Nigeria positions N100b sukuk as gateway for investors

Nwankwo quits DMO

The Securities and Exchange Commission (SEC), on Tuesday, announced that the proposed issuance of Nigeria’s N100billion, 7-year Sukuk, would not only facilitate the mobilisation and allocation of funds within the economy, but would also serve to position the country as a gateway for foreign and domestic investors.

SEC, in a statement explained that the sukuk, which would help deepen the market, is sequel to its strong advocacy efforts to provide an additional asset class of tradable liquid instruments for investors in the Nigerian capital market.

Sukuk is an Islamic bond, structured in such a way as to generate returns to investors without infringing Islamic law that prohibits riba or interest. Sukuk is said to be ‘Shariah compliant’ because it eliminates the interest elements that are associated with a conventional bond.

“In 2013, the SEC issued Rules on Sukuk Issuance in Nigeria following which the State Government of Osun raised N11 billion (about $50 million) in the country’s first 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 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.
Meanwhile, Abraham Nwankwo, who became Director-General of DMO in 2007, will be leaving office at the end of June 2017.

Addressing stockbrokers on the NSE, in Lagos on Wednesday, Nwankwo said; ‘I want to appreciate market operators for the very successful joint enterprises we have had together. We had quite a number of initiatives and it all succeeded because of the corporation of the capital market operators. 

“Having spent 10 years in office, the major achievements we made were due to the effort of the staff of management of DMO. I want to use this opportunity to thank you immensely that the NSE and the dealing members have considered it appropriate to honour my exit as the chief executive of DMO.

“The DMO remains resilience; initiatives and the teams are so great that Nigerians should expect even greater days ahead. I am leaving behind a very strong public Debt Management Office to be reckon with in Africa.

“We would continue to open new windows so that we give options to the government, private sector, investors and we make sure that all segment of economy. So the Sukuk will be coming any time from now, we are at the advance state and all arrangement has been concluded .The Nigeria first sovereign Sukuk bond will be issued very soon,” he said.

Furthermore, SEC commended the DMO for the maiden N100 billion Sukuk, noting that it is a major milestone for Nigeria, as it will catalyse the development of non-interest capital market products.

It explained that 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.

It explained that several countries across diverse continents have increasingly issued non-interest financial instruments to fund their infrastructure deficit, even as the trend is also fast gaining pace in Africa, with notable Sukuk issuances by South Africa, Senegal, and Cote d’Ivoire.

“As the Federal and State Governments seek alternative funding sources for infrastructure, Sukuk is considered as a viable option.”The SEC circular 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, the statement commends 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.