.84 percent and 15.51 percent, respectively. On the floater side, in the first auction, the spread over the reference rate was +15bps, while this spread lowered further in subsequent auctions and reached -89bps in the last auction.