Sudan eyes up to $1.5 billion with pipeline-backed sukuk

Sudan aims to raise $1 billion to $1.5 billion this year with Islamic "sukuk" bonds that offer stakes in an oil pipeline, a move the African country hopes will draw more Gulf Arab investment to its debt market, a senior official said on Monday. Sudan Financial Services Co, which issues Islamic bonds on behalf of the government, wants to offer the dollar-denominated sukuk within two months, General Manager Azhari Eltayeb Elfaki told Reuters.
The debt agency is also preparing to issue sukuk that will be repaid with profits from gold exports and which investors will be able to buy in foreign or local currency, he said. Sudan lost about three quarters of its oil output when South Sudan seceded in July, aggravating a foreign currency shortage, budget gap and high inflation in the north. Depreciation of the Sudanese pound on the black market has dampened demand for debt denominated in local currency, raising the appeal of debt issued in foreign currencies.
"Now, inshallah (God willing), we are going to make sukuk for the pipeline," Elfaki said in an interview, referring to an oil pipeline running from oil fields including Heglig to a Red Sea terminal at Port Sudan. "Now they (the finance ministry) are making the technical studies and the evaluation of the pipeline itself. I think they will finish it, inshallah, by the end of this month."
Elfaki said he expected the sukuk to draw mostly investors from Gulf Arab states like Saudi Arabia and would total $1 billion to $1.5 billion. "The value of the pipeline is not less than $3 billion, but we are not going to issue 3 billion ... I think we will issue 50 percent," he said. Islam forbids interest payments, so bonds are typically backed up by assets such as real estate or industrial projects sold and leased back to investors.
Sudan said in December 2010 it had reached a deal with oil companies to take a 70 percent stake in the pipeline. Analysts say the value of the pipeline could be affected if a row drags on with South Sudan over how much the new nation should pay to export its crude through the north. The dispute prompted Juba to shut down its entire oil output in January.