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South African Electricity Utility Eskom Inches Nearer to Debut Domestic R1bn Sukuk Issuance with RFP for Corporate Services in November 2020

Johannesburg – South African electricity utility, Eskom Holdings, is inching nearer to its proposed R1 billion (US$66.5m) debut Sukuk issuance when it issued a Request for Proposal (RFP) on 12 November 2020 “from credible institutions” for the provision of corporate services related to a local Sukuk issuance.

“Eskom’s revised Funding Plan for financial years (FY) 2020/21 to 2024/25,” explained Richard Vaughan, General Manager, Treasury at Eskom in the RFP documents, “seeks to diversify funding sources and execute cost effective funding at acceptable risk. The execution of the Funding Plan requires sizeable funding that can provide diversification and longer tenors at reduced finance costs. Therefore, Eskom has assessed the viability of an innovative Local Currency South African based Sukuk funding solution that would enable Eskom to further develop its Borrowing Plan.”

The RFP comes at a difficult time for Eskom. Fitch Ratings downgraded Eskom Holdings’ Long-Term Local-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’ with a Negative Outlook in late November 2020. The utility is undergoing a strategic restructuring under a newish board led by CEO Andre de Ruyter, who spent 20 years at petrochemicals giant Sasol, and which includes unbundling its three operating entities – generation, transmission and distribution – and sorting out a burgeoning debt totalling R488bn, which some experts believe is nearer to R760bn.

Eskom concedes that “it is unable to service its debt from its ordinary operations”, which necessitates borrowing from the financial market. Despite adverse market and operational conditions, some linked to the dire macro-economic fundamentals of sovereign South Africa including a GDP contraction estimated at -7.2% in 2020 and a longer-than-anticipated recession, the utility has shown resilience, albeit propped up by government support.

“Eskom’s importance to the South African economy,” says Raman Singla, Associate Director and Primary Analyst for Eskom at Fitch Ratings, “is quite clear. There is sizeable evidence of will at the government and the Eskom’s management level to improve the business. The process of implementation of improvement mechanisms, their timeline and success will be important determinants of Eskom’s mid to long term outlook.”

The utility has long been contemplating tapping the Sukuk market going back to 2012. But the sovereign’s dire economic state put the issuance on hold. In November, the Big Three rating agencies downgraded South Africa’s sovereign rating to below investment grade which will negatively impact the country’s and its utilities cost of financing. The rationale is that domestic Sukuk offers a cheaper fund raising option as part of a sustainable and diversified strategy.

Given the funding challenge Eskom is faced with and at the request of the utility and the Minister for Public Enterprises Pravin Gordhan, South African Finance Minister Tito Mboweni in 2019 increased the DMTN limit by R10 billion to R160 billion “to assist Eskom to issue additional bonds/Sukuk and manage its liquidity position.”

Eskom currently has 30 operational power stations (including 1 nuclear) with a nominal generating capacity of 44,172 MW. The ruling ANC government is also considering a policy of prescribed assets and contemplating whether pension funds would voluntarily finance an ambitious infrastructure programme and to bankroll the beleaguered electricity utility to the tune of R200bn.

ITFC, BADEA and Afreximbank Launch US$1.5bn Collaborative COVID-19 Pandemic Response Facility to Support Economies of Common African Member Countries

Cairo – The International Islamic Trade Finance Corporation (ITFC), the trade fund of the Islamic Development Bank (IsDB) Group; the African Export-Import Bank (Afreximbank), the pan-African multilateral EXIM bank, and the Arab Bank for Economic Development in Africa (BADEA), launched in November 2020 a US$1.5-billion Collaborative COVID-19 Pandemic Response Facility (COPREFA) to support African economies with rapid financial assistance to reduce the impact of COVID-19.

COPREFA will be accessed by eligible central banks, commercial banks and businesses to finance the import of medical supplies, as well as agricultural equipment and fertilizers essential for addressing the pressing food production deficit. The facility is also designed to support African economies to overcome a myriad of challenges, including commodity price shocks, a significant drop in tourism, and disruption to supply chains and export manufacturing.

In addition, it will also address the sudden declines in financial flows, including a drop off in trade and project finance, migrant remittances, portfolio investment and FDI (Foreign Direct Investment) flows.

According to the promoters, the impact of the COVID-19 pandemic has proven to be fast-paced, requiring support that can be deployed quickly and flexibly to prevent sharp declines in national economies. As such an important feature of COPREFA is fast-tracking financial assistance through all partners involved.

Standard eligibility criteria and credit appraisal process thus have been developed by COPREFA partners in order to facilitate implementation of the facility. Support will be available through direct funding, lines of credit, confirmation and refinancing of documentary credits; guarantees, cross-currency swaps and other similar instruments.

Afreximbank in March 2020 launched a US$5 billion financial package called the Pandemic Trade Impact Mitigation Facility to support member state economies through the pandemic. Some of this facility will be implemented alongside COPREFA. At the same time, BADEA is allocating US$350 million in the COPREFA initiative.

Similarly, the ITFC contributed US$300 million to the IsDB Group’s US$2.3 billion financing package in March this year to help combat the health and socio-economic impact of COVID-19 in Member Countries. This was topped up in July when the Corporation launched a new Trade Development Fund  with an initial capital of US$50 million to support trade development projects in member countries of the Organisation of Islamic Cooperation (OIC) and Muslim communities in non-member countries. The Fund is based on a Waqf (trust endowment) structure, which from a Sharia’a perspective means endowed assets and restrictions on their use and disposal. 

“The COVID-19 pandemic,” stressed Prof. Benedict Oramah, President of Afreximbank, “has devasted many economies. Africa has not been spared. Afreximbank’s priority has always been to step-up when markets fall. That is why we are supporting African economies forcefully at the time of great difficulties. COPREFA, a product of a unique international partnership, is a major contribution to the global fight against the pandemic and will work alongside our other programs to ensure Africa’s future remains bright beyond this economic shock.”

Sarwa Capital Pioneers Corporate Sukuk Issuance in Egypt with Maiden EGP2.5bn Mudaraba Sukuk Offering in November 2020

Cairo – Corporate Sukuk issuances from Egypt, hitherto absent from the market, received a potentially major boost in November 2020 with the successful closing of a debut Sukuk offering by Sarwa Capital Holding for Financial Investments, the country’s leading consumer and structured financial services provider.

The EGP2.5 billion Mudaraba Sukuk with a tenor of 7 years, was issued by Sarwa Sukuk Company, a special purpose vehicle on behalf of Sarwa Capital, the obligor. The issuance, said Sarwa Capital, “received a high credit rating of A-‘ by Middle East Ratings and Investors Service (MERIS).

The proceeds from the issuance will be used for further expansion of its subsidiary, Contact Credit and its affiliate companies.

The offering” is the first transaction of its kind and the largest sukuk issuance in Egypt. The landmark issuance underlines the group’s strong financial position and its ability to diversify its funding sources to capture growth opportunities and solidifies its strategic position in developing innovative financing structures in the Egyptian debt capital market,” emphasised Sarwa Capital.

The company is the leading private issuer of corporate debt instruments in Egypt with total bond issuances reaching over EGP23 billion to date through 30 issuances.

“This transaction,” added the company, “comes as a result of a combined effort from reputable banks, financial institutions and the Financial Regulatory Authority (FRA) which showed strong support during the process. It is worth mentioning that Sarwa Sukuk Company was the first to obtain a Sukuk license in Egypt by the Financial Regularity FRA in July 2019.”

The issuance closed with strong demand from a wide range of investors reflecting the strong track record of Sarwa Capital in the debt market. The company had mandated Sarwa Promotion and Underwriting to act as lead manager and arranger to the transaction. Banque Misr and Misr Capital acted as underwritiers. The issue was co-underwritten by Commercial International Bank and Ahli United Bank. Alieldean Weshahi & Partners (ALC) acted as the legal advisor while Elite Consulting Group acted as the independent financial consultant on the transaction.

Ayman El Sawy, Group Chief Financial Officer, Sarwa Capital Group, hinted that the company could tap the Sukuk market again for future fund-raising as part of a sources of funding diversification strategy.

“We are proud to have issued the inaugural Sukuk issuance for Sarwa Capital and the largest in the Egyptian capital markets. The success of this landmark transaction marks a new phase in diversifying the group’s funding sources to cater for future growth. The Sukuk issue is the first of a number of new tools to be launched and comes on the back of our strong track record in the securitization bond market. We hope these will act as a model for alternative funding structures in Egypt.”

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SCB Licenses Three New Payment Solutions Providers in November 2020 Bringing the Total Number of Licensed Payment Companies to Eleven

Riyadh – The Saudi Central Bank (SCB) (formerly the Saudi Arabian Monetary Authority (SAMA)) issued licenses in November 2020 to three new payments solutions companies to operate in the Kingdom. The licenses were given to Skyband for point of sales services, NoonPay for e-commerce payment gateway services, and Foodics for point of sales services. This brings the total number of Fintech companies licensed by SCB in the payment solutions sector to eleven.

This decision is based on SCB’s mandate to license, control, and oversee the payments sector in the Kingdom as per the Council of Ministers Resolution No. 226 dated 2019 and the issuance of the Payment Services Provider Regulations earlier this year, which was followed by the licensing of payment services providers. The aim is to provide a competent regulatory framework which is capable of supporting innovation in the payments sector and FinTech. The SCB stresses the importance of dealing with financial institutions that are licensed and regulated by the relevant authority.

At the same time, the SCB in November 2020 also impose penalties on 30 financial institutions under its supervision as a result of its violation of the principles of responsible financing for individuals. In a statement, the SCB said that “the action was based on the proven violation of the percentage of bearing out of the individual customers monthly credit obligations.” The action was to protect the rights and interests of customers; its keenness to apply the principle of fairness and transparency in consumer credit transactions; and to promote competitiveness among financiers.

Tadawul Pens Partnership Agreement with IHS Markit to Launch iBoxx Sukuk and Islamic ETF Indices in Saudi Arabia

Riyadh – The Saudi Stock Exchange (Tadawul) signed a partnership MoU in November 2020 with IHS Markit, a world leader in critical information, analytics and solutions, to jointly develop data services and indices to enhance liquidity and assist investors in accessing the Riyal-denominated Sukuk and Bonds Market.

“The Kingdom’s inclusion in key international equity indices have paved the way for Tadawul to further strengthen its equity market. Similarly, local fixed income market requires similar tools that can support performance and liquidity through Riyal-denominated Sukuk and Bonds. As a result, this partnership will help Tadawul become a vibrant market not only for equities but also for local fixed income instruments.” said Khalid Al Hussan, CEO of Tadawul.

“Working with IHS Markit creates an opportunity to develop world class fixed income benchmarks and other data products that facilitate access to fixed income opportunities present in the Saudi capital market,” he added.

According to Adam Kansler, President of Financial Services at IHS Markit, the aim is to develop indices that promote liquidity in the Sukuk and bonds market in the Kingdom. “Our shared goals are to promote transparency in the Saudi capital market and serve the investment needs of financial institutions domestically and internationally,” he added.

Through the partnership, market data from Tadawul will be connected with the bond pricing expertise at IHS Markit and, in turn, construct and administer benchmark indices, beginning with Government Sukuk.

Tadawul stresses that the bourse intends to be an active player in global capital markets as an investment destination, building on its current role as the regional hub leading capital market development in the GCC and the wider MENA region. As of September 2020 the total number of listed securities reached 270, with listed companies representing a market capitalization of around SAR1.9 trillion (US$508 billion). Furthermore, the size of the Saudi Sukuk and Bonds Market is approximately SAR340 billion (US$90.6 billion), with 69 listings.

IHS Markit is a leading independent provider of fixed income and macroeconomic indices, calculating more than 14,000 indices globally. Its iBoxx bond indices, the iTraxx and the Purchasing Managers’ Index™ series are well established indices in the global market. Under the partnership, the aim is to launch iBoxx Sukuk indices and other ones such as ETFs for the Saudi market. More than US$130 billion in ETF assets are linked to iBoxx indices.

IILM Issues US$1.07bn of Short-term Sukuk in Various Tenors in November as Total Issuances for 2020 to Date Tops US$11bn

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully reissued a total of US$1.070 billion short-term “A-1” rated Sukuk across three different tenors of 1, 3 and 6-months.

The Corporation held an auction on 10 November 2020 for the three series of issuances.

The three series were priced by the market as follows:

  1. US$400 million of 1-month tenor certificates at 0.35%.
  2. US$460 million of 3-month tenor certificates at 0.44%.
  3. US$210 million of 6-month tenor certificates at 0.51%.

Against a backdrop of cautious market sentiments, stressed the Corporation, the reissuance generated strong demand from investors, with a combined orderbook in excess of US$1.56 billion representing an average oversubscription ratio of 145%. 

GCC Primary Dealers took up the majority of the allocation across all three series with strong participation observed from Asian-based Primary Dealers and investors on both the 3 and 6-month tenors.

“We are pleased with the success of the IILM’s issuances given uncertain market conditions further to the US election and resurgence of Covid-19 cases around the world. Our engagement and partnership with our network of cross-border Primary Dealers and investors continue to underpin strong demand for the IILM’s short-term Sukuk. We look forward to closing out the year with a final auction in December.” explained Dr Umar Oseni, Chief Executive Officer of the IILM.

The transactions, according to the Corporation, mark the IILM’s 31st to 33rd issuances for the year and brings year- to-date cumulative issuance amount to nearly US$11 billion, representing 33% of US dollar denominated Sukuk globally. The IILM is a regular issuer of short-term Sukuk across varying tenors and amounts to cater to the liquidity needs of institutions offering Islamic financial services. The total amount of IILM Sukuk outstanding is now US$3.51 billion. The IILM short-term Sukuk programme is rated “A-1” by S&P.

According to the IILM, the primary dealers that participated in the auction conducted under the competitive bidding of the Bloomberg AUPD Platform included Abu Dhabi Islamic Bank; Al Baraka Turk Participation Bank; Barwa Bank; Boubyan Bank; CIMB Islamic Bank Berhad; First Abu Dhabi Bank; Kuwait Finance House; Macquarie Bank; Maybank Islamic Berhad; Qatar Islamic Bank; and Standard Chartered Bank. The allocation was dominated by GCC-based institutions.

The IILM marked its tenth anniversary in late October 2020. Since its inaugural issuance in 2013, the Corporation has remained the only issuer of US dollar-denominated short-term Sukuk and has supplied the market in excess of US$60 billion through 120 Sukuk of varying tenors.

“The founding members of the IILM,” reminded Dr Mohammad Y. Al-Hashel, Governor of the Central Bank of Kuwait and current Chairman of the IILM Governing Board, “were well cognizant of the need for Sharia’a-compliant instruments of liquidity management and establishment of the IILM has indeed helped levelling the playing field for the Institutions offering Islamic Financial Services (IIFS) vis-a-vis their conventional counterparts in effective liquidity management.

“I am confident that the IILM will continue to build upon its success and support the long-term growth of the IIFS by offering innovative liquidity management instruments, promoting international cooperation and, in turn, fostering financial stability.”

Saudi Banks Renew Murabaha Credit Facilities Totalling SAR293m for MEPCO and Zahrat Al Waha for Trading Co

Jeddah –Middle East Paper Co. (MEPCO) renewed its revolving SAR200 million Murabaha credit facility with Bank Albilad in November 2020. The facility is usually renewed in August of each year but was delayed this year partly due to the economic impact of the COVID-19 pandemic.

In a filing with the Saudi Stock Exchange (Tadawul), MEPCO stressed that the facility is secured by a promissory note (equivalent to the facility value) in favour of Bank Albilad. The proceeds from the facility will be used to finance the company’s working capital and expansion plans.

In another transaction, Zahrat Al Waha for Trading Co. similarly renewed its SAR92,993,396 Murabaha credit facility with Arab National Bank. In a disclosure filing with Tadawul, Zahrat Al Waha said that the duration of the facility is 3 months and will expire on 28 February 2021. The facility is guaranteed by Order Notes provided by the company with the total value of the facility.

The proceeds from the facility will be used to open Letters of Credit (LCs) for the purchase of raw materials, machinery and equipment.

Indonesian Government Raises IDR22 trillion in Three Rupiah-denominated Sukuk Issuances in November 2020

Jakarta – The Government of Indonesia continues to consolidate its role as one of the most proactive repeat issuers of sovereign domestic Sukuk in the market with three issuances in November 2020 raising a total IDR22 trillion (US$1.6 billion) through three auctions.

The Department of Islamic Financing at the Directorate General of Budget Financing and Risk Management, Ministry of Finance of Indonesia, is a prolific issuer of Sukuk on behalf of the Government of Indonesia. In October it similarly raised IDR25.75 trillion through three auctions.

The November issuances comprised three auctions of Sovereign Shariah Securities (SSS) or Sukuk Negara through the auction system of Bank of Indonesia. The first auction of SSS was held on 10 November which raised IDR10 trillion comprising five tranches with maturities of 6 months, 2.5 years, 4 years, 12.5 years and 26 years and priced at a coupon rate at discount, 6.5%, 6.625%, 8.375% and 7.75% respectively.

The second auction was held on 17 November 2020 and raised IDR2 trillion (US$141.7m) through a private placement. The Sukuk, which has a tenor of 27 years maturing on 15 July 2047, was priced at a fixed coupon rate of 8% per annum and a yield of 7.35% and is listed on the Jakarta Stock Exchange for trading.

The third auction of SSS was held on 24 November which raised IDR10 trillion (US$708.3m) comprising three tranches of 4, 5 and 26-year tenors and priced at a coupon rate at 6.625%, 6.125% and 7.75% respectively.

Demand for the securities from local institutional investors was robust with total bids for the three auctions amounting to IDR49.5695 trillion (US$3.5 billion).

Al Rajhi Bank Arranges SAR500m Murabaha Credit Facility for Al Moammar Information Systems

Jeddah – Saudi Arabia’s Al Rajhi Bank has arranged a SAR500 million (US$133.3m) Murabaha credit facility for the local Al Moammar Information Systems Co (MIS). In a filing with Tadawul, the company said that the facility has a tenor of and one yearmaturing on 3 December 2021 and is guaranteed by a Promissory Note lodged by MIS in favour of Al-Rajhi Bank.

The proceeds from the facility will be used working capital and balance sheet purposes.

Al Moammar recently reported increased gross profit for the third quarter of 2020 of SAR44.63 million compared with SAR33.12 million in the similar period in the previous year. Similarly, total net income reached SAR24.19 million compared to SAR13.99 million in the same period in 2019.

Securities Commission Malaysia Launches The Waqf-Featured Fund Framework to Promote the Growth of Islamic Social Finance

Kuala Lumpur – The Securities Commission Malaysia (SC) launched in November 2020 a new framework to facilitate the offering of Islamic funds with Waqf (Endowment) features to enable the growth of the Islamic social finance segment.

The development of Waqf was identified as one area of significant potential for social development, greater public good and wealth distribution, in the SC’s Islamic Fund and Wealth Management Blueprint, launched in 2017.

The Waqf-Featured Fund Framework says the Commission “will broaden the range of innovative Islamic capital market products and provide the public access to Islamic funds that allocate whole or part of the fund’s returns towards socially impactful activities via Waqf.”

Waqf, according to the SC, is an Islamic endowment instrument typically linked with social development and philanthropic objectives. The Framework, which came into force on 12 November 2020, will integrate commercial with social objectives and enable investments for the greater good of society.

The framework is applicable to existing and newly launched unit trust and wholesale funds. It sets out eligible Waqf recipients and disclosure requirements in order to promote transparency of investors’ investments and the Waqf distribution.

Over the years, the SC has made efforts to facilitate the development of Waqf through several initiatives by organising thought leadership platforms, including hosting a dedicated industry roundtable in collaboration with the Oxford Centre for Islamic Studies, introducing the Sustainable and Responsible Investment (SRI) Sukuk framework that incorporates the development of Waqf assets as an eligible SRI project, as well as facilitating the offering of the world’s first Waqf shares.

ICD Provides €15m Murabaha Facility for Coris Bank International in Burkino Faso to Finance SMEs Affected by COVID-19 Pandemic

Jeddah – The Islamic Corporation for the Development of the Private sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB) Group, has extended a €15 million Commodity Murabaha line of financing to the Islamic Banking Window of Coris Bank International (CBI) Burkina Faso, a member of the Coris Bank Group, to finance private sector enterprises in the West African state affected by the COVID-19 pandemic.

According to Ayman Amin Sejiny, CEO of ICD, “the facility will be utilized by CBI Burkina Faso to support economic activities of eligible private sector businesses that have been affected by the Covid-19 outbreak. This facility is part of ICD’s US$250 million Support Package to assist Member Countries recovering from Covid-19 Pandemic”.

Coris Bank Group is an existing client of ICD and this latest facility is the third one provided by ICD to the Group; including lines of financing extended to CBI Burkina Faso and CBI Mali for €17 million and €6 million respectively. Since its inception, ICD has extended Line of Financing facilities to several financial institutions in Sub-Saharan Africa for the development of the private sector, including SMEs.

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