Carving a mark in history, Nigeria auctioned its first NGN10 billion (US$61.87 million) Sukuk Ijarah on the 10th October 2013. Issued by the government of Osun State, the seven-year Sukuk is due for maturity in the year 2020 at profit rate of 14.75%. The issuance witnessed an oversubscription of NGN1.4 billion (US$8.66 million) and was increased to a final amount of NGN11.4 billion (US$70.65 million), bearing testament to the healthy appetite for alternative financing structures in Nigeria. Aimed at soft infrastructure and educational projects, the proceeds therefrom will be used for the construction of 27 schools across the state, comprising of 23 high schools, two middle schools and two elementary schools.
news, Lotus Capital, the lead manager and principal advisor for the issuance, revealed that amongst the challenges faced in constructing the deal were the lack of a solid regulatory framework, limited exposure or understanding of Sukuk by institutional investors in terms of its structural principles and the technical differences with conventional bonds as well as the misconception of cultural and religious stigma affiliated to Islamic finance.
Measures taken to resolve these hurdles include media-related initiatives educating Nigerians on Islamic finance such as presentations in organized seminars and television broadcasting. The arrangers also took the effort of working closely with relevant regulators for the establishment and standardization of policies for Sukuk issuances. On top of that, the Sukuk structure was also approved by the Financial Regulation Advisory Council of Experts, a council set up by the Central Bank of Nigeria to ensure that products and services offered by the non-interest financial institutions in Nigeria satisfy the requirements for compliance.
Being the first Sukuk issued in Nigeria, the team was very cautious in selecting the appropriate structure for the transaction. Lotus explained that the Ijarah structure was selected due to its simplistic features in terms of flexibility, tradability and suitability in funding construction projects. A majority of the certificates were taken up by local banks, fund managers, insurance companies and high net-worth individuals. Assigned an ‘A’ rating by local rating agency, Agusto & Company, the issuance represents the second tranche of Osun State’s NGN60 billion (US$371.22 million) debt-raising program which commenced last year. —
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