Photo: Power lines at a power station for Eskom, the government-owned power utility company, in Cape Town, South Africa, February 26, 2019. Richard van der Spuy/Shutterstock

Islamic Finance

South Africa’s public utility Eskom working on rand-denominated sukuk

Eskom Holdings, the South African public utility company, is seeking a legal advisor for a rand-denominated sukuk, according to a document issued by the company.

The request for proposal (RFP) dated June 24, invites legal services related to a local-currency sukuk issuance. A full copy of the RFP is available here.

Eskom said it revised its funding plans for financial years 2020/21 to 2024/25 and seeks to diversify funding sources and execute cost effective funding at acceptable risk.

“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 document said.

The state-owned utility company plans to list the sukuk on the Johannesburg Stock Exchange (JSE) and is seeking a government guarantee subject to approval, according to the document.

The RFP is valid for 12 months from its issue date (June24), but does not mention details on the size or timing of the sukuk.

A spokesperson from Eskom told Salaam Gateway the maturity and structure of the sukuk will depend on market conditions.

The decision to issue local currency, rather than foreign currency is because the rand is Eskom’s operational currency, according to the spokesperson.

He declined to comment whether the company has mandated arrangers from the GCC or Malaysia.

This is not the first time the government-related entity has expressed interest in issuing Shariah-compliant debt. Eskom’s first consideration of issuing sukuk was in 2012. In 2015, it floated the idea of an international sukuk. However, it has yet to tap the Islamic capital market.

Over the last four years, Eskom has experienced rating downgrades as well as debt and corruption scandals. The company has around 450 billion rand of debt and has yet to ask the government for a latest capital injection.

Despite Eskom’s renewed interest, the local sukuk market remains in its infancy in South Africa.

In May, officials from the country’s National Treasury told Salaam Gateway that it was working on rand-denominated sovereign sukuk for the financial year 2020/2021.

South Africa sold its maiden international sovereign sukuk in 2014.  The country issued a $500 million 5.75-year 3.90% sukuk. BNP Paribas, KFH Investment and Standard Bank arranged the deal.

(Reporting by Hassan Jivraj; Editing by Emmy Abdul Alim

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