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South Africa Issues First Islamic Bond

by Lorys Charalambous,, Cyprus

19 September 2014

South Africa's National Treasury has announced that, following the entry into force of tax provisions for Islamic financing at the beginning of 2013, the Republic of South Africa has successfully concluded its debut USD500m, 5.75-year sukuk bond issue.

The sukuk, based on an Al-Ijara structure, was more than four times oversubscribed with an order book of USD2.2bn. It will be listed on the Luxembourg Stock Exchange. The decision on its issue was 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.

The transaction's investor distribution, which included 59 percent from the Middle East and Asia, 25 percent from Europe, and 8 percent from the United States, was said to represent "a resounding success in building a more diversified investor base for South Africa, and further demonstrates confidence by investors in the Government's ability to maintain its sustainable macro-economic policy framework coupled with prudent fiscal management."

As Shariah Law forbids the payment and receipt of interest, South Africa introduced a tax framework, with effect from January 1, 2013, that will essentially allow for asset-based financing from which the yield gives rise to tax on an equivalent basis to that on interest income. Details on how the sukuk was structured were not released.

TAGS: South Africa | tax | investment | law | capital markets | withholding tax | islamic finance | Africa | Middle East

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