(Adds Moody's rating)
JOHANNESBURG Aug 28 The South African
government plans to raise at least $500 million in its first
issue of Islamic bonds, a Treasury official indicated on
"South Africa is looking to issue a benchmark-size sukuk and
the tenor will be in line with other sukuk transactions in the
market," Tshepiso Moahloli, director of debt issuance and
management, told Reuters.
Traditionally, benchmark size is understood to mean at least
$500 million. Five years is the most popular tenor for major
international sukuk issues, and South African officials said
last year that the country was leaning towards that tenor for
its U.S. dollar-denominated sale.
The government has said it was issuing a sukuk in order to
diversify its fund-raising. It has hired BNP Paribas,
Standard Bank, and KFH Investment, a unit of Kuwait
Finance House, to handle investment meetings in
Europe, Asia and the Middle East starting on Sept. 8, Moahloli
"A sukuk issue may follow but the timing will depend on
Ratings agency Moody's issued a provisional Baa1 rating to
the expected bond on Thursday, the same level as South Africa's
sovereign rating, saying the two were expected to move in
"Higher domestic savings and investment rates would support
South Africa's rating, and, in turn, the sukuk rating," Moody's
said, adding that stronger economic growth, less debt
accumulation and maintaining sound economic policies were other
factors that would be supportive.
Putting the ratings at risk is the possibility of a
deterioration in South Africa's debt profile, however the
ratings agency expects the government debt to GDP ratio to
stabilise within the next two years.
Moody's said the proceeds of the sukuk would be used to buy
interest in a portfolio of South African properties.
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 long been selling small amounts of sukuk for the
domestic market, while last year, Nigeria's Osun State sold a
local currency sukuk worth $62 million. Senegal raised 100
billion CFA francs ($208 million) via its first sukuk in June.
Egypt and Tunisia have also considered sukuk but those plans
have not yet materialised. Outside Africa, governments looking
to tap the sukuk market for the first time include Hong Kong and
Luxembourg, both of which have hired banks to arrange investor
meetings in September.
(Reporting by Xola Potelwa; Writing by Bernardo Vizcaino;
Editing by Andrew Torchia and Susan Fenton)