Nigeria may issue first non-interest sovereign bond this year

There are indications that Nigeria’s government may issue the country’s first sovereign Islamic bonds (sukuk) in the second half of the year.

The move could spur wider issuance of sukuk in one of Africa’s most liquid debt markets, following similar sovereign deals from Senegal and Ivory Coast.

The new development is also expected to widen the domestic debt market.

A multi-agency committee that would work out the modalities for the maiden sovereign non-interest bond has been set up. The committee includes the Debt Management Office (DMO), Securities and Exchange Commission (SEC), Central Bank of Nigeria (CBN) and Infrastructure Concession and Regulatory Agency (ICRA) among others.

The timeline for the issuance of the bond may be in the third quarter, which will then lead to the flotation of the pioneer issuance.

Nigeria is working on a sovereign #sukuk w/details expected within the year https://t.co/LBqgBpfEyB #IslamicFinance pic.twitter.com/9HA1XAHvnm

— Salaam Gateway (@SalaamGateway) May 19, 2016

The non-interest bond, also known as Sukuk bond, makes a return to the investors through sharing of profits or cash flow from the underlying assets with them in addition to redemption of the principal upon maturity.

Nigeria currently has only one sub-national Sukuk bond issued by the Osun state government. Two other states, Kebbi and Sokoto states have indicated interests in issuing Sukuk bonds.

The absence of a sovereign Sukuk bond to serve as benchmark for other government and corporate Sukuk issuance has been cited globally as a drawback for the growth of non-interest Sukuk bond market. Standard and Poor’s rating services (S&P) estimated that global Sukuk issuance could reach up to $55 billion in 2016.