Sukuk oversubscribed 4 times in 6th auction

The Tk 20 billion Sukuk was oversubscribed more than four times to Tk 82.48 billion in its sixth auction held at the central bank on Monday, officials said.

Around 35 institutions-both conventional and Shariah-compliant financial institutions and individuals took part in the auction of the Sukuk bonds.

Profit or rent for the Sukuk bonds has been fixed at 10.50 per cent. The profit will be paid on a half-yearly basis.

The sixth Sukuk has been issued to fund the Rajshahi Division Important Upazila & Union Road Widening & Strengthening Project (RDIRWSP), aiming to create job opportunities by improving road connectivity in the rural areas of the northwestern region of Bangladesh.

The Local Government Engineering Department (LGED) will implement the RDIRWSP, which will help establish civic amenities across 65 upazilas in eight districts under the Rajshahi division by enhancing rural road connectivity, according to the central bank officials.

They also said both Istisna'a and Ijarah financing modes have been used for the Islamic bonds with tenure of seven years.

However, special purpose vehicle (SPV) allocated the bond certificates as per quota, set by the Bangladesh Bank earlier, giving priority to the Shariah-based Islamic banks, non-banking financial institutions (NBFIs) and insurance companies, for the sixth auction of Sukuk bonds.

A separate Islamic securities unit under Debt Management Department of the central bank acts as SPV.

As per the central bank criteria, 70 per cent of the Sukuk would be allocated to Shariah-based Islamic banks, NBFIs and insurance companies.

An additional 10 per cent will go to the Islamic branches and windows of conventional banks, while the remaining 20 per cent will be reserved for individual investors, provident funds, and deposit insurance schemes.

"We're interested to invest in the Sukuk bonds because of risk-free and secured," a senior executive at a Shariah-based Islamic bank told the Financial Express (FE) while explaining the oversubscription of the Sukuk bonds.

"We're interested in investing in Sukuk bonds because they are risk-free and secure," a senior executive of a Shariah-based Islamic bank told the Financial Express (FE) while explaining the oversubscription of the bonds.

There are no alternative instruments for Islamic banks to invest their surplus funds other than Sukuk bonds, the banker explained.

He also said Islamic financial institutions, particularly banks, will be able to meet their statutory liquidity ratio (SLR) requirements, as set by the central bank, through Sukuk bonds.

Currently, the required SLR is 13 per cent daily for the conventional banks, and 5.50 per cent for the Shariah-based Islamic banks.

The government had already raised Tk 220 billion through issuing five types of Sukuk bonds for the implementation of different projects across the country.

Sukuk is an Islamic financial certificate, similar to a treasury bond and structured to generate returns in compliance with Islamic finance principles.

siddique.islam@gmail.com