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Nigeria to South Africa race for first sukuk issue
(Bloomberg) / 28 March 2013
DUBAI — Nigeria, South Africa and Senegal are vying to become the first African country to tap yield-chasing Middle East Islamic bond investors after borrowing costs in the Gulf tumbled.
Nigeria and South Africa, the continent’s largest economies, already have rules in place to sell the debt in a market where global demand outstrips supply.
The average yield of African sovereigns is about a third higher than that of Islamic debt in the Gulf Cooperation Council after yields of the six-member group declined almost one percentage point over the past year to three per cent, according to indexes by JPMorgan Chase & Co and HSBC/Nasdaq Dubai.
Interest in debt from the Gulf may be helped by existing links between the regions, including Dubai-based DP World managing Senegal’s port, according to Montasser Khelifi, Dubai-based senior manager for global markets at Quantum Investment Bank.
Dubai Islamic Bank, the UAE’s biggest Shariah-compliant lender, paid a lower yield than initial estimates for its $1 billion sukuk this month after it got bids for $14 billion. “Islamic finance is gaining traction as an untapped pool of capital that galvanises the huge Middle East sovereign wealth and money managers for opportunities that are on the continent,” Kennedy Bungane, Barclays Africa head of group strategy, said in a March 14 interview in Lusaka, Zambia’s capital.
The global market for Shariah-compliant financing is set to double to $3 trillion by 2015, according to Standard & Poor’s estimates. Senegal, whose 12.7 million people are 95 per cent Muslim, is adjusting policies to facilitate the sale of bonds complying with Islam’s ban on interest, according to Mouhamadou Lamine Mbacke, managing director of the African Institute of Islamic Finance, which is working with the authorities.
The yield on Islamic debt in the GCC has tumbled 93 basis points in the past year to three per cent on March 25, according to the HSBC/Nasdaq Dubai’s GCC US Dollar Sukuk Index. That compares with a decline of 67 basis points to 4.73 per cent for non-Islamic debt in Africa, according to the JPMorgan EMBIG Africa Sovereign Yield Index.
The yield Dubai’s 6.396 per cent sukuk due November 2014 was at 2.43 per cent on Tuesday, down from 4.11 per cent a year ago, according to data compiled by Bloomberg.
The premium investors demand to hold the notes over Malaysia’s 3.928 per cent sukuk due June 2015 was 101 basis points. Malaysia is home to the world’s biggest Islamic bond market.
In Nigeria a number of states are considering selling sukuk to finance infrastructure projects, SEC Director General Arunma Oteh said in an e-mailed reply to questions.
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