Tanzania’s Sukuk market may be nascent, but an educational institution has tapped the asset class to raise funds for a healthcare center, making it the first in the country to utilize Sukuk proceeds for sustainability-related projects.
The Islamic issuance marked several milestones for Tanzania: it is the first to have been structured to meet UN SDG goals, it is the first non-financial institution Sukuk, and it is the first asset-backed Sukuk offering.
“The Sukuk bond is an asset-backed one having an SPV, thus seen as a departure from SPV-less Sukuk bonds issued by financial institutions that have dominated the Tanzanian Sukuk bond market since 2021,” according to Sheikh Mohamed Issa, the chairman of Yusra Sukuk Company, the deal’s lead arranger and advisor.
At TZS1.2 billion (US$461,034), the issuance is relatively small compared with previous Tanzanian Sukuk offerings. There have been 10 others (by Imaan Finance, KCB Bank Tanzania and Amana Bank) and they ranged between TZS5—11 billion (US$1.92—4.22 million).
The size was the reason why the issuer, Premier Girls Secondary School, went on the private placement route.
“Due to its small volume, making a public offer would be unnecessary and it would have attracted more issuance costs, including more regulatory costs in the secondary market. as many more Sukuk parties would have been involved,” Sheikh Mohamed explained to IFN Sustainable.
Proceeds from the issuance will be channeled toward supporting the school’s healthcare center project which will serve its pupils and members of the surrounding community. This meets UN SDG number three of ensuring healthy lives and promoting the wellbeing for all at all ages.
Backed by landed property, the unrated five-year paper was structured using Wakalah Bil Istithmar instead of the popular Ijarah concept.
“We considered [an] Ijarah Sukuk structure, but the Sukuk underlying assets were not enough to form Ijarah assets to back up the Sukuk,” he said.
Understandably, there were several challenges faced by the first-time issuer. Most unsurprisingly is the lack of understanding about the instrument by the transaction parties.
From a product structuring perspective, adhering to the 51% tangible assets minimum as required by AAOIFI Shariah Standard No 59 was arduous. At a pragmatic level, the issuer had to bear a 21% increase in cost due to perceived risks associated with a non-public-listed firm and an unrated paper. This is despite the Sukuk deal being guaranteed by ZIC Takaful Company.
|
Premier Sukuk Bond TZS 1.2 billion  Issuance date: 25th March 2024 Maturity date: 1st May 2029 |
|
| Summary of terms and conditions | |
|
Issuer |
Premier Sukuk Company |
|
Obligor |
Premier Girls Secondary School |
|
Size of issue |
TZS1.2 billion (US$461,034) |
|
Mode of issue |
Private placement |
|
Purpose |
Financing school’s healthcare center project to serve students and community |
|
Tenor |
Five years |
|
Profit rate |
8.75% per annum |
|
Payment |
Six-monthly |
|
Currency |
Tanzanian shilling |
|
Maturity date |
1st May 2029 |
|
Lead manager and principal advisor |
Yusra Sukuk Company |
|
Bookrunner(s) |
People’s Bank of Zanzibar-Ikhlas |
|
Governing law |
Tanzanian law |
|
Legal advisor |
BM Attorney |
|
Reporting accountant |
BDO-Tanzania |
|
Listing |
Not Applicable |
|
Underlying asset |
Landed property |
|
Rating |
None |
|
Shariah advisor(s) |
Yusra Sukuk Shariah Advisory Council |
|
Structure |
Wakalah Bil Istithmar
|
|
Tradability |
Tradable in primary market |
|
Face value/minimum investment |
TZS10 million (US$ 3,838.42) |