Priced on the 24th September 2014, South Africa’s sovereign Sukuk was issued at US$500 million at a coupon rate of 3.9%, representing a spread of 180bps above the corresponding benchmark rate. The republic was the first government in Africa to issue a US dollar-denominated paper. Oversubscribed by four times, NABILAH ANNUAR examines the debut Sukuk issuance.
Structured according to the principle of Ijarah, the Sukuk carry a tenor of 5.75 years, maturing on the 24th June 2020. Numerous structures were considered in the process of setting up the Sukuk. Nonetheless, due to the nature of the Ijarah principle as an asset-based structure, it was deemed the most suitable structure for sovereigns; and is widely accepted by both Islamic and conventional investors as well as by the international rating agencies.
One of the challenges faced in the process of issuance was asset allocation. Securing assets on which to base the Sukuk was an obstacle because the National Treasury does not own any assets. Therefore, the assets used in this transaction were derived from the Department of Water Affairs. Proceeds from the Sukuk form part of the government normal funding and will be channelled towards the repayment of maturing debt, and for the general purposes of the national government, pursuant to Section 71 of the South African Public Finance Management Act 1999.
Republic of South Africa Sovereign Sukuk
US$500 million
24th September 2014
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Issuer | The RSA Sukuk No. 1 Trust |
Obligor | Republic of South Africa |
Issuance price | 100% |
Trustee | ZAR Sovereign Capital Fund Proprietary |
Tenor | 5.75 years |
Coupon rate | 3.9% |
Payment | Semi-annual on the 24th June and the 24th December in each year, commencing 24th June 2015 |
Currency | US dollar |
Maturity date | 24th June 2020 |
Lead managers and bookrunners | |
Governing law |
English law
South African law
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Legal advisors | |
Listing | Luxembourg Stock Exchange |
Underlying assets | Usufruct interest in assets located in South Africa owned (or leased, as applicable) by the Minister of Water Affairs |
Shariah advisors | |
Structure | Ijarah |
Tradability | Yes |
Face value/minimum investment | Aggregate face value: US$500 million. Minimum denomination: US$200,000. |