Last week, the state of Osun in Nigeria issued a NGN10 billion (US$61.77 million) Sukuk, at the same time debuting Sukuk to the Nigerian capital markets. Nigeria has come to the fore in recent years as one of the more progressive African countries in terms of Islamic finance after South Africa. In December 2010, the Central Bank of Nigeria allowed for the establishment of Islamic windows or branches by conventional banks and financial institutions, and further to that, regulations and guidelines for institutions offering non-interest financial services in Nigeria were issued in June 2011.
On the 28th February of this year, the Securities and Exchange Commission of Nigeria released rules for the issuance of Sukuk in Nigeria for SEC-regulated local and foreign entities looking to issue Islamic paper. The rules are applicable to both naira-denominated and foreign currency issuances.
The state of Osun, which has a population of approximately 3.5 million and whose main industry is agriculture, is not a Muslim-majority state by any means. According to a recent census, there is a healthy mix of Christian, Muslim and traditional religion practitioners in the state, and its median household income stands at US$50,614.
The ‘A’-rated Sukuk was issued by the Osun Sukuk Company and supported by Nigeria-based Lotus Capital as its lead bookrunner, and other companies including Chapel Hill Advisory Partners, FBN Capital, Greenwich Trust, Stanbic IBTC, Fidelity Securities and Zenith Securities among others. According to the deal’s prospectus, one of the most prevalent risks on the Sukuk is environmental risks; seeing that most of the income derived from Osun is from its agriculture industry. In order to mitigate this, the deal’s issuers have ensured that the primary source of repayment of the Sukuk is the monthly deduction through an Irrevocable Standing Payment Order from the Statutory Allocation of the State, and that all financial obligations are adequately covered.
All projects have also undergone an Environmental Impact Assessment, and while negative impact has been identified, necessary measures have been put in place to allay any unforeseen natural disasters. In terms of credit risk, the state is said to have serviced all its past financial obligations without default. The paper was sold to qualified institutional buyers and high-net worth individuals who comply with the SEC Rules & Regulations 78 (c)(2).
The issuance is expected to drive the Nigerian Islamic capital markets forward, and is seen to be encouraging to foreign institutions looking to set up in the continent of Africa. — NH