RMB Assists In Delivering Sovereign ZAR-denominated Al-Ijara Sukuk. Rand Merchant Bank (RMB), as joint lead arranger and in partnership with FNB Islamic Banking, is pleased to have assisted the Government of the Republic of South Africa in delivering the continent’s first sovereign ZAR-denominated Al-Ijara Sukuk (Shari’ah-compliant bond). The Sukuk certificates will be listed on the JSE on 29 November 2023. The Sukuk certificates marks a significant step forward in delivering inclusive investment options.
“Sukuk financial instruments were highlighted in the 2023 Budget Speech as an alternative source of funding for RSA. There is a clear gap in the local capital markets for Shari’ah-compliant products – with significant available funds and limited investment opportunities. The ZAR Al-Ijara Sukuk begins to bridge this gap for the Islamic Finance Institutions and establishes a benchmark from both a structural and pricing perspective for other issuers going forward,” says Amman Muhammad, Chief Executive Officer Islamic Banking FNB Commercial.
The unique nature of National Treasury as a department of the Republic of South Africa resulted in a number of intricacies with arranging this issuance, including the need to obtain various regulatory and governmental approvals, as well as complexities around the assets required to underpin it. The complicated structuring also required a thorough briefing and extremely iterative legal process, as well as the need to educate investors on the technical aspects of the structure. Given the tight time frames, all parties had to work seamlessly to pull the transaction together in time.
“This transaction marks a significant milestone in Government’s funding strategy. This strategic development, first outlined in the 2021 budget, represents the culmination of nearly two years of dedicated effort. The launch of the Sukuk is a key step in broadening RSA’s investor base and enhancing our funding strategy which has been traditionally reliant on Fixed Rate Bonds (FRB), Inflation Linked Bonds (ILB) and Floating Rate Notes (FRN)” says Terry Msomi, Director: Debt Issuance and Management.
South Africa successfully raised R20.380 billion in the initial issuance and will be able to continually tap the market as appetite for the product develops. The issue will most notably benefit both the State-Owned Corporates (“SOCs”) that have significant funding requirements and would benefit from accessing an alternative source of funding, as well the Islamic Financial Institutions that have never had access to high quality liquid asset instruments that yield profit as opposed to interest.
“RMB was able to steer the deal by effectively project managing and providing structuring advice as each challenge arose. In addition, RMB was able to leverage off our in-depth investor relationships through our FNB Islamic Banking team servicing large Islamic funds, Islamic banks, high net worth individuals and RMB’s broader investor base – the success of which is reflected in a subscription level of 1.74 times,” concludes Leigh Buckley, Head of the South African Debt Capital Markets Team at RMB.