Date: November 2023
Issuer: The RSA Domestic Sukuk Trustee
Obligor: Republic of South Africa
Size: R20.4 billion
Structure: Al-ijara
Tenor: 5.3, 7.3, 10.3, 12.3 years
Banks: BNP Paribas, Rand Merchant Bank, BNP Paribas, Standard Bank (joint lead managers, with BBBE-E partners Theza Capital and Africa Rising Capital)
As more countries choose to access Islamic liquidity in the international sukuk market, some are also tapping local-currency demand to further diversify their funding and investor base, and cultivate new domestic capital channels.
This was the strategy behind South Africa’s debut local currency-denominated sukuk last November, marking the return of the sovereign to the Islamic market since it issued its debut international sukuk in 2014.
That dollar-denominated transaction was ground-breaking as the first issued by an African sovereign, creating the basis for other African countries to access the sukuk market, and for South Africa to return to it.
While the R20.4 billion ($1 billion) five-year sukuk is not as pioneering as the 2014 trade – other African countries including Nigeria and Senegal have previously issued local-currency sukuk – it is still a big development for the country and its domestic capital market, making it Euromoney’s best Islamic local currency deal.
The sukuk forms a key piece in the government’s strategy to develop the domestic capital markets
Split across four tranches – five-, seven-, 10- and 12-year tenors – the sukuk auction marked the culmination of two years of planning and preparation by the national treasury, with key objectives being to broaden the country’s investor base and fund instruments beyond fixed-rate bonds, linkers and floaters, as well as develop and deepen the domestic debt capital market.
The treasury succeeded on all counts. The transaction was 1.74 times oversubscribed, with demand from a diverse set of institutional investors including South African banks, as well as large Islamic funds and banks. In total, there were 13 unique bidders at the auction.
Importantly, the sukuk forms a key piece in the government’s strategy to develop the domestic capital markets by opening-up this type of alternative financing to other borrowers, especially state-owned enterprises, which may seek to fund infrastructure development through this channel.
Rand Merchant Bank, BNP Paribas – acting through its Bahraini wholesale bank branch – and Standard Bank were joint lead managers on the sukuk, with support from each bank’s Broad-Based Black Economic Empowerment partners: Theza Capital, a 100% black, women-owned and managed financial advisory and investment company; and Africa Rising Capital, a South African investment and financial advisory firm.
