Written Robert Brand | From Bloomberg

South Africa plans to sell its debut international sukuk this year and introduce two new long-term domestic bonds as the nation diversifies its debt portfolio to reduce refinancing risks, the National Treasury said.

The Treasury will continue its program of exchanging short-term debt for longer-maturity securities, known as switch auctions, and may also tap export-credit agencies to finance projects with large foreign exchange commitments, the Treasury said in the 2014 Budget Review submitted to lawmakers in Cape Town today.

South Africa has to refinance 154.9 billion rand ($14.4 billion) of debt over the next three years at a time when bond yields are rising as the Federal Reserve tapers monetary stimulus and emerging-market central banks raise interest rates to protect their currencies and combat inflation. Total debt will climb more than projected in the mid-term budget in October, peaking in 2017 at 48.3 percent of gross domestic product, as higher yields boost borrowing costs, the Treasury said.

“South Africa’s borrowing strategy is sufficiently responsive to withstand long-term adjustments in global and domestic capital allocations and short-term market shocks,” the Treasury said. “Debt levels remain sustainable. South Africa’s debt has a long maturity structure and its exposure to foreign-currency liabilities remains slow, reducing the impact of global volatility.”

The government has appointed banks and is close to finalizing the regulatory framework for the planned $500 million sukuk, said Thuto Shomang, head of assets and liabilities at the Treasury. The issue is intended to set a benchmark for state-owned companies, including power utility Eskom Holdings SOC Ltd., to tap Islamic markets, he said.

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