IslamicFinance.de

South Africa sold its first ever Shariah-compliant bonds at a record-low borrowing cost, opening the way for state-owned companies to tap a growing Muslim investor base. The $500 million of 5.75-year securities were priced with a coupon of 3.9 percent, at the bottom end of the range marketed to asset managers. Fifty-nine percent of investors participating in the deal were from the Middle East. The sale is likely to prompt more African nations and companies to follow. Eskom Holdings SOC Ltd., South Africa’s state-owned electricity company, and Transnet SOC Ltd., the ports and railways operator, have said they may tap the Islamic finance market. BNP Paribas SA, KFH Investment and Standard Bank Group Ltd. arranged the sale.

South Africa has announced a tenor of 5.75 years for its inaugural sukuk, which is expected to price later this week. Initial profit thoughts on the U.S. dollar benchmark-sized Islamic bond, which matures in June 2020, will be released early this week. South Africa finished investor meetings for the 144A/Reg S deal last Friday. The sovereign is rated Baa1 by Moody's, BBB- by Standard & Poor's and BBB by Fitch. BNP Paribas, KFH Investment and Standard Bank are the lead managers.

The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated on Thursday. 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. A sukuk issue may follow but the timing will depend on market conditions.

South Africa said it appointed BNP Paribas SA, KFH Investment and Standard Bank Group Ltd. to arrange a debut sukuk sale of at least $500 million. Investor meetings will reportedly run from Sept. 8 to Sept. 12 in Europe, Asia and the Middle East. A sukuk issue may follow but the timing will depend on market conditions. South Africa is looking to issue a benchmark-size sukuk. Former South African Finance Minister Pravin Gordhan earmarked $1.5 billion of foreign issuance over this and the next two fiscal years in his February budget, including a sukuk of as much as $500 million. Standard & Poor’s cut South Africa’s rating to BBB-, on par with Russia and Brazil, in June, with a stable outlook. Fitch Ratings has a negative outlook on its BBB assessment, the second-lowest investment grade.

On the African continent, the Islamic finance market’s assets are estimated to be more than $1.6-trillion (about R17-trillion) and are expected to surge to more than $5-trillion by 2020. The growth of Islamic banking has not gone unnoticed by the National Treasury. Earlier this year, former finance minister Pravin Gordhan revealed that South Africa will launch sukuk. Several banks like Absa, FNB, Al Baraka Bank and HBZ Bank offer Islamic commercial and corporate banking products in South Africa. The total Islamic banking sector in South Africa is estimated to be worth as much as R12-billion. However, the banks have their sights also set on expansion beyond South Africa’s borders.

Representatives from Azzad Asset Management met with His Excellency Ebrahim Rasool, Ambassador of the Republic of South Africa to the United States, to discuss potential investment in South Africa as part of the portfolio held by the Azzad Wise Capital Fund. The Azzad Wise Capital Fund is America's first halal fixed-income mutual fund and invests in Sukuk as well as deposits and notes from Islamic banks that comply with specific socially responsible and halal financial guidelines. In recent years, South Africa has made strides in Islamic finance although the Muslim community represents only 3% of the population. Ambassador Rasool noted that South Africa's regulatory and legislative structures, strict risk management frameworks, as well as governance and compliance structures make it a possible springboard for companies into the rest of the continent.

South African power utility Eskom will look at new funding opportunities such as Islamic bonds to finance its capacity expansion projects. A lower than hoped for rise in power rates has left state-owned Eskom with an expected revenue gap of 225 billion rand ($22 billion) over the next five years. The associated decrease in projected revenues will materially affect operations, including ability to obtain funding for future capacity expansión. Funding for the next 12 to 18 months would be sourced from issuance of domestic and international bonds, export credit agency-backed financing, development finance institutions and the domestic commercial paper market. New opportunities from alternative funding sources and products such as Islamic funding (sukuk), preference share-type funding and project-based funding will also be explored.

The Islamic division of South Africa's First National Bank has hired a new sharia advisory committee and aims to rebrand itself. The new committee consists of Aznan Hasan, Yusus Patel and Zaid Haspatel. According to the chief executive of the Islamic business, Amman Muhammad, they will no longer be called board, but “sharia advisory committee” and their role is clearly defined. He added that the new team would review the bank's previous sharia products. FNB's previous sharia board resigned last July after disagreements over the board's role when new management took charge of the división. Under the new structure, the committee will no longer play a role in the day-to-day running of the business, removing the potential for conflicts.

DURBAN-based Al Baraka Bank launched a full international foreign exchange service and now offers a full range of international banking services. As part of the Al Baraka Banking Group it can leverage off the group and its 14 subsidiaries around the world. According to the bank's CE Shabir Chohan, the full foreign exchange service coupled with the recently launched chequebook facility will position the bank as a competitive commercial bank in South Africa.

FNB and Al Baraka Bank froze the bank accounts of Al Aqsa Foundation after it was added to the US Department of Treasury's Office of Foreign Assets Control list. According to the US departments website Al Aqsa funnels money collected for charitable purposes to Hamas terrorists. However, foundation spokesman Melissa Hoole denied ties to that organisation. Al Baraka had since agreed to allow some activity in the account.

The banking facilities of the Al Aqsa Foundation with two banks in South Africa have been recently suspended. Even though the foundation is registered with the South African government as a bona fide charity, it is suspected by the US government to be covertly funnelling funds to Hamas. First National Bank (FNB) gave a notice to the foundation three months in advance before completely shutting its account. The move encountered rather negative reception from the South African Muslim community. It was even called for a boycott of FNB. There have been further discussions on the reasons to close the account and the relations between the bank and the US government.

Barclays and Absa maintain their interest in Africa as a target for Islamic insurance. There are plans to introduce the Takaful offering to the African continent. With a Muslim population of over 500 million, Africa represents a very good market perspective. The experience of Barclays and Absa in Africa shall be used in order to provide financial products that are suitable for each country.

More on: http://www.iol.co.za/business/companies/absa-africa-target-for-islamic-i...

Barclays and Absa keep their focus on Africa and plan to accept the group’s Islamic Insurance offering - Takaful. Due to the huge number of Muslim population in the continent - over 500 million people - there are excellent market opportunities for Islamic finance and, in particular, for Absa.

Islamic finance has considerably grown in North Africa, with many Middle East financial institutions investing in the region. There has also been significant development in the south of the continent. Though there is a low Muslim population in South Africa, the government has been one of the front-runners to make it a centre for Islamic finance in Africa. South Africa is the most advanced African nation in terms of robust legislative structures, strict governance structures, and regulations. This gives it an advantage in implementing Shariah-compliant financial systems.

With the issue of the world’s largest single tranche Sukuk, the industry’s attention is again on that fair-weather barometer the omnipotent Sukuk.
Beside the Saudi issue, it’s been a busy week in the Islamic capital markets, with significant issues in Malaysia and the MENA region and announcements from Nigeria, South Africa, The Gambia and Iran. It seems that the appetite for Sukuk is not diminishing. But the real quesstion is, if this is a good thing. After all, the global depression playing out in extremis in the eurozone and Middle America can be followed back to the wild abandon that individuals and governments ran up their credit card bills and the irresponsible and myopic lending practices of the banks just interested in short-term profits and next year’s bonuses.

Islamic finance banking options are progressively being seen as a viable alternative to traditional banking services in Africa and are growing to found not only the African Islamic community but all those searching for an interest-free banking alternative.
Key speakers from Nigeria, Malaysia and Saudi Arabia will join leading South African experts from ABSA, alBaraka Bank, KPMG and other financial institutions in the Islamic Finance Africa Conference that will take place on 21 - 24 February 2012 in South Africa.

Africa is mooving its economic attention away from the west to the Middle East and Asia as a primary source of capital raising. This shift in alignment partially explains the expected launch of a number of Sukuk across the continent in 2012.
Countries that have announced sovereign Sukuk to raise capital for their budgets are: South Africa, Senegal, Nigeria and Kenya. This move is especially welcomed by sovereign wealth and Islamic finance institutions - especially in the GCC.