South Africa's Treasury has proposed extending tax reforms to facilitate the issuance of sukuk, or Islamic bonds, by listed companies after the government did a $500 million debut deal last September.
Sukuk transactions in Africa have been few and infrequent but this is gradually changing as governments see an opportunity to tap cash-rich Islamic investors from the Gulf and Southeast Asia.
Senegal issued sukuk for the first time in June last year while Niger, Nigeria and Ivory Coast are planning debut deals.
South Africa introduced tax amendments in 2011 to allow the government to issue sukuk and this was extended to public entities in April this year. The proposed changes will come into effect in January 2016.
"It has always been the government's intention to ensure that these financing arrangements are accessible to other entities as well as an additional source to raise capital," the Treasury said in the draft of the legislation.
Taxation is often problematic for sukuk because of their asset-backed nature, which means multiple asset transfers may be required for a transaction to take place, creating a heavy tax burden for issuers unless special legislation is in place.
Firms such as South African National Roads Agency Ltd (Sanral) and power utility Eskom have been considering following the government's sukuk deal, which attracted an order book of $2.2 billion.
Sanral has studied sukuk for years but has faced some challenges relating to the transfer of assets and its tax status, the company told Reuters in May.
Both Sanral and Eskom have said they would only sell sukuk if this was cost-effective versus other funding sources.
(Reuters / 28 July 2015)
---Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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