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Dissecting the FGN’s N100bn Sukuk (Bond) Offering

Proshare

Tuesday, September 19, 2017 9:35AM / United Capital

Last week, the Nigerian government via FGN Roads Sukuk Company 1 Plc issued a 7-Year N100bn Sukuk (bond). Sukuk or Islamic Bond is a financial instrument structured to generate returns to ethical investors without infringing on the Islamic law which forbids interest payments.

The maiden N100bn Sukuk is offered at N1,000/unit (minimum of N10,000 or 10 units) like a regular bond but represents an ownership interest in the asset to be financed rather than a debt obligation.

As such, participants will be paid a semi-annual, tax-free rental income (not coupons) of 16.47% on a pro-rata basis. The issuance is open to all investors but specifically offers ethical investors an opportunity to partner with the FGN to fund the developmental projects. Some of the roads to be funded by the bond include the Ibadan-Ilorin Rd, Kolo-Otuoke-Bayelsa-Palm Rd, Enugu-P/Harcourt Rd, Kaduna Eastern By-Pass, Kano-Maiduguri Rd. and Loko-Oweto Bridge over River Benue. Amid a fast growing global sukuk market, this issuance increases the popularity of Sukuk as an alternative funding source on the African Continent. Kenya, South Africa, Sudan, Niger, Cote d’Ivoire, and Togo hav e all issued Sukuk. The FGN has so far in 2017 issued $1.5bn Eurobonds, $300mn worth of Diaspora Bonds and monthly Savings Bonds in a bid to plug budget deficits.




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