Which national assets have been mortgaged in the past?

Pakistan govt decides to mortgage airports, highways to issue Sukuk bonds. Source: MM News

The Pakistan government will be mortgaging the country’s major airports and road network and issuing Sukuk bonds.

Federal Information Minister Fawad Chaudhry announced after a cabinet meeting has approved a summary to mortgage government assets for large-scale borrowing through issuance of Sukuk bonds

The information minister said the cabinet approved the proposal of floating Sukuk bonds with the objective to promote the Islamic banking industry.

According to the summary, Sukuk bonds will be issued and loans will be taken out, keeping Islamabad Expressway, Islamabad-Peshawar Motorway, Pindi Bhattia-Lahore motorway section, and airports of Lahore, Islamabad and Multan as collateral.

The decision was made as it will become possible to get a loan at a lower interest rate than other sources by mortgaging national assets.

On January 26, the federal cabinet had rejected a plan to mortgage the F-9 Park in Islamabad and had given instructions to prepare a mortgage plan for the 244-acre Islamabad Club.

The bureaucracy has now added major airports and motorways and the Islamabad Expressway to the list instead of the Islamabad Club.

What is Sukuk?

Sukuk (Islamic bond or “Sharia-compliant” bond) is an Islamic financial certificate that represents a portion of ownership in a portfolio of eligible existing or future assets. They can be considered as an Islamic version of conventional bonds.

Sharia prohibits lending with interest payments (riba), which is considered usurious and exploitative in nature. Thus, bonds are forbidden in Islamic finance.

Sukuk does not represent a debt obligation. Upon its issuance, the issuer sells certificates to investors. Then, the issuer uses the proceeds from the certificates to purchase the asset, and investors receive partial ownership of the asset. The investors are also entitled to part of the profits generated by the asset.

The unique nature of Sukuk requires a specific issuing process for the financial instrument. Conventional bonds provide investors with interest payments, while Sukuk allows investors to receive profit generated by the underlying asset.

Sukuk and bonds are considered less risky investments relative to equities. They are initially sold by the issuers to the investors.

What assets have been mortgaged in the past?

The government is being criticised by the opposition for mortgaging assets However, if we look in the past, loans have been taken by mortgaging national assets.

This started during the tenure of former prime minister Shaukat Aziz and successive governments continued to issue Sukuk bonds. During the previous PML-N regime, Finance Minister Ishaq Dar also took loans by mortgaging other national assets including the motorway.

  1. In 2006, M6, M4, IMDC and Okara Bypass were leased and Rs6bn was raised,
  2. In 2014, Hafizabad-Lahore Motorway was mortaged for one billion rupees and Rs. 49 billion was taken from Faisalabad-Pindi Bhattian Motorway.
  3. .Peshawar-Faisalabad Motorway, Faisalabad-Pindi Bhattian Motorway, Islamabad-Peshawar Motorway and Islamabad Data Lahore Motorway were mortgaged.
  4. In 2006, government decided to mortgage most of the national highways and some motorways to get a loan of only Rs6 billion including Islamabad-Peshawar Motorway M-1, Faisalabad-Multan Motorway M-4, Islamabad-Murree-Muzaffarbad section, Jacobabad Bypass, Dera Ghazi Khan-Rajanpur Highway, Okara Bypass and other projects
  5. In 2013, the government used Jinnah International Airport in Karachi as security for Islamic bonds and obtained additional loans of Rs182 billion.
  6. In 2015 a loan of Rs. 117 billion was obtained once against keeping Karachi airport as collateral
  7. In 2014, the government mortgaged Hafizabad-Lahore section of the motorway to raise another one billion in Islamic bonds.
  8. In June 2014, the government received Rs49 billion by mortgaging Faisalabad-Pindi Bhattian Motorway M3.
  9. In February 2016, the government mortgaged Karachi Airport and obtained loans twice from local and international institutions and investors.
  10. June 2021 – The Federal Cabinet has approved to take a loan of Rs1800 billion by mortgaging M3 Motorway and Islamabad-Chakwal Motorway, Islamabad Airport, Multan Airport.
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