Nigeria: DMO Set To Issue N100 Billion Sukuk

Yemisi Izuora

This Securities and Exchange Commission (SEC) has notified the investing public that the Debt Management Office (DMO) has concluded arrangements to issue the maiden N100.0 Billion Sukuk in the Nigerian Capital Market. This is a major milestone for Nigeria as it will catalyze the development of non-interest capital market products.

The issuance of this Sukuk follows diligent advocacy efforts from the Securities and Exchange Commission (SEC) on the need to issue the instrument in order to serve as an alternative product for investors.

Sukuk, the non-interest equivalent of bonds, is becoming increasingly attractive as a preferred option for funding infrastructure development and indeed economic growth across the globe. Several countries across diverse continents have increasingly issued non-interest financial instruments to fund their infrastructure deficit. The trend is also fast gaining pace in Africa, with notable Sukuk issuances by South Africa, Senegal, and the Government of Cote d’Ivoire.

As the Federal and State Governments seek alternative funding sources for infrastructure, Sukuk is considered as a viable option.

In 2013, the SEC had issued Rules on Sukuk Issuance in Nigeria following which the State Government of Osun raised N11 Billion (about $50 Million) in Nigeria’s first Sukuk issuance which was oversubscribed.

In ensuring that the Nigerian Capital Market plays a significant role in the success of Nigeria’s maiden sovereign Sukuk issuance, the Securities and Exchange Commission (“SEC”), supported the Debt Management Office (“DMO”) specifically in the area of capacity building and participation at the Capital Market Committee’s sub-committee on non-interest products.

This journey has led to this historic proposed issuance of Nigeria’s N100 Billion, 7-year Sukuk, which would not only facilitate the mobilization and allocation of funds within the economy but would serve to position the country as a gateway for foreign and domestic investors. The issuance would also further deepen the Nigerian Capital Market by promoting financial inclusiveness while providing an additional asset class of tradable liquid instruments for investors.

We wish to commend the DMO for this laudable step while appreciating the Central Bank of Nigeria (CBN) for releasing guidelines on granting liquid asset status to Sukuk. The guidelines allow Sukuk instruments issued by State governments to be discounted at CBN discount windows and to be applied by banks in their liquidity ratio computation, similar to conventional State bonds. This will facilitate the emergence of a vibrant secondary market that will encourage more issuances from State governments.

Also, we commend the National Pension Commission (PENCOM) for approving the new pension regulation which has Sukuk as part of allowable instruments of investment. Thus, Sukuk Instruments issued by eligible state and local governments as an asset class, have now been included in the list of allowable instruments in which PFAs may invest pension Fund Assets under management. This was not mentioned in the 2012 Regulations.

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