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Friday, 29 August 2014

UPDATE 1-South Africa's debut sukuk to be at least $500 million

JOHANNESBURGAug 28 (Reuters) - The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated on Thursday.
"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 said.
"A sukuk issue may follow but the timing will depend on market conditions."
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 tandem.
"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. 
(Reuters / 28 August 2014)
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Book Review - The history and future of Islamic finance

Even those who assume to know something about sharia - Islamic law - are reticent to make claims about Islamic finance, so complex is this area of law. So when the phrase "sharia-compliant" first emerged in Western financial sectors in the early nineties, it was seen as little more than an ethical-religious system on the fringes of mainstream markets with one main message: the prohibition on charging interest. 

Yet today Islamic finance is a trillion-dollar industry with many financial institutions, corporations and governments keen to embrace it as a profit-making alternative to mainstream financial dealings.
Harris Irfan is an insider on two fronts. He is a Muslim and also an expert in finance and commerce. He has worked as an investment banker in Europe and the Middle East and been head of Islamic finance at Barclays; he also founded Cordoba Capital, an Islamic finance advisory firm.
Mr Irfan is a man with a mission: to show that Islamic finance might be able to make a real contribution to our economic woes. He asks the reader to consider whether the Islamic world can "bring something of benefit to the Western world, and vice versa".
This is no mean task, but Mr Irfan uses his own professional and personal experiences to weave together an accessible and interesting story.
We get an insight into the birth of the Islamic finance system in the fifties, to the establishment of the first Muslim banks in Saudi Arabia and the Gulf States and the gradual recognition by Western banks of the enormous profit potential in structuring products on a sharia-compliant basis.
Traditional clerics were flattered with the attention and remuneration offered by the giants of the banking industry in exchange for their expertise.
While this book isn't full of jargon, it helps to know something about how the investment industry works. You also need to have some sense of Islamic history and religious concepts. But the religious commentary does not overcomplicate the narrative. Anecdotes about the life of the eighth-century Muslim legal scholar Abu Hanifa, the financial workings of the Ottoman Empire and the modern controversial Pakistani scholar Taqi Usmani all add weight.
The last chapter ponders the future of Islamic banking after some sharia-compliant finances were unfairly equated with funding terrorism, Worth reading.

(Entertainment Book Review / 28 August 2014)
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