Al Baraka bank announces second Sukuk issuance to raise R400m
As Islamic law prevents any instrument from paying an absolute return, the Sukuk issued by Al Baraka will pay a variable return over its 10-year life and qualifies as tier 2 capital for the bank
In another sign that Shariah-compliant investment instruments are becoming more widely adopted around the world, Al Baraka bank announced last week it would look to raise as much as R400m via its second Sukuk issuance.
This follows the successful placement of R200m, which was completed in 2018 by the local arm of the Bahrain-based Al Baraka banking group, which has assets of $25bn and operates in 18 countries around the world, primarily in the Middle East and North Africa.
"We are confident about raising a targeted R400m through this mechanism, given that our initial issuance was fully subscribed, leaving us a pipeline of additional prospective investors who were very keen on the Sukuk investment concept,” Al Baraka SA financial director Abdullah Ameed said.
As Islamic law prevents any instrument from paying an absolute return, the Sukuk issued by Al Baraka will pay a variable return over its 10-year life and qualifies as tier 2 capital for the bank. According to Ameed, the current equivalent return for an instrument of this nature is 9.5% per year. Unlike bonds, a Sukuk pays returns on a monthly basis.
“The intention is to raise the R400m in tranches of R100m. The first tranche should be completed by the end of the year, then we will look to raise R300m over the course of 2020. As per our initial Sukuk, we can choose to raise share capital or tier 2 capital (Sukuk) in order to grow the advances of the bank.”
The first local institution to raise money via this mechanism was the Treasury, which placed a $500m Sukuk in 2014.
Al Baraka CEO Shabir Chohan says the proceeds will allow the bank to continue growing its advances book, despite the weak economy.
“We have regular contact with our clients, and overall it’s a mixed bag. Some industries are maintaining activity at 2018’s levels whereas others are experiencing tough trading conditions. Many clients are sitting with a lot of cash waiting to see what is going to happen,” Chohan said.