Al Baraka Bank Pakistan, a member of the Bahrain-based Al Baraka Banking Group and one of Pakistan’s five fully-fledged Islamic banks, issued a subordinated Sukuk last week. REBECCA SIMMONDS analyzes the privately-placed issuance that raised PKR2 billion (US$19.31 million) for the bank.
The issuance is the first of its kind to be issued by an Islamic bank in Pakistan, according to Abdullah Ghaffar, the bank’s head of investment banking. The ‘A’-rated, seven-year paper utilizes a Mudarabah structure and includes loss absorbency features. Ghaffar elaborates: “The Tier 2 Sukuk by its nature is unsecured and subordinated, is rated and privately placed to institutional investors in local currency.” The minimum paid-up capital for Islamic banks in Pakistan is PKR6 billion (US$57.95 million) and in issuing, Al Baraka Bank Pakistan has followed in the footsteps of a number of Shariah compliant banks worldwide, including AlBaraka Turk, which last year issued US$200 million Sukuk to boost Tier 2 capital.
Al Baraka Bank Pakistan, the country’s second-largest Islamic bank by assets, was established in 1991 and currently has a branch network of 110 branches across 58 cities, with plans to expand its reach to 83 towns and cities within Pakistan. As the drive to increase the footprint of Islamic finance in Pakistan continues, Al Baraka Bank Pakistan has contributed to its development, acting as lead advisor and arranger on a PKR3 billion (US$28.97 million) Musharakah-based transaction to Zaver Petroleum Corporation in May. In August, the bank announced a research partnership with the World Bank examining the risk-management challenges facing Islamic banks, with a particular focus on Musharakah and Mudarabah under the profit-and-loss-sharing system.
Plans for the subordinated Sukuk were announced in May by Adnan Ahmed Yousif, CEO of Al Baraka Banking Group, following confirmation from the government of Pakistan that it would be issuing sovereign Sukuk of US$1 billion. The government this week stated that the auction for the sovereign issuance will take place before the end of October.