South Africa Seeks Banks to Advise It on Structuring, Sale of Sukuk Bonds

South Africa invited banks to submit proposals for the sale of its first Islamic bond as the continent’s biggest economy seeks to broaden access to financing.

The Pretoria-based National Treasury asked lenders to submit proposals for the structuring and issuance of an Islamic bond, known as a sukuk, in local and international markets by Dec. 21. It will shortlist bidders by Jan. 20, the Treasury said in an e-mailed statement.

South Africa, where less than 2 percent of the 49.1 million people are Muslim, is looking to tap the Islamic finance industry’s $1 trillion in assets. Moody’s Investors Service rates the nation A3, the second-highest investment grade on the continent, according to data compiled by Bloomberg.

“Islamic investors are prevented from buying conventional debt, so there is pretty strong ongoing demand for Islamic debt,” Mark Watts, head of fixed-income at National Bank of Abu Dhabi PJSC, which manages 4.1 billion dirhams ($1.1 billion), said by phone. “The issuance of sukuk is a good way to access this market.”

South Africa is a relatively low-risk debtor, which would make its sukuk bonds attractive for Islamic investors seeking to diversify their portfolios outside the Middle East and North Africa region, Watts said.

Islamic bonds will help diversify the government’s funding and investor base, the Treasury said. South Africa’s fiscal gap will widen to 5.5 percent of gross domestic product in the year through March 2012, from a revised 4.6 percent last year, Finance Minister Pravin Gordhan said in his mid-term budget statement on Oct. 25.

“There is a great interest in the sukuk market and this is the first step towards meeting the growing appetite for government-backed Sharia-compliant investments,” Lungisa Fuzile, director general of the National Treasury, said in the statement.

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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