Johannesburg - South Africa will price its maiden sukuk as early as this week, with books likely to close on Wednesday, after settling on a 5.75 year term for the dollar-denominated Islamic bond, a lead manager said.
The bond, which has been in the works since 2011 and follows debut sukuk issues from Hong Kong and the United Kingdom earlier this year, could raise $500 million (R5.5 billion) or more.
Rated at Baa1 by Moody's South Africa will test appetite among Islamic investors for riskier investment-grade debt.
“We expect to close the books, subject to market conditions, on Wednesday London afternoon,” said a lead manager, adding that initial pricing for the deal would be released on Tuesday.
The Treasury has said issuing sukuk will help diversify its funding sources, and with a June 2020 maturity the deal would be in line with its strategy of reducing refinancing risk.
After South Africa issued a $1 billion 30-year bond and a 500 million euro 12-year bond in July, the sukuk is likely to form part of its pre-funding for the next financial year.
A sovereign sukuk could pave the way for local issuers to follow.
In May, Bahrain-based Al Baraka Banking Group said it was considering issuing subordinated sukuk through its South African unit to boost regulatory capital.
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 issued short term sukuk for domestic needs, while Senegal raised 100 billion CFA francs ($208 million) via its first sukuk in June.
South Africa's sukuk will be listed in Luxembourg and use an ijara structure, a sharia-compliant sale-and-leaseback contract favoured by sovereigns, with proceeds used to buy interest in a portfolio of properties to be held by a special purpose vehicle.
The government has hired BNP Paribas, Standard Bank, and KFH Investment, a unit of Kuwait Finance House, to arrange the issue. - Reuters