ISLAMABAD: Pakistan government will guarantee Rs100 billion ($955 million) worth of Islamic bonds (sukuk) to fund what would become Pakistan’s fourth largest hydropower plant located at Muzaffarabad in Pakistan Administered Kashmir.
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 is aimed to address power shortages that have hindered economic growth.
NJHEP is located in the vicinity Muzaffarabad, it envisages the diversion of Neelum river water through a tunnel out -falling into Jhelum River. The intake Neelum Jhelum is at Nauseri 41 Km East of Muzaffarabad.
The Powerhouse will be constructed at Chatter Kalas, 22 Km South of Muzaffarabad. After passing through the turbines the water will be released into Jhelum River about 4 Km South of Chatter Kalas.
The project’s total cost is estimated at Rs 40bn, with around three quarters of that being funded through debt. The plant would generate 969 MW of power adding around 5 per cent 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.