Budget 2024: Treasury does not anticipate further Islamic bond issuance
|Published
In discussions with Treasury officials during the lock up in Pretoria, the Treasury said it did not anticipate issuing either rand-denominated or US dollar-denominated Islamic bonds in the near future.
In discussions at the time of the Medium-Term Budget Policy Statement on November 1, 2023, the Treasury said it would issue a term sheet for a rand-denominated Islamic bond that afternoon, which was done.
In November 2021, the intention was still to launch it in the 2021/22 fiscal year as a way of diversifying the debt portfolio and introducing a new set of savers into its funding universe.
On November 29, 2023, the Treasury announced the successful launch of the first sovereign rand-denominated Al-Ijarah Sukuk on the African continent.
This landmark transaction raised R20.386 billion and comprised four tranches with varying maturities between 5.3 years and 12.3 years.
The transaction was 1.74 times over-subscribed with investor demand from a diverse investor base including South African banks, large Islamic funds and Islamic banks attracting 13 unique bidders who bid in the auction.
The Treasury had previously issued a $500 million (R9.4bn) Sukuk bond in 2014, when it became the first African nation to issue a sovereign sharia-compliant bond.
At the time it received subscriptions worth $2.2bn and it will be hoping for a similar over-subscription when it launches its rand-denominated bond.
The Treasury said at the time that the decision to issue an Islamic bond had been informed by a drive to broaden the investor base and to set a benchmark for state-owned companies seeking diversified sources of funding for infrastructure development.
It said the sukuk bond had an investor distribution consisting of 59% from the Middle East and Asia, 25% from Europe, 8% from the US and the balance from the rest of the world.
S&P Global Ratings cut South Africa’s credit rating to junk in April 2017 when Pravin Gordhan was fired as finance minister by former president Jacob Zuma.
In 2018, the Treasury issued $2bn in foreign bonds despite the S&P downgrade and the transaction was oversubscribed.
Since 2020, Treasury has received various loans from international development institutions such as the International Monetary Fund and World Bank, both to provide Covid-19 relief as well as loans for a Just Energy Transition.
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