KHARTOUM, Sept 5 (Reuters) - Over a cup of tea, Sudanese
broker Hamid is explaining to a Yemeni bourse investor that he
won't be able to get his hands on the returns he is owed after
many years of investing in the African country's Islamic bonds.
Hamid offers just one legal route for foreigners who want to
get out of the Khartoum bourse and reduce their exposure to the
country's economic chaos: reinvest the dividends paid out in
local currency, into real estate for example, and wait for
better times to take your money home.
"Foreigners are stuck. You can't convert bond payments into
dollars legally. You need to find other ways, maybe reinvest,"
Hamid tells the visitor in his office next to the trading hall.
That may largely explain why brokers say few Gulf investors
have been trying to pull their money out of the small bourse
where shahamas - short-term Islamic bonds - account for 90
percent of trading.
But there is also some evidence that investors from Saudi
Arabia and other oil-producing Gulf countries have not given up
on Sudan, despite the country's loss of three-quarters of its
oil production when South Sudan became independent in July 2011.
With Islamic bonds guaranteed by the central bank, almost 2
million sukuks were traded in the first five months, compared
with 1.2 million in the same period a year ago - and around 20
percent of shahamas are held by foreign investors, according to
bourse estimates.
Desperate to raise money, the government and state firms
have increased their annual bond returns to up to 22 percent,
from 14 percent a year ago.
"In the Gulf you are lucky to get 5 percent so, if you are
willing to take risks, Sudan could be the right place," said
Jarmo Kotilaine, chief economist at Saudi lender National
Commercial Bank.
Gulf investors tend to accept the many risks in Sudan
because they have known the country a long time, he said.
Lured by double-digit yields, investors from the Gulf in
particular bought into government bonds when Sudan was awash
with oil revenues that also fed a construction boom in Khartoum.
Since South Sudan's independence, Sudan has been strapped
for cash: oil was the main source not just of revenues but also
of dollars.
To preserve money for food imports, the central bank has
made it almost impossible to convert shares or bonds denominated
in pounds into dollars for transfer abroad.
Broker Hamid said it was complicated to send gains from
bonds or shares abroad by changing pounds into dollars on the
black market, but it was still worth it. Authorities turn a
blind eye to avoid upsetting foreign investors.
"Some investors ask me to go to the black market to get
dollars for their investments so they can get their bond
payments," said Hamid, who does not want his full name mentioned
because some of his advice may not be legal.
"Investors won't get 20 percent in the end but I can
guarantee at least 7 percent. That's better than most other
markets and many are happy with it."
While the Yemeni investor decided in the end to use his
sukuk gains to buy a land plot by the Nile in Khartoum, other
foreigners are buying gold with their gains, brokers say.
Sudan is boosting its gold production to replace the loss of
oil. Much of the output comes from artisan diggers who offer it
openly on the Khartoum gold market.
GULF BANKS
With Sudan under U.S. trade sanctions since 1997, because of
its past role in hosting militant Islamists such as Osama bin
Laden, Western banks shun the African country which is rich in
minerals and fertile land.
But investors from Gulf countries have been very active here
since the 1980s.
The Khartoum bourse is located on a floor of Saudi Islamic
lender Al Baraka Banking Group. Just down the street lies Bank
of Khartoum, which is owned by Dubai Islamic Bank.
Qatar National Bank (QNB) is also in town.
After years of construction-fuelled lending, the foreign
banks now wrestle with sluggish retail demand, spiralling
inflation and restrictions on dollar transfers.
Bank of Khartoum, the biggest privately owned bank, has
stopped arranging corporate bonds due to high default risks.
Even so, it plans to open 15 new branches across Sudan this
year.
The Sudan pound's sharp decline has provided some lenders
with windfall foreign exchange gains, bankers say. B ank lending
totalled 21.5 billion pounds ($4.7 billion) in June, similar to
previous months, according to the latest central bank data.
The stock market has succeeded in boosted trading, with the
help of Oman, by launching a computer-based trading system in
January, ending the era of scribbling prices on white boards.
The bourse's total trading volume rose to 1.24 billion
pounds in January-May, compared to 0.8 billion pounds a year
earlier. At least nine new firms have listed their shares since
January.
"This is the result of the new system because deals can be
done more efficiently and transparently," said Abdelrahman
Abdelmajeed Nadir, the exchange's deputy head.
But hopes that the computerised bourse would give foreigners
better access have yet to be realised. Traders say the system
has not been connected yet to banks, brokers and the central
bank. Dealers sign off deals on papers after the daily one-hour
session.
And the central display screen broke down after just a few
months, a common sight in Sudan where technology spare parts are
scarce due to the U.S. embargo and dollar shortages.
"There is no online trading yet," said the director of a
large brokerage, asking not to be named. "The system is only
linked to desktops in the hall. It's like you put a calculator
in a room and call it an electronic bourse."
Only two cross-listings with Dubai and Abu Dhabi exist on
the bourse which has a market value of 8.1 billion pounds ($1.8
billion), a fraction of Dubai Financial Market's $29 billion.
UK fund investor Silk Invest has decided for now against
bond and share investments. "There is a lot of local Islamic
issuance ... The coupon is attractive enough but it is
denominated in local pounds and foreign exchange is
problematic," said Chief Investment Officer Daniel Broby.
For ordinary Sudanese, buying shahamas is the only way to
minimise the impact of inflation of 41.6 percent, triple the 15
percent in June 2011, the last data before southern secession.
"It pays 19 percent return so this is not good but better
than nothing," said Salma, who works in the financial industry.
($1=4.6 Sudan pounds)
(Reporting by Ulf Laessing; Editing by Ruth Pitchford)