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Osun state issues islamic bond to investors

By on September 24, 2013
Governor Aregbesola

Governor Aregbesola

Osun State has taken a major step towards developing an Islamic finance industry in Nigeria by offering the country’s first Islamic bond to investors.

The issue makes Nigeria the first big economy in sub-Saharan Africa to market a ‘sukuk’, although Gambia has been selling small amounts of Islamic bonds for several years.

Other African countries including South Africa, Kenya and Senegal have been laying plans to issue ‘sukuk’ seeking to tap into growing global demand for Islamic debt, particularly among cash-rich Islamic funds in the Gulf and Southeast Asia.

Osun’s issue of up to N10 billion of seven-year sukuk, denominated in local currency, will pay investors a fixed return of between 14.25 and 14.75 percent, according to a prospectus seen by Reuters.

It was gathered that the offer will close at the end of this month.

The ‘sukuk’ is based on an ‘ijara structure’, a common leasing arrangement in Islamic finance, which bans the payment of interest.

Local credit rating agency, Agusto & Co., gave an A rating to the ‘sukuk’, suggesting it will attract ample investor demand.

It is hoped that the issue, which is expected to be listed on the Nigerian Stock Exchange, NSE, would be bought by local pension funds and international investors.

In March this year, the Securities and Exchange Commission, SEC, approved new rules facilitating issues of ‘sukuk’.

About half of Nigeria’s 160 million people are Muslims, giving it sub-Saharan Africa’s largest Muslim population.

The cocoa-producing, South Western state of Osun has a population of about 3.5 million people and the proceeds of the ‘sukuk’ will be used to build schools, the prospectus said.