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Africa

CASE STUDY: AFC Prices First Dollar Sukuk of 2017

The AFC’s upsized US$150mn was the first US dollar denominated sukuk issued by an African multilateral development bank and the first dollar denominated sukuk of 2017, helping the financial institution fund a number of infrastructure projects on the continent.

Feb 23, 2017 // 6:13PM

Background

In late 2016 the Africa Finance Corporation, a pan-African multilateral lender based in Nigeria, sought to raise financing at competitive pricing levels in a bid to help it fund a number of new infrastructure projects in Africa. It also aimed to diversify its investor base.

The AFC initially sought to raise US$100mn, but upsized its issuance on the back of strong demand from international investors. It successfully priced a privately placed US$150mn 3-year RegS sukuk on 17 January 2017, achieving its desired pricing and investor diversification objectives – and tapping into an important corridor between Africa, the Middle East and Asia.

Transaction Breakdown

The transaction was structured as a Murabaha sukuk backed by Sharia’a Compliant cash flows.

The sukuk was issued through AFC Sukuk Company, an orphan Cayman Islands incorporated special purpose vehicle (SPV). The SPV used the proceeds from the sukuk issuance to provide a Murabaha facility to the Africa Finance Corporation (the obligor). The SPV will use the issuance proceeds to acquire illiquid portfolio certificates listed on the Nasdaq Dubai Murabaha platform, which represent the underlying Shariah compliant assets. The SPV will then, through an agent, on-sell the portfolio certificates to the obligor at their cost price plus profit on a spot and deferred payment basis. The obligor then immediately on-sells such portfolio certificates to market participants for an amount equal to the sukuk issuance proceeds.

The purchase contract for the sale and purchase of portfolio certificates is then rolled over on each profit payment date to set the new profit rate (pegged to LIBOR) for the then forthcoming profit period.

Although the Joint lead managers undertook a limited marketing exercise, given the transaction was issued in a private placement format, the rarity of an African credit issuing in sukuk format made the transaction very attractive for investors as they looked to diversify their investments into newer geographies.

Following high levels of investor interest, the initial target of US$100mn was more than twice oversubscribed, resulting in the transaction being upsized to US$150mn and generating a final order book of roughly US$230mn, with the transaction pricing at tight end of IPTs.

The AFC was also able to attract substantial investor interest from Asia, an important part of the bank’s bid to diversify its investor base. Close to two-thirds (63%) of the notes were placed with accounts based in the Asia Pacific region, 23% with accounts in the Middle East, 15% with accounts in Africa and 1% in accounts based elsewhere.

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