Opportunities

South Africa eyes Islamic bond issue

7 December 2011

South Africa's National Treasury has invited banking institutions to submit proposals to assist in providing advisory services and in the structuring and issuance of a government Islamic bond, or Sukuk, in both local and international markets.

According to the Treasury, the invitation is in line with its intention to diversify its funding and investor base.

"There is a great interest in the Sukuk market and this is the first step towards meeting the growing appetite for government backed Shariah compliant investments," Treasury Director-General Lungisa Fuzile said in a statement this week.

Apart from providing advice, the successful bidder will be required to structure, manage and coordinate the issuance of the Sukuk. It will also be responsible for obtaining relevant regulatory approvals, as well as securing a listing for the bond both locally and internationally.

The successful bidder will also have to market the bond to investors, indicate underwriting and market-making appetite, facilitate the book building process and provide any additional services required to successfully launch the bond.

Complying with Islamic law

According to online encyclopaedia Wikipedia, fixed income, interest-bearing bonds are not permissible in Islam, so Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging or paying of interest.

"Sukuk can be structured alongside different techniques. While a conventional bond is a promise to repay a loan, Sukuk constitutes partial ownership in a debt (Sukuk Murabaha), asset (Sukuk Al Ijara), project (Sukuk Al Istisna), business (Sukuk Al Musharaka), or investment (Sukuk Al Istithmar)," the website states.

Interested service providers are expected to submit proposals by 21 December 2011, with the shortlisted bidders set to be informed by 20 January 2012.

SAinfo reporter