Africa Finance Corporation (AFC) carried out its first Sukuk and the highest ever issuance from an African institution in early 2017. The US$150 million transaction was the first ever US dollar Sukuk to be issued by a multilateral African institution and to use the Nasdaq Dubai Murabaha platform to do so.
This represents a milestone in the AFC’s financing activities and cross-border investments between Africa and the Middle East. Many will be hoping it leads to a busier financial future for the two regions and such a large investment is bound to affect the Dubai forex market in a few ways.
What is a Sukuk?
A sukuk is an Islamic financial certificate, most similar to a bond, that complies with Sharia law. This works by the sukuk issuer selling the financial certificate to an investor group and using the proceeds to purchase an asset, which the group has partial ownership. The issuer also makes a contracted promise to buy back the bond at a designated future date.
The first ever sukuk was issued in 2000 and since then they have grown in popularity, especially for Islamic businesses and state-run organisations. They have increased their presence and share within the worldwide bond market significantly.
AFC’s First Sukuk Transactions
AFC’s US$150 million transaction was their second in Islamic finance, after first entering in 2015. Then the corporation accepted a US$50 million 15-year line of financing from the Islamic Development Bank (IDB). This is to be used to help finance Islamic compliant projects across many of its member nations.
The recent US$150 million financing transaction on the Murabaha platform of Nasdaq Dubai was the first to use this platform by an African entity. It began with an initial target of US$100 million that was then more than twice oversubscribed and upsized to US$150 million.
Speaking about the transaction, Banji Fehintola, Corporate Treasurer of AFC said: “Nasdaq Dubai’s pioneering Murabaha platform greatly facilitated the issuance of our Sukuk. It supported the strong demand that we received from global as well as regional investors and enabled us to upsize the proposed issuance size to its eventual 150 million US dollars. The platform enabled us to execute our Murabaha transactions swiftly and efficiently in a manner that was highly cost effective and provided us with Sharia’a-compliance certainty.”
Improve Africa/Middle East Trading Ties
This first sukuk to be issued by any African institution is good news for improving and increasing financial trade between African and Middle East nations. For Dubai forex traders, this is positive as well, as it will increase the money flow in and out of the country and potentially boost the dirham (AED).
If the transaction proves advantageous then it could encourage more multilateral African institutions to invest in financial instruments in the Middle East and vice versa. For Dubai businesses, investors and more, this could make it easier to expand in new markets as well as attract fresh investment from previously untapped sources. Again, this could see the dirham fluctuate in value more and provide many opportunities for forex traders.
Boost the Nasdaq Dubai Murabaha Platform
Transactions totalling more than AED 21 billion have already been processed on Nasdaq Dubai Murabaha platform and this revolutionary investment from AFC could provide an added boost to it. The US$150 million transaction may pale in comparison to some others, but it could open the floodgates for more corporations, especially from Africa, to use the platform.
It has been growing steadily since its launch in April 2014 and played a big role in Dubai’s growth. Further transactions will also help increase the value of Dubai’s economy and currency, affecting the forex markets in a mostly positive manner.