Strong Demand side for Sukuk

With strong support from the Islamic Corporation for the Development of the Private Sector (ICD), the Saudi Arabia based multilateral organization affiliated with the Islamic Development Bank (IDB) Group, Sovereign Sukuk issuances are making strong inroads with Togo most recently joining the club following previous successful issuances from Senegal and Ivory Coast.

Elsewhere Iran is slowly positioning itself to enter the international debt capital markets and has recently stated it has interest of up to $1 billion dollars supply for a potential sukuk.

Iran’s Need to Update Financial Laws to Allow Foreign Currency Inflows

Iran’s financial sector is wholly Sharia compliant by virtue of the passing of the Law for Usury (Interest)-Free Banking Operations in 1983. The use of law makes the Iranian banking system unique in that all banking activities must follow Sharia principles as a matter of legal requirement as opposed to at a regulatory level.

According to Al Monitor, The value of the sukuk market has tripled since last summer, reaching 215 trillion rials ($6.95 billion), but a major impediment to attracting international capital is Iranian financial law, which does not allow sukuk to be traded in foreign currencies — a major obstacle to the development of cross border Islamic finance activity, a market which predominantly is priced in US dollars.

“The government-backed bonds (sukuk) cannot be traded in foreign currencies. This has practically kept Iran’s sukuk out of global markets,” Mohammad Fetanat, chief of the Securities and Exchange Organization was quoted as saying.

Fetanat said he expects an update to Iran’s financial laws in a matter of months, and noted that there already is a huge demand for Iranian sukuk in regional and European markets. “In our negotiations with other countries, we received a request for $1 billion worth of Islamic bonds,” he said, without identifying the requester, expressing hope that billions of dollars of Islamic bonds will be offered on global markets should existing legal problems be addressed.

West African Sukuk Push

Togo is selling a 150 billion CFA franc ($251.40 million) Sukuk, its first Islamic finance instrument with a 10-year maturity and 6.5 percent yield. The Sukuk is currently in a subscription period which began on July 20 and runs to August 10.

  Download Togo Prospectus

Overlapping the Togo sale, neighbouring Senegal ended the subscription period for its second Sukuk on 19 July, though the final sukuk has yet to be issued. The proposed deal is backed by the assets of the international airport. Senegal last issued a Sukuk on 25 June 2014 for 100 billion CFA francs. The four-year issuance achieved a profit rate of 6.25% and was the first major sukuk issued by a West African nation. Ivory Coast later issued a five year 150 billion CFA francs on 28 December 2015.

Africans largest economy, Nigeria has set up a multi-agency committee to work out the modalities for the maiden sovereign sukuk likely to be issued towards the end of year.