SEC approves N100bn sovereign Sukuk offering

Securities and Exchange Commission (SEC) Wednesday announced its approval of the first sovereign Sukuk to be issued by Debt Management Office (DMO).

It described the development as a major milestone for Nigeria as it will catalyze the development of non-interest capital market products.”

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, according to a statement from SEC.

It observed that 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 Cote d’Ivoire.

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

In ensuring that the capital market plays a significant role in the success of the maiden sovereign Sukuk issuance, SEC supported the Debt Management Office (DMO) to build capacity and participate 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 mobilisation 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 market by promoting financial inclusiveness while providing an additional asset class of tradable liquid instruments for investors.

While commending DMO for this laudable step, SEC expressed appreciation to 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 eligible for 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 pension fund administrators (PFAs) may invest pension fund assets under management which was not mentioned in the 2012 Regulations.