The National Treasury of South Africa has issued debut $500m Islamic bond in the international capital markets.

This issue, which was more than four times oversubscribed in the primary market, is part of South Africa’s drive to broaden its investor base.

David Munro, CEO for CIB, Standard Bank, which acted as joint lead manager on the issue, said: “This deal is evidence that Africa is at the forefront of financial innovation. The sukuk from the National Treasury is a key milestone not only for South Africa but it sets a precedent for similar deals from the rest of Sub-Saharan Africa.”

“We see Islamic finance as a growth opportunity for Africa and are committed to helping our clients access funding from Islamic investors," he added.

The 5.75-year bond is the largest Sukuk issuance from Sub-Saharan Africa and only the third Sukuk to be issued by a non-Islamic country.

The sukuk will be used to fund South Africa’s National Revenue Fund.

It also creates a benchmark for the market which will assist state-owned companies to access diversified sources of funding from Islamic investors.

The sukuk is based on the al-ijara principle, the sale and leaseback of Shari’ah compliant assets, a structure widely accepted by both Islamic and conventional investors.

The Islamic finance industry has seen significant development driven by investor demand.

The sukuk market in particular has grown on the back of high levels of surplus savings in Asia and the Gulf Cooperation Council (GCC) countries, leading to investors seeking out Shari’ah compliant products.

This is also buoyed by growing wealth within the Islamic world, further enhanced by greater understanding of Sukuk instruments and clarity of documentation, as well as credit ratings from international agencies.

Megan McDonald, Global Head of Debt Primary Markets at Standard Bank, said: “There is evidence of continued growth in demand for Islamic assets by both Islamic and conventional investors, particularly as sukuk instruments have become better understood and with the introduction of credit ratings.

“We are proud to have played an integral part in assisting the National Treasury of South Africa with this landmark transaction that will help pave the way for future Sukuk issuance in Africa,” she said.