Nigeria Commences Sale of N100Bn Debut Sovereign Sukuk

Nigeria has started the sale of a N100 billion ($326 million) debut sovereign sukuk on the local market to fund road infrastructure, the Debt Management Office (DMO) said on yesterday.

The seven-year Islamic bond which is structured as a lease will yield a 16.47 percent rental rate, payable semi-annually. Subscription for the bond, which is guaranteed by the government, will close on Sept 20.

The debut sukuk was originally planned to go on sale in June for three days via book building.

Africa’s biggest economy has a series of debt issues lined up this year, including a 20 billion naira in “green bond”. The West African country raised $1.5 billion Eurobond in the first quarter and sold another $300 million to its Diaspora.

Nigeria plans to borrow both locally and from offshore sources to help fund a budget deficit worsened by lower oil prices which have slashed government revenues and weakened its naira currency.

The country grew out of recession in the second quarter as oil revenues rose, but the pace of growth was slow, suggesting a fragile recovery.

The planned sukuk issue will target retail and institutional investors, with First Bank and Islamic wealth manager Lotus Capital managing the sale.

Nigeria is home to the largest Islamic population in sub-Saharan Africa, with about half of its 180 million people Muslims. It is also home to one of Africa’s growing consumer and corporate banking sectors.

The DMO said the bond will be tradable on the Nigerian Stock Exchange and on FMDQ over-the-counter platform and that it may re-open the offer in case of an undersubcription.

The Islamic bond sale is part of plans to develop alternative funding sources for government and to establish a benchmark curve for corporates to follow, the DMO has said.

In 2013, Nigeria’s Osun State issued N10 billion worth of sukuk, but no other sukuk transactions followed.

Central bank has been working to set regulatory ground rules for such things as Islamic bonds (sukuk) and insurance (takaful) to try to emulate the success of the industry in Malaysia.

The bank has set up liquidity support systems to its non-interest lenders after it issued guidelines last year to enhance the quality of sukuk instruments and grant the Islamic bond liquidity status at its discount window.