The Securities and Exchange Commission (SEC), in line with its mandate to develop a fair, efficient, transparent and world-class capital market, has developed a 10-year Master Plan which covers Non-interest Capital Market (NICM) development in Nigeria. FMDQ OTC securities exchange, in conjunction with the SEC and other key market participants, will be working towards expanding the NICM’s contribution to the Nigerian capital market to at least 25% in the next ten (10) years, through product and market innovation.
The development of the non-interest capital market falls within FMDQ’s short-term strategic initiatives and it is believed that NICM will play a key role in national growth and development, as well as enhance global competitiveness of the Nigerian capital market. For instance, the emergence of Sukuk has been one of the most significant developments in some international capital markets in recent years. Sukuk instruments, simply put, act as a bridge, linking “non- interest finance” issuers with a wide pool of investors, many of whom are seeking to diversify their holdings beyond traditional asset classes. Funds raised through Sukuk can be allocated in an efficient and transparent way to infrastructure initiatives and other ‘Shari’ah- compliant/ethical’ projects.
Sukuk in general may be understood as Shari’ah-compliant bonds, given that they share the qualities of bonds. In its simplest form, Sukuk represent ownership of assets as they cannot be described as debts but as trusts in certain Shari’ah-compliant assets relating to particular projects or special investment activities. The claim embodied in Sukuk is not simply a claim to cash flow but an ownership claim. A Sukuk investor has a common share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the Sukuk.
Sukuk have, since 2000, become important Islamic financial instruments in raising funds for long- term project financing. The first Sukuk were issued by Malaysia in 2000, followed by Bahrain in 2001. Corporates and state governments have since then used Sukuk as an alternative source of raising finance, tapping into today’s appetite for ethical finance which has been growing in popularity.
The Sukuk structure is different to that of conventional bonds as the latter are interest bearing securities, whereas Sukuk are basically investment certificates consisting of undivided beneficial ownership claims in a pool of assets. Therefore, Sukuk holders are entitled to a share in the revenues generated by the Sukuk assets. The sale of Sukuk relates to the sale of a proportionate share in the asset. Investors in Sukuk lease back the assets over a specified period for a specified cost. This ‘rent’ replicates conventional interest on a fixed-income debt security.
The most common types of Sukuk are project-specific, asset-specific, and balance sheet-specific.
Project-Specific Sukuk: Under this category, money is raised through Sukuk for a specific project. The Qatar Global Sukuk, issued by the Government of Qatar in 2003 to mobilise resources for the construction of Hamad Medical City (HMC) in Doha, is an example of a project-specific Sukuk Asset-Specific Sukuk: Under this arrangement, the resources are mobilised by selling the beneficiary right of the assets to the investors. An example of an asset-specific Sukuk is the $250 million five-year Ijara Sukuk issued to fund the extension of the airport in Bahrain. In this case, the underlying asset was the airport land sold to a Special Purpose Vehicle (SPV) Balance Sheet-Specific Sukuk: An example of the balance sheet-specific use of Sukuk funds is the Islamic Development Bank (IDB) Sukuk issued in August 2003. The IDB mobilised these funds to finance various projects of their member countries. The IDB made its debut resource mobilisation from the international capital market by issuing $400 million five-year Sukuk which fell due for maturity in 2008
FMDQ as a securities exchange and self-regulatory organisation, is committed to driving growth and development through the implementation of its agenda to make the Nigerian capital markets globally competitive, operationally excellent, liquid and diverse.
Written by: FMDQ OTC Securities Exchange
