Senegal Sukuk Shows Way for South Africa, Nigeria to Debut

Senegal beat South Africa and Nigeria to market with sub-Saharan Africa’s biggest sovereign sukuk, clearing the path for the continent’s biggest economies to follow with debut Islamic bonds.
Senegal opened a sale this week for 100 billion CFA francs ($208 million) of the debt that will close July 18, tapping a global market that may surpass record issuance of $46.5 billion in 2012, according to arrangers. Worldwide offerings rose 27 percent to $24.4 billion in 2014 from a year earlier, data compiled by Bloomberg show. Gambia, which shares a border with Senegal, sells sukuk maturing in less than a year weekly, with yields on 91-day notes falling 117 basis points this year to 14.89 percent.

“Other governments on the continent will be watching the issuance with interest,” Sarah Tzinieris, principal Africa analyst at Bath, U.K.-based risk advisory company Maplecroft, said in an e-mailed response to questions on June 25. “With the market still relatively undeveloped in sub-Saharan Africa, the first countries issuing sukuk bonds -– such as Senegal -– are in a strong position to position themselves as African hubs for Islamic finance.”
South Africa, which has the continent’s largest stock and bond exchanges, plans to issue a sukuk this year, the National Treasury said in April. A sukuk is part of Nigeria’s strategic framework through 2017, Patience Oniha, the Abuja-based Debt Management Office market development director, said by e-mail yesterday. Kenya may offer sukuk to broaden its investor base, Treasury Secretary Henry Rotich said two days ago. Nigeria’s Osun state sold 10 billion naira ($61 million) of Islamic debt in September, the first state in the country to sell sukuk.

Capital Needs

Since coming to power in the West African nation in 2012, Senegalese President Macky Sall has shut or combined 59 state agencies and allocated more money to curb water and power cuts in the capital, Dakar. He audited the administration of his predecessor, Abdoulaye Wade, and set up a court to try economic crimes, while reducing Senegal’s inflation rate. Senegal’s economy is set to expand 4.6 percent this year, the fastest pace since 2007, and 4.8 percent in 2015, according to the International Monetary Fund.
“Senegal is issuing sukuk bonds before more developed markets in North Africa, such as Morocco and Tunisia, reflecting the investment-minded approach of the Macky Sall government, as well as its crucial need to raise capital,” Tzinieris said.
The sukuk issuance comes as Senegal plans to sell its second Eurobond, with the nation seeking to raise $500 million by July. Standard Chartered Plc, Societe Generale SA’s local unit and Citigroup Inc. have been appointed to manage the offering, Ange Constantin Mancabou, an adviser to Finance Minister Amadou Ba, said by phone from Dakar yesterday.

Yields Drop

Yields on its notes due May 2021 have dropped 87 basis points this year to 5.98 percent yesterday. The average yield on African dollar bonds dipped to a one-year low of 4.97 percent on May 29, JPMorgan Chase & Co. indexes show.
In July 2012, Sudan raised 955 million Sudanese pounds ($165 million) selling Islamic debt, with no issuance since, Osama Saeed, head of the research and statistics section at Sudan Financial Services Co., said by phone from Khartoum, the capital, yesterday. South Africa’s Treasury didn’t immediately respond to e-mailed requests for comment yesterday.
Senegal has the second-largest economy in the eight-nation West African Economic and Monetary Union and is the only country in the region apart from Cape Verde that’s never had a military overthrow of the government.
Half of the debt earmarked for the sukuk has already been sold, Budget Minister Mouhamadou Mactar Cisse told reporters in Dakar, the capital, on June 25.
“The launch of this sukuk bond marks an important milestone for the development of Islamic finance” in West African markets, he said. “It allows Islamic banks and financial institutions to improve their liquidity.”