Senegal Returns to Sovereign Sukuk Market with a Three-Tranche Benchmark Equivalent XOF330 billion (US$525.4 million) Sukuk Ijarah Offering

The Government of Senegal, the first West African state to issue a sovereign Sukuk in 2014, returned to the domestic market with its latest offering, a XOF330 billion (US$525.4 million) three-tranche Sukuk Ijarah which closed in early June 2022.  

The Sukuk was issued through Fonds Commun de Titrisation de Créances (FCTC), or the Common Fund for the Securitization of Claims, a special purpose vehicle (SPV) authorized and licensed by the Senegal Financial Market Authority (CREMPF), on behalf of the Obligor, Société Nationale de Gestion et d’Exploitation du Patrimoine Bâti de l’État (SOGEPA SN), the National Company for the Management and Exploitation of State Heritage, which effectively owns over 1,695 public buildings in Senegal. Some of these buildings have contributed to the asset pool and the rental income for the sovereign Sukuk Ijarah issuances.

The lead arranger for the transaction was the local Banque Islamique du Senegal (BIS), with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB), mandated as the Co-Arranger. Taiba Titrisation Sa, a limited liability company established under Senegalese laws and licensed by the CREMPF pursuant to regulations for the purposes of Sukuk issuances, and a subsidiary of ICD, acted as the Management Company of SPV.

According to Senegal Ministry of Finance and Budget statement, the Sukuk issuance comprises three tranches – a first tranche of CFA55 billion with a seven-year tenor and a profit rate 5.80% per annum; a second tranche also of CFA55 billion with a 10-year tenor priced at a profit rate of 5.95% per annum, and a third tranche of CFA220 billion with a 15-year tenor and priced at a profit rate of 6.10% per annum.

According to Ayman Sejiny, Chief Executive Officer of ICD, “Senegal returned to the regional Islamic debt capital markets almost six years after its last Sukuk issuance. This is the West African nation’s third Islamic issuance, whilst the first and second issuances closed in 2014 and 2016, respectively. We are proud to see ICD and BIS as part of this developmental journey in Sub-Saharan Africa (SSA) and the 8-nation West African Economic and Monetary Union (WAEMU) region. Senegal holds the distinction of being the first African nation to issue a sovereign Sukuk”.

The demand for the Sukuk Certificates was robust and attracted orders from West African regional and Middle Eastern investors. Mouhamadou Madana Kane, CEO of BIS, confirmed that “BIS successfully syndicated the Sukuk to regional investors and those from the Middle East with an issue coverage rate of more than 110% within 3 days of subscription. This is the largest transaction in the history of the sub-regional market. ICD and BIS look forward to replicating Senegal’s Sukuk success with other countries and corporates in the region.”

Proceeds from the issuance will be utilized to finance the acquisition of buildings to be used as administrative offices, as well as financing of various other strategic government projects.

The Sukuk certificates have been admitted for listing on the Bourse Regionale des Valeurs Mobilieres (BVRM).  

ICD is playing a pioneering developmental role in sovereign Sukuk origination Emerging and Frontier Markets. Despite regulatory challenges, ICD has assisted a total of six sovereigns with debut Sukuk issuances. In recent years, the ICD has focused its work on Africa and Central Asia. The ICD has advised several governments on their debut Sukuk issuances, including Senegal, Jordan, Togo, Mali, Maldives, and Ivory Coast.

ICD hopes to further attract private companies and investors to the market as well. The Corporation has also co-arranged several Sukuk transactions for its corporate clients. ICD has seen an increasing demand from sovereigns and corporates who are willing to explore alternative financing methods such as Sukuk. Over last year, ICD managed to assist the Republic of Maldives to raise US$500 million. In 2020, ICD made its debut, in the eighth position, on Bloomberg’s international Sukuk issuance league table with a vision of being a key player in the Islamic debt capital markets.

To date ICD has approved seven deals in Senegal with a total gross approval of US$121.4 million.

Senegal has pioneered issuance of sovereign domestic Sukuk in the WAEMU Region. It issued its maiden 4-Year CFA100 billion (US$168 million) Sukuk Ijarah in June 2014, which was priced at a profit rate of 6.25% per annum. This was followed by a second issuance – a 10-year CFA200 billion ($341.5 million) Sukuk Ijarah in September 2016 which was priced at a profit rate of 6.0% per annum. The demand for the Sukuk certificates was robust in the regional context attracting orders of over CFA233 billion and the government upsized the issuance volume from the original CFA150 billion to CFA200 billion.

Despite being a frontier market for Islamic finance, Africa has been left behind in Sukuk issuance. In the year Senegal issued its debut domestic Sukuk, South Africa issued its maiden benchmark US$500 million in the international market, the only African sovereign to do so to date.

According to the Islamic Financial Services Industry Stability Report 2020, global sukuk outstanding totalled US$543.4 billion at end 2019, of which South East Asia and the Middle East accounted for US$520 billion. Africa accounted for a mere US$1.8 billion.

“Islamic banking,” said Moody’s in a report in 2021 “has made little headway in Africa despite the continent’s large Muslim populations. Sub-Saharan Africa (SSA) has around 18% of the world’s Muslim population but its Islamic finance assets make up only 1% of such global assets. The reasons include low levels of banking inclusion, low public awareness, limited domestic savings, and – until recently – scant government attention.”

However, things have started to change. African countries, says Moody’s, are starting to put the enabling laws and regulations in place to facilitate Islamic finance. However, constraints remain – legislative complexity and lengthy processes associated with Sukuk issuance; the need to identify physical collateral; complex documentation required for Islamic financial products; limited product offerings; and new tax laws that would allow equal fiscal treatment of Islamic finance products with conventional banking products.

Islamic assets, according to Moody’s, have a paltry market share of total banking asset of only 0.5% in Morocco, 5.5% in Tunisia, 2.8% in Algeria and 5% in Egypt. “We expect Islamic banking assets in Africa to increase noticeably. Africa has huge potential for growth in Islamic banking due to large Muslim populations, a low starting base and growing government interest in the sector. For governments, sector expansion would diversify the funding sources of their economies and reduce financing shortfalls exacerbated by the pandemic,” added Moody’s.

According to Moody’s, Senegal, Egypt, Morocco, Sudan, South Africa, and Nigeria will lead this growth trajectory in Africa. They (except South Africa) have large Muslim populations and existing and/or rapidly evolving regulatory and supervisory structures in place for rapid growth. They (except Egypt) also have a history of Sukuk issuance. South Africa, Morocco, Egypt and Nigeria have the largest banking systems in Africa. South Africa also has the most developed capital market and bond issuance infrastructure on the continent.

The Sukuk also embodies the approach of the State of Senegal concerning the management of its built heritage, through SOGEPA. “The enhancement of the State’s built heritage, within the framework of this operation, makes it possible to use it as a support lever for the policy of managing public finances and improving the stock of buildings for administrative use. This is how substantial savings will be made by the State on rental charges for buildings used for administrative purposes. The Sukuk, through the purchase of leasing contracts, allows the State of Senegal to move from a simple tenant to owner of the Ministerial Spheres of Diamniadio,” explained the Ministry of Finance and Budget.

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