Osun Issues Nigeria’s First Sukuk Worth N10Bn

Osun State has issued a 10 billion naira sukuk yielding 14.75 percent, bankers said on Wednesday, the first Islamic bond from a major economy in sub-Saharan Africa.

The sukuk is based on an ijara structure, a common leasing arrangement in Islamic finance, which bans payment of interest.

The cocoa-producing, southwestern state of Osun received 11.4 billion naira in total subscriptions for its seven-year paper, from asset managers and Islamic funds, bankers said. The offer closed on Monday.

The yield offered was the same Osun State paid last year to sell a conventional seven-year bond worth 30 billion naira.

Sukuk have become an increasingly popular investment globally, particularly among cash-rich funds in the Gulf and SouthEast Asia.

Reuters reported that Nigeria’s profile as Africa’s most liquid debt market after South Africa has been rising since JP Morgan and Barclays included its bonds in their sovereign bond indices in the last year, encouraging greater foreign participation in its debt market.

Other African countries including South Africa, Kenya and Senegal have been laying plans to issue a sukuk and Gambia has been selling small amounts of Islamic debt for several years.

Local credit rating agency Agusto & Co gave an A rating to the sukuk, suggesting it will attract ample investor demand. Bankers said earlier that Osun hoped the issue, which is expected to be listed on the Nigerian Stock Exchange, would be bought by both local pension funds and international investors.

In March this year, Nigeria’s Securities and Exchange Commission approved new rules facilitating issues of sukuk.

About half of Nigeria’s 160 million people are Muslims, giving it sub-Saharan Africa’s largest Muslim population.