ABU DHABI: Al Baraka bank has collected capital of Rs2 billion ($19.5 million) by issuing of subordinated sukuk (Islamic bonds).
An official of the Al Baraka bank’s Pakistani branch has said that with Basel III global banking standards, several Islamic banks have issued subordinated instruments to increase capital, including in Turkey, Malaysia, Saudi Arabia and the United Arab Emirates. Head of Investment Banking at Al Baraka Abdullah Ghaffar said the seven-year private placement is the first of its kind issued by an Islamic bank in Pakistan. “The tier-2 sukuk by its nature is subordinated and privately placed to institutional investors in local currency.”
Al Baraka is one of five full-fledged Islamic banks, which is expanding through a selection of product incentives and instructions to market participants. The sukuk is rated ‘A’ by the Pakistan Credit Rating Agency and includes loss absorbency features, using a Shariah-compliant investment management partnership. Subordinated sukuk has been used by Islamic banks as an alternative to short-term, syndicated murabaha loans. In Pakistan, Islamic banks must maintain a minimum paid-up capital of Rs6 billion, a requirement that will be raised to Rs10 billion by the end of 2016.
