South Africa’s Debut Sukuk is coming soon in the year 2014

South Africa will issue its debut international Sukuk this year, finance minister Pravin Gordhan announced yesterday at the tabling of the 2014 Budget Review. Treasury director general Lungisa Fuzile confirmed that the government expects the issuance to take place before the end of the country’s financial year which falls on the 31st March, or if not, then by December.
When issued, the Sukuk will function as part of a larger scheme as South Africa acts to diversify its debt portfolio to reduce refinancing risks. Over the next three years the country must refinance ZAR154.9 billion (US$14.4 billion) of debt and aims to raise US$1.5 billion a year in capital markets. According to figures from Reuters, the country’s total debt to GDP is now seen at 41.9% in 2014/15, increasing to 44.3% in 2016/17. Due to the weak rand, the country will experience a rise in debt-service costs, with the cost of servicing in the 2013/14 year ending in March reaching ZAR1.5 billion (US$139.85 million).
Issuing the country’s sovereign Sukuk is a target South Africa has been working towards since 2011, when the country’s National Treasury invited banking institutions to submit proposals for advisory services regarding the structuring and issuance of Sukuk. Al Baraka Banking Group in conjunction with Albaraka Bank South Africa, is one of the six banks appointed by the National Treasury in 2012 to advise on the issuance, along with BNP Paribas, Liquidity Management House of Kuwait, US-based Nova Capital via local subsidiary Nova Capital Africa, Standard Bank of South Africa and Regiments Capital, a South African investment bank.
In November 2013 Al Baraka Bank Group CEO, Adnan Ahmed Yousif, revealed that the South African government anticipated the Sukuk being issued within the first quarter of 2014. Yesterday, as the finance minister mentioned that options for introducing a Sukuk retail savings bond were also being explored, Fuzile stated that the government is only waiting for the right moment to issue: “It is only now a question of timing, when it is right and when we need the money, we will do it.”