It is a process through which the Ministry of Finance (MoF) directly issue Government Debt Securities (GDS) through auction conducted by the Pakistan Stock Exchange (PSX) on specific auction dates pre-announced through auction calendar

The role of PSX is to conduct primary market auction through its state of the art Auction System, in which all eligible investors take part through placement of bids during the auction process

GIS are Shariah compliant Islamic instruments based on Shariah guidelines structured and approved by joint financial advisors of the Ministry of Finance.

Meezan Bank Limited, Bank Islami Pakistan Limited, Dubai Islamic Bank (Pakistan) Limited and Bank Alfalah Limited (through its Islamic window) are appointed as Joint Financial Advisors to Ministry of Finance for the Government Sukuk Program.

There will be three instruments offered:

• The Fixed Rate Discounted GIS will be issued by using discount methodology from the face value. This means that the investors will be asked to bid for the investment value which would be lower than the face value. The Sukuk will be redeemed at face value. The difference between investment value and face value will be Ijarah Rental.
• Variable Rental Rate (VRR) GIS which was previously auctioned by SBP will now be auctioned through PSX. This will be issued at face value and the investor will receive a variable rental with semi-annual reset period. The rental rate is the latest Weighted Average 6-Months T-bills rate plus/minus spread paid on semi-annual basis. The spread will be fixed by MoF and will remain unchanged.
• Fixed Rental Rate (FRR) GIS which was also previously auctioned by SBP will now be auctioned through PSX. This will again be issued at face value and the investor will receive the fixed rental rate decided by MoF on semi-annual basis throughout the tenor of that Sukuk.

For VRR and FRR, maturity periods of three, five, and ten years will be offered.

PSX shall notify the auction calendar along with all relevant details 5 days before the auction.

All Broker Clearing Members (BCMs) and Non-Broker Clearing Members (NBCMs) of NCCPL by themselves and on behalf of their investors are eligible to participate in the auction.

All Broker Clearing Members (BCMs) and Non-Broker Clearing Members (NBCMs) of NCCPL are allowed to submit non-competitive bids for their investors other than prop. A/c of Commercial Banks, Investment Banks, DFIs, Specialized Banks, and Microfinance Banks, and TREC Holders.”

After issuance of auction calendar notice by PSX, participants can show their expression of interest to NCCPL via email or provided URL at NCCPL website.

Participants to provide following mandatory details to NCCPL via email:

• Participant / CM ID
• Participant / CM Name
• Contact Person Name
• Contact Person Email ID
• Contact Person Mobile#
• Allocation % in case of branch

PSX will register the eligible participants in the PSX Auction System and the credentials shall be received by the contact person of eligible participants on their registered email address and mobile number.

Investor can be created by the eligible participants through following path of PSX Auction System:

Operations → Create Investor

Second step is to assign the instrument and assign cash balance to the investor by simply clicking on “Create Symbol Mapping” menu

Operations → Create Symbol Mapping

• Investor Name
• CNIC No. / Company Registration No.
• IBAN
• Email Address
• Mobile #
• NTN (In case of Corporates)
• CDC Participant ID
• 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.

No. These are pre-validations checks implemented on PSX Auction System.

It is not mandatory requirement for the bid placement. For those new investors, who don’t have CDC sub account, can participate in the bidding process through Facilitation account created by CDC for this purpose. However, within 40 days the investor should open a CDC account, so that Sukuks can be credited into their respective CDC Sub Account.

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

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

Competitive bidding rewards the highest bidder with the security, whereas non-competitive bidding allows investors to purchase securities at a price that is decided by competitive bidding, which tends to be the fair market price of the security.

An investor can participate by investing a minimum amount of PKR. 5,000 or any amount specified accordingly in GIS.

For competitive bidding, there is no maximum amount an investor can place.

For non-competitive bidding, the upper limit is 0.25% of target auction amount with no minimum value but maximum value as communicated by Ministry of Finance.

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.

This Sukuk shall be allocated to the successful bidders on single cut-off rate/price

At this stage, the pro-rata allocation methodology shall follow.

Participants and Investors shall be informed via their registered email. Secondly, participants can download successful Bidders report by logging into their Front Office terminal.

The Sukuk shall be settled as per settlement date communicated in the auction calendar.

Profit on debt will be computed for each investor of GIS based on their holding period and NCCPL will compute and deduct withholding tax on Profit on debt in accordance with the requirements prescribed under Income Tax Ordinance, 2001 at investor level either on disposal of GIS in secondary market or at Maturity.

There shall be no compulsory deduction of Zakat at source and a sahib-e-nisab may pay Zakat on his / her own according to Shariah.

No. GoP IJARA Sukuk (GIS) are script-less securities and are electronically available in a CDS Account.

The Sukuk would be redeemed by Government of Pakistan at maturity. The underlying asset of Sukuk would be purchased by the Government of Pakistan at the issue price in accordance with the purchase undertaking, while the profit component would be paid as Ijarah Rental by Government of Pakistan (GoP).

This will be the weighted average yield of 6-months T-Bill as 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 asset is Rs100 billion and government raised Rs60 billion in the first auction, it can still raise Rs40 billion on this underlying assets via re-opening.

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

• 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 and Variable Rental Rate GIS.
• Bidders of GIS will submit bids in terms of Price, per Rs.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 will be 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 will be 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 GIS will be 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 GIS will be accepted at cut-off bid price determined through cut-off in the competitive price auction.