First sovereign Rand denominated Al-Ijara Sukuk issuance on the African continent jointly arranged by Standard Bank

This landmark transaction is a significant milestone with respect to the National Treasury of South Africa as it is the first sovereign rand-denominated al-ijarah sukuk on the African continent. 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 in the auction.

The bank acted in its capacity as joint lead arranger in the transaction, which will now establish a benchmark and pave the way for other issuers in the market such as SOEs, banks, corporates and municipalities to issue their own Shari’ah-compliant fixed-income instruments. Additionally, the bank was the lead bank in terms of providing sound advice on the Shari’ah requirements and compliance on the funding to be raised by the National Treasury and was instrumental in marketing the transaction to potential investors in the National Treasury Instrument.

Standard Bank also played a crucial role in getting investors with Shari’ah-compliant portfolios to participate in the issuance, and these investors have been anticipating this issuance for quite some time as they struggle to get access to such assets in the local market. Our Shari’ah banking lead and Shari’ah Advisory Council also played a fundamental role in ensuring that the issuance met the prescripts of Shari’ah law.

A sukuk is a financial product with Shari’ah-compliant terms and structures. While they have historically been developed in countries with majority Muslim populations, there has been an increase in demand in the global market. It can be defined as an asset that is financed by multiple investors who each pay a certain portion of the price of the asset. Each investor thus becomes the owner of that portion of the asset, and this right of ownership is conferred to him by sukuk scrips of equivalent amounts. Sukuk al-ijara is a type of financing that involves the use of certificates to represent ownership of leased assets or the right to use leased assets. The certificates are issued by the owner of the asset or by a financial institution that is acting on behalf of the owner.

The sukuk issuance by the National Treasury has been part of the various funding mechanisms which the government seeks to utilise in order to meet the fiscal borrowing requirement. A crucial point is that the National Treasury sukuk will form part of local currency market development, which will allow other capital markets’ borrowers in the market to access this alternative pool of funding. Off the back of this inaugural issuance, we expect that SOEs (that require funding for infrastructure development) will seek to access the local Islamic finance market.

Standard Bank is proud to have participated in a historic transaction that proves the depth and liquidity of South Africa's domestic capital markets and the level of financial innovation and market expansion. This transaction is a crucial step in broadening South Africa’s investor base and enhancing the country’s funding strategy, which has been traditionally reliant on fixed-rate bonds, inflation-linked bonds and floating-rate notes.