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Nigeria plans to issue Islamic sovereign bonds in 2016

20 Jan 2016, 05:38 pm
Chibuike Oguh
Nigeria plans to issue Islamic sovereign bonds in 2016

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- The issuances will support the federal government’s plans to fund the N2.22 trillion 2016 budget deficit.

- Osun state issued the first sukuk in Nigeria in 2013, raising N11.4 billion.

Mounir Gwarzo, Director-General, Securities and Exchange Commission and other SEC officials

The Director-General of Nigeria’s Securities and Exchange Commission (SEC) and his counterpart at the Debt Management Office (DMO) have agreed to work together to issue Nigeria’s first sukuk, or Islamic bond, in 2016.

The issuances will support the federal government’s plans to raise N984 billion in domestic borrowing and N900 billion from the foreign debt market to fund the N2.22 trillion deficit in the N6.08 trillion 2016 budget that has been proposed by President Muhammadu Buhari.

Sukuks are non-interest, Sharia-compliant bonds. They are Islamic financial instruments for raising long-term financing, without yielding interest for the sukuk holders. A sukuk holder is only entitled to a share in the revenues generated by the project or asset tied to the sukuk. The global sukuk market reached a record $300 billion in 2014 with sovereign issuances accounting for almost 80 percent of total issuances in the same year.

In a press statement released on Tuesday, Mounir Gwarzo, the Director-General of SEC, and Abraham Nwankwo, the Director-General of the DMO, said their institutions would collaborate to deepen Nigeria’s non-interest bond market as the country faces declining oil prices, falling government revenues, and fragile growth from major emerging markets like China.

“Particularly, issuing a sovereign sukuk will attract significant amounts of affordable capital from the Gulf countries and other established Islamic markets around the world into Nigeria,” the statement said.

In 2013, Osun state issued the first sukuk in Nigeria, raising N11.4 billion.

“While engagements are ongoing to enlighten other state governments to raise funds needed for development by issuing sukuk, an issuance of a sovereign sukuk by the Federal government will help to provide a benchmark for such issuances and spur further interest from other categories of issuers,” the statement said.

Despite having the largest population of Muslims in Sub Saharan Africa, Nigeria has been lagging behind in Islamic finance. In December, Ivory Coast issued the largest sukuk in West Africa, raising $244 million with a tenor of five years.

Chibuike Oguh is Financial Nigeria's Frontier Markets Analyst


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