Meezan Bank Limited has planned to raise up to Rs7 billion by issuing Tier 1 Islamic bond or Sukkuk in the coming few months, according to the industry officials.
The Sukkuk would be a privately placed, tradable, and unlisted based on Mudarabah structure—a type of investment management partnership.
“The issue will be first Shariah-complaint Tier 1 Sukkuk in Pakistan, while the aim for selling a Sukkuk from the bank is to shore up its capital adequacy ratio,” told a source, who is familiar with the matter.
“The bond will be issued by the way of book building, possibly in June or July. The deadline for receiving expression of interest from the investors is May 30, 2018.”
The total issue would be Rs 5 billion with a green show option of Rs2 billion. The minimum investment will be set at Rs 1.0 million. Tenure is perpetual and can be converted into share as per central bank’s regulations, according to the data provided by the official.
The bond will offer profit payment monthly. The rate of return on the Sukkuk will be 3-month KIBOR plus 1.75 percent based on profit weightages assigned in the Mudarabah pool.
The basic aim behind the issuance of Sukkuk is to meet the regulatory requirement of CAR (capital adequacy ratio). After successful issuance of the Sukkuk, Meezan Bank’s CAR will improve significantly.
The bank expects the bond to be the oversubscribed due to its attractiveness.
Industry sources said it will be very attractive for Islamic banks, Islamic banking windows of conventional banks, Takaful companies, Modaraba companies, pension funds, Shariah-compliant investment by companies and other entities. In 2016, Meezan Bank had raised Rs 7 billion through Tier 2 Sukuk.
The capital adequacy ratio of Meezan Bank is at 12.89 percent in 2017.
The State Bank of Pakistan (SBP) and the bank’s board had already approved plans for the issuance.
The Islamic banks are using the local currency Sukkuk market to raise instruments that boost their capital. They are also selling bonds that enhance core Tier 1 capital.
Meezan bank is one of the fastest growing Islamic banks in the country and currently the 7th largest bank. For the first quarter ended March 31, 2018 Meezan Bank’s profit after tax increased by 27 percent to Rs 1.91 billion up from Rs 1.51 billion in the preceding quarter of last year.