The Debt Management Office (DMO) on behalf of the Federal Government, today opened an offer for subscription of a N100 billion Sukuk bond. Proceeds will be used for the construction and rehabilitation of key roads across the six geopolitical zones of the country.
The Sukuk will be the second issued by the Federal Government, and the third issued in the country. Osun state, in 2013, issued a N10 billion Sukuk bond. The DMO had in September 2017 issued a N100 billion Sukuk bond.
The circular said subscribers could purchase N1,000 per unit subject to a minimum subscription of N10,000 and in multiples of N1,000 thereafter with First Bank and Islamic wealth manager, Lotus Capital managing the sale. The offer opened today and will close on the 17th of December, 2018. The bond has a tenor of 7 years and will mature in 2025. Rental rate is 15.743% per annum, payable half yearly.
The DMO said it qualified as securities in which trustees could invest under the Trustee Investment Act and as government securities within the meaning of Company Income Tax Act (CITA) and Personal Income Tax Act (PITA) for Tax Exemption for Pension Funds.
It will also be listed on the Nigerian Stock Exchange (NSE) and on FMDQ Over-The-Counter (OTC) platform and be classified as liquid asset by the Central Bank of Nigeria (CBN). It is also certified by the Financial Regulatory Advisory Council of Experts (FRACE) of the CBN, the circular said. The News Agency of Nigeria (NAN) recalls that the Federal Government had in 2017 raised a N100 billion 7-year debut Sukuk bond for the financing of 25 road projects across the six geopolitical zones of the country.
Sukuk is derived from the word Sakk, which can be translated to mean legal instrument, deed, and cheque. Sakk can also mean to strike a deal on a paper document. The origin of Sukuk dates back to 7th century AD, where the first Sukuk transaction took place in Damascus, Syria in the Great Mosque of Damascus (Umayyad Mosque).
Due to the fact that Islam prohibits usury – collecting interest from your loans – interest based bonds are banned in Muslim nations.
Sukuk indicates ownership of an asset. The assets that back Sukuk are compliant with Shariah, i.e. the avoidance of Islamic prohibitions on gambling, alcohol, tobacco, narcotics, and adult entertainment products and services. Sukuk notes pay a fixed percentage return as a profit sharing percentage of the underlying assets’ revenues.
Regular bonds, on the other hand, pay a fixed rate of return as interest (coupon) semi-annually or annually.
Source Nairametrics