South Africa sukuk nears debut

SOUTH Africa is preparing to launch sub-Saharan Africa's first Islamic bond, paving the way for issues by other countries in the region, officials said yesterday.

Thuto Shomang and Monale Ratsoma of the South African Treasury's government borrowing department told Reuters that South Africa was leaning towards a dollar-denominated, five-year sukuk, using an ijara structure.

"It's the one that seems to attract investors' interest. That's the one that the recommendations have been on so far," said Ratsoma, adding that first-time issuers usually chose five-year tenors so that was what South Africa was considering.

The bond would be marketed to Middle Eastern countries.

There are large pools of Islamic investment money in the Gulf, which have been buying sukuk eagerly this year as the global financial crisis hurts many other investments.

"On this deal we really have to go out and talk to them because we don't know what their response will be and we don't want to have a failed transaction the first time around," said Shomang.

The Treasury put out a request for proposals in December and has appointed two consortiums led by Standard Bank and BNP Paribas to make the issue. Bahrain's Al Baraka Banking Group, Kuwait's Liquidity Management House, Nova Capital Partners and Regiments Capital are also involved, banking sources said.

Islamic finance prohibits interest payments so sukuk are structured to provide returns to investors in other ways.

In a common form of ijara deal, the originator sells assets to a special-purpose vehicle and then rents them back at a price which gives investors in the sukuk a profit.

Reuters