SA plans return to Islamic market
SA’s debut sale of Islamic bonds had investors clamoring for four times the amount offered. The government is hoping for more of the same as it returns to the market to help plug a budget shortfall of more than $4 billion (R48 billion).
SA is considering a rand-denominated sukuk in the fiscal year starting April 1, after becoming the first African nation to issue a sovereign Shariah-compliant bond when it sold $500 million (R5.9 billion) of securities in 2014. The rand sukuk would also set a benchmark for local corporate issuers to tap the market, according to the National Treasury.
“There is very strong interest, particularly from Islamic asset managers as well as Islamic banks,” Tshepiso Moahloli, National Treasury chief director of liability management said. “There is a strong market-development element with this decision, which is broader than just funding.”
SA is increasing issuance in domestic and foreign markets to help meet R197 billion of bond redemptions over the next three years and plug a stubbornly high budget deficit. In addition to introducing local-currency sukuk, it plans to raise $3 billion (R35 billion) in international markets over the next financial year starting April 1, up from $2.5 billion (R29.5 billion) this year.
SA’s dollar Islamic bond was priced to yield 3.9%. The securities yielded 3.57% on Monday, on par with similar-maturity dollar bonds. Since SA tested the market, Nigeria and Kenya have also sold sovereign dollar-denominated sukuk.
While much of the uptake for the Islamic bonds is expected to be from foreign investors, there is local appetite for Islamic investments too. SA has a sizable minority Muslim population.
“There are Shariah-compliant local and offshore funds looking to invest in sukuk with a good credit rating,” said Asief Mohamed, Aeon Investment Management chief investment officer. SA’s local-currency debt is rated Baa3 at Moody’s Investors Service, the lowest investment level. – Bloomberg
There is very strong interest, particularly from Islamic asset managers as well as Islamic banks Tshepiso Moahloli National Treasury chief director of liability management