The South African government is expected to walk the walk with its plan to issue the country’s debut sovereign Sukuk, but it will need to prepare the appropriate ground rules for Islamic bonds to ensure a successful issuance.
“The key thing is to create the right legislative framework for both an issue for the republic, but also one which – to use the phrase coined by the UK Treasury in respect of its own plans – is ‘instantly replicable’ and capable of use by the (South Africa’s) state-owned entities. I assume efforts will focus on an Ijarah structure,” commented David Testa, the managing director of financial consultancy firm David Testa Consultancy.
In a response to Islamic Finance news, Testa, who has worked as an Islamic finance consultant for South Africa’s Standard Bank and was also previously CEO of UK’s Gatehouse Bank, said that apart from diversifying government funding, the prospective sovereign Sukuk is also seen as a means to set a precedent for other South African entities keen to raise funds from new sources.
“Several state-owned entities such as (energy and chemicals company) Sasol and (electricity producer) Eskom Holdings have already been approached by leading Islamic institutions pitching them the idea of Sukuk issues. The precedent of a sovereign benchmark issue (together with relevant legislation amendments) will help develop those ideas,” he said.
Meanwhile, the country’s planned sovereign Sukuk is also seen as key in promoting the growth of Islamic finance in Africa. “I have thought for some time that Africa is now the most exciting prospect for Islamic finance generally. With South Africa now joining the party, it is clear that the prospects for Islamic finance across the whole of the African continent are very bright,” said Testa.
source: Islamic Finance News