The deepening of the nation’s capital market and promotion of financial inclusion got a boost last week Tuesday April 10 with the listing of N100 billion Ijarah Sukuk on the floor of the Nigerian Stock Exchange (NSE) and FMDQ by the Debt Management Office (DMO). The move is seen by analysts as a way to bring on board ethical investors without infringing on the Islamic law which frowns at interest payment.
The N100 billion 7-year Federal Government Ijarah Sukuk has a rental rate of 16.47 percent. The proceeds will be used to further support the construction and rehabilitation of 25 roads in the six geopolitical zones in Nigeria. And according to the earlier press release by federal government ministries, each of the 6 geopolitical zones got N16.67 for road construction and rehabilitation. Five roads were selected in the north central region; 4 each in the north east and north west; 4 in the south east, 5 in the south-south and 3 in the south west.
“The Sukuk will encourage financial inclusion by providing an avenue for non-interest investors to participate in the fixed income market. In addition, the Sukuk provides an opportunity to further develop the savings culture in Nigeria, particularly among individuals and other retail investors”, Patience Oniha, Director General, the Debt Management Office (DMO), said.
“Today’s listing has strong implications for emerging and frontier markets which continually seek to unlock dormant pools of capital needed for economic growth and development, particularly as these economies have larger infrastructural deficits and relatively stronger demographics in favour of Islamic Finance, than developed markets”, Oscar Onyema, CEO NSE said at the occasion.
While the essence of the listing is to enhance liquidity and transparency, an analyst is of the opinion that liquidity objective may not be achieved now considering that interest rates have fallen.
“The essence of the listing is to boost the liquidity of the instrument and enhance transparency. But we are of the opinion that investors will hold on to the Sukuk till maturity due to fall in interest rates”, Kayode Tinuoye, head research department at the United Capital, said.
According to S & P Global Ratings, Sukuk issuance in 2017 rose by 45.3 percent to $97.9 billion up from $67.4 billion in 2016. The upsurge was driven by liquidity positions of the countries in the Gulf as production cut agreed by the Organisation of Petroleum Exporting Countries (OPEC) in coordination with Russia, ensured that the prices of crude oil at the international market sustain its upward trend. Forty-six percent of the Sukuk primary investors are from the Middle East, 18 percent from Europe, 10 percent from the United States, 25 percent from Asia while the balance are from other countries.
“Jumbo local and foreign currency issuance by some GCC countries drove the Sukuk market higher in 2017. Of specific note, the $9 billion Sukuk issued by Saudi Arabia was the largest issued globally to date. The market also continued to attract some Islamic finance non-core countries, with Hong Kong tapping the market for the third time and the first issuance of a Sukuk in Nigeria.
“We expect this trend to continue as Morocco and Tunisia plan to tap the market in 2018 and the U.K. announced its intention to go to the market again in 2019 upon the maturity of the Sukuk it issued in 2014”, S & P Global Ratings said through a report on the Sukuk Market Outlook for 2018.
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