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South Africa set for debut $500m Islamic bond

Johannesburg, August 30, 2014

The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated.

"South Africa is looking to issue a benchmark-size sukuk and the tenor will be in line with other sukuk transactions in the market," Tshepiso Moahloli, director of debt issuance and management, told Reuters.

Traditionally, benchmark size is understood to mean at least $500 million. Five years is the most popular tenor for major international sukuk issues, and South African officials said last year that the country was leaning towards that tenor for its US dollar-denominated sale.

The government has said it was issuing a sukuk in order to diversify its fund-raising. It has hired BNP Paribas, Standard Bank, and KFH Investment, a unit of Kuwait Finance House, to handle investment meetings in Europe, Asia and the Middle East starting on September 8, Moahloli said.

"A sukuk issue may follow but the timing will depend on market conditions."

Ratings agency Moody's issued a provisional Baa1 rating to the expected bond on Thursday, the same level as South Africa's sovereign rating, saying the two were expected to move in tandem.

"Higher domestic savings and investment rates would support South Africa's rating, and, in turn, the sukuk rating," Moody's said, adding that stronger economic growth, less debt accumulation and maintaining sound economic policies were other factors that would be supportive.

Putting the ratings at risk is the possibility of a deterioration in South Africa's debt profile, however the ratings agency expects the government debt to GDP ratio to stabilise within the next two years.

Moody's said the proceeds of the sukuk would be used to buy interest in a portfolio of South African properties.

Sukuk transactions in Africa have been few and infrequent, but governments see an opportunity to tap cash-rich Islamic investors from the Gulf and southeast Asia.

Gambia has long been selling small amounts of sukuk for the domestic market, while last year, Nigeria's Osun State sold a local currency sukuk worth $62 million. Senegal raised 100 billion CFA francs ($208 million) via its first sukuk in June.

Egypt and Tunisia have also considered sukuk but those plans have not yet materialised. Outside Africa, governments looking to tap the sukuk market for the first time include Hong Kong and Luxembourg, both of which have hired banks to arrange investor meetings in September.-Reuters




Tags: Islamic bond | South Africa |

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