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Sudan eyes up to $1.5bn with pipeline-backed sukuk

Khartoum, March 20, 2012

Sudan aims to raise $1 billion to $1.5 billion this year with Islamic "sukuk" bonds that offer stakes in an oil pipeline, a move the African country hopes will draw more Gulf Arab investment to its debt market, a senior official said on Monday.     

Sudan Financial Services Company, which issues Islamic bonds on behalf of the government, wants to offer the dollar-denominated sukuk within two months, General Manager Azhari Eltayeb Elfaki told Reuters.     

The debt agency is also preparing to issue sukuk that will be repaid with profits from gold exports and which investors will be able to buy in foreign or local currency, he said.     

Sudan lost about three quarters of its oil output when South Sudan seceded in July, aggravating a foreign currency shortage, budget gap and high inflation in the north.     

Depreciation of the Sudanese pound on the black market has dampened demand for debt denominated in local currency, raising the appeal of debt issued in foreign currencies.     

"Now, inshallah (God willing), we are going to make sukuk for the pipeline," Elfaki said in an interview, referring to an oil pipeline running from oil fields including Heglig to a Red Sea terminal at Port Sudan.      

"Now they (the finance ministry) are making the technical studies and the evaluation of the pipeline itself. I think they will finish it, inshallah, by the end of this month."     

Elfaki said he expected the sukuk to draw mostly investors from Gulf Arab states like Saudi Arabia and would total $1 billion to $1.5 billion.      

"The value of the pipeline is not less than $3 billion, but we are not going to issue 3 billion... I think we will issue 50 per cent," he said.     

Islam forbids interest payments, so bonds are typically backed up by assets such as real estate or industrial projects sold and leased back to investors.     

Sudan said in December 2010 it had reached a deal with oil companies to take a 70 per cent stake in the pipeline.     

Analysts say the value of the pipeline could be affected if a row drags on with South Sudan over how much the new nation should pay to export its crude through the north. The dispute prompted Juba to shut down its entire oil output in January.             

Sudan relies on the domestic debt market because US sanctions mostly deny it access to international markets. But some Arab banks have set up in Sudan and up to 12 per cent of previous debt issues have come from abroad.     

The country issues both musharaka sukuk, which give investors a share in a venture's profits, and ijara sukuk, which involve a transfer of tangible assets such as real estate from one party to another.     

Sudan offers musharaka sukuk known as "shahama" four times a year, usually yielding around 16 to 19 percent, Elfaki said.         

Ijara sukuk, like those planned for the pipeline, yield closer to 20 per cent, he said. The country's last ijara sukuk in 2010 were backed by the government's stake in an oil refinery.     

An offer of 930 million Sudanese pounds of musharaka sukuk in February was 139 per cent oversubscribed, Elfaki said. An April offer for 900 million to 1 billion pounds should see similar demand, he added.     

The weakening of the Sudanese pound has hit demand for the sukuk, which were previously as much as 300 per cent oversubscribed, he said.     

"When the currency is deteriorating, always people go to buy foreign currencies like dollars. They are not going to buy sukuk. This is our problem," Elfaki said.     

Some investors are also turning to gold, which Sudan wants to develop to help make up for lost oil revenues.     

To take advantage of that, the debt agency is preparing sukuk that would be repaid with the profits of gold exports, which would allow more flexibility with currency, Elfaki said.     

"You can buy (the sukuk) in dollars or Sudanese pounds, but also... the profits can be distributed in dollars or Sudanese pounds," he said.      

"I buy the gold from the miners here in Sudan in Sudanese pounds, and when I export it I take my money from outside in dollars."     

The agency wants to have these sukuk ready by June, but the first issuance will depend on economic conditions and the opening of a gold refinery later this year, Elfaki said. – TradeArabia News Service




Tags: investment | sukuk | sudan | khartoum | oil pipeline |

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