This was the second largest single transaction in less than a year and will help Islamabad build foreign currency reserves as demanded by the International Monetary Fund (IMF).
The Express Tribune said the government decided to accept offers of USD 1 billion for a five-year tenor at a profit rate of 6.75 per cent, which is half percentage points lower than the price at which the five-year Euro bond was sold in April 2014.
Unlike the Euro bond that was issued without collateral, the government has pledged the Islamabad-Lahore Motorway to raise funds that helped it keeping the interest rate below the Euro bond transaction when it raised USD 2 billion.
Sukuk is Islamic bond that has to be backed by collateral.
The 6.75 per cent interest rate for USD 1 billion is 5.17 per cent over and above the benchmark five-year US Treasury rate. Very low interest rates in Western and European markets amid fears of global slowdown of economies have also increased interest in highly lucrative sovereign papers issued by developing economies.
The government was seeking to raise only USD 500 million.
However, investors showed a very high interest and made subscription of USD 2.3 billion, which was nearly five times of the target amount, said officials.
The government decided to raise USD 1 billion to offset impacts of the failed Oil and Gas Development Corporation Limited and botched transaction on foreign currency reserves.
The successful transaction may revive the investors' interest in upcoming Habib Bank Limited capital market transaction. The government is hoping to raise USD 1.2 billion by selling its remaining 42.5 per cent stakes in the HBL.
The IMF has asked Pakistan to increase its official foreign currency reserves to USD 13 billion by June next year from the present USD 8.5 billion.