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Sudan raises funds in first Islamic bond sale

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January 9, 2008 (MANAMA, Bahrain) — Sudan is raising as much as 100 million euros ($147 million) from the sale of Islamic bonds in the African nation’s first issue of the securities.

The so-called sukuk mature in 2010, Bahrain’s Manama-based central bank said in its monthly capital-market review, sent by e-mail today. Sudan has set-up the Sudan Salam Sukuk Co., a special-purpose vehicle in Bahrain, for the sale of the bonds, according to the review.

Middle East borrowers have largely sidestepped the turmoil in global credit markets triggered by the collapse of the U.S. subprime home-loan market, raising $17.9 billion of Islamic securities in 2007, 75 percent more than the previous year. Global Islamic sales jumped 70 percent last year to a record $30.8 billion, according to data compiled by Bloomberg.

"An Islamic-compliant issue, backed by oil in some way, would appeal to an emerging Middle-Eastern investor base,’’ said Stuart Culverhouse, chief economist at Exotix Ltd., a London broker of developing-nation debt. "Any issue would likely have been placed among a tight grouping of investors.’’

Sudan is looking to investors in the Gulf to raise funds after U.S. President George W. Bush imposed economic sanctions in May in an attempt to force President Omer al-Bashir’s government to stop what the U.S. has described as genocide in Darfur. A 4 1/2-year civil war in the country has forced more than 2 million people to flee their homes, according to the United Nations. As many as 250,000 people have died.

INCREASED OIL OUTPUT

Sudan was the third-biggest oil producer in sub-Saharan Africa last year, after Nigeria and Angola. The country may increase output to an average 565,000 barrels a day this year, the International Monetary Fund said Oct. 11, 13 percent more than in 2007.

Bahrain’s Liquidity Management Centre BSC and the Riyadh, Saudi Arabia-based Arab Investment Co., the bond-sale arrangers, declined to comment on whether the transaction had been completed. The central bank report didn’t give any timing for the issue.

The funds raised will be used by Sudan to "enhance oil production and meet oil-related operating costs,’’ the review said. The debt will be "backed by a commodity, in this case oil,’’ said Ali Salman Thamer, the central bank’s director of capital markets supervision.

Sudan’s central bank and the finance ministry guaranteed the securities. No one answered the phone when Bloomberg called the switchboard number of the Central Bank of Sudan headquarters in Khartoum today.

INVESTMENT BAN

Bush signed legislation on Dec. 31 to let local governments bar the investment of state assets in companies with ties to Sudan. Twenty-two states, among them California and New York, passed laws to require or allow pension funds to divest from companies, such as PetroChina Co., that have business ties to Sudan.

Ahmed Abbas, Chief Executive Officer of Liquidity Management, and Suleiman Walhad, Arab Investment’s senior manager for Islamic banking, declined to comment when contacted in Bahrain today.

Sudan’s economy may expand about 11 percent for the third straight year, the International Monetary Fund said in an October report. The IMF estimated that the economy grew 11.8 percent in 2006. Gulf investors have started banks and real estate projects in Sudan, facing Saudi Arabia across the Red Sea, in expectation of the African nation’s economic resurgence.

INTEREST BAN

Berber Cement Co., a Sudan-based maker of building materials, raised $130 million from seven-year Islamic bonds in November. Liquidity Management helped in the sale.

Islamic law bans the payment and receipt of interest, prohibits investment in businesses such as gambling and alcohol, and stresses profit-sharing.

State-backed Qatari Diar Real Estate Investment Co. in 2006 said it bought a plot near Sudan’s presidential palace in Khartoum to build a five-star hotel, villas, apartments and offices. Last year, Global Investment House KSCC, Kuwait’s biggest investment bank, also said it bought a Sudanese financial-services company to benefit from the nation’s "considerable potential growth.’’

Sudan doesn’t have a credit rating at Moody’s Investors Service or Standard & Poor’s.

(Bloomberg)

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