Pakistan to raise $4.6bn in Islamic financing to cut energy debt, meet IMF conditions

Pakistan is set to sign agreements on Wednesday to raise about ($4.6 billion) in Shariah-compliant financing from a consortium of local banks to retire energy-sector debt and meet key conditions of its $7 billion International Monetary Fund (IMF) loan program, officials and market analysts said.

The funds will be mobilized through sukuk (Islamic bonds) and a financing facility agreement to reduce the circular debt plaguing the country’s power sector. A signing ceremony is scheduled at the Prime Minister’s House, according to an invitation from the state-run Central Power Purchasing Agency (CPPA), which buys electricity from producers and manages payments for the national grid.

Analysts tracking the deal said roughly $2.4 billion will refinance existing debt held by the government’s Power Holding Company, while about $2.1 billion will come as fresh loans from 18 participating banks. Analysts further say the government aims to retire its old expensive debt as well as reduce late payment charges. Power producers currently charge late-payment surcharges of KIBOR plus 2.5% to 4.5%, while the new financing will be secured at KIBOR minus 0.9%.