The Government of Pakistan will guarantee 100 billion rupees ($955 million) worth of Islamic bonds to fund what would become the country’s fourth largest hydropower plant, aiming to address power shortages that have hindered economic growth.
The deal would be one of largest infrastructure sukuk sold to date, helping expand a funding format that has largely been confined to handling mid-sized deals with shorter tenors.
The 10-year sukuk, to be privately placed by the Neelum Jhelum Hydropower Company (Private) Limited, was given a preliminary AAA rating by credit rating agency JCR-VIS with a stable outlook.
The rating will be finalised upon review of legal documents and the issuance of the government guarantee, which will cover the issuance amount and profit payments, JCR-VIS said in a statement.
Unlike conventional bonds, sukuk are investment certificates which follow religious principles that forbid interest payments, instead paying returns linked to an underlying asset.
The project’s total cost is estimated at 404 billion rupees, with around three quarters of that being funded through debt.
The plant would generate 969 MW of power adding around 5 percent to the country’s total installed power generation capacity, with the first generating unit expected to start operation in mid 2017.
Infrastructure sukuk have been slow to appear, partly because they often require the transfer of assets into special purpose vehicles, which can be problematic for political or legislative reasons when it comes to large state projects.