File photo: Newly upgraded South African Rand banknotes depicting former South African president Nelson Mandela are displayed at the Nelson Mandela Foundation in Johannesburg on May 4, 2023. (Photo by Phill Magakoe / AFP)
South Africa sold its second Islamic bond Wednesday as the government accelerates its efforts to plug a borrowing shortfall of $2.6 billion for this fiscal year.
Investors placed total orders of 35.5 billion rand ($1.9 billion) for the sukuk on offer, with 20.4 billion rand of debt issued across four tenors, according to the National Treasury.
The country’s last sukuk was a dollar-denominated bond sold in 2014, with today’s auction the first in local currency.
The auction was well subscribed, said Farzana Bayat, a fixed income portfolio manager at Foord Asset Management in Cape Town, with most of the debt issued in the 5.3 year and 7.3 year tenors.
The bonds were taken up at about 20 to 30 basis points above the Treasury’s price guidance, so it was a "very good result for them,” she said. Debt maturing in 10.3 years and 12.3 years was also sold.
Africa’s most industrialized economy has been locked out of international debt markets since April 2022, due to high global interest rates that make the cost of foreign debt prohibitive.
The dollar sukuk, which matured in 2020, attracted non-resident investors, but Wednesday’s sale was likely dominated by local buyers.
"We are also not sure if the offshore market has appetite for a rand sukuk,” Bayat said earlier, before the sale. "If foreigners buy a rand sukuk and hedge out the currency risk, the net dollar yield wont be very appealing.”
Initial pricing guidance for the 5.3 year tenor was 9.6%, for the 7.3 year 10.45%, for the 10.3 year 11.25% and for the 12.3 year 11.65%, according to a term sheet seen by Bloomberg.
The 10.3 year was priced at a yield of 11.58%.
