Nigeria States Seen Issuing Sukuk Bonds Next Year

LAGOS (Capital Markets in Africa) – Some Nigerian states are working toward issuing sukuk bonds within a year as more investors are attracted to Islamic finance in Africa’s biggest oil-producing country, transaction advisers say.

Nigeria’s federal government has put 100 billion naira ($282 million) in sukuk bonds on sale at 16.47 percent from Sept. 14 to Sept. 20 in its first ever such offering. The proceeds of the sale would be used for road construction and rehabilitation across the West African country, according to its Debt Management Office.

Work on the state sukuk bonds began at the same time as the federal debt, Oluseun Olatidoye, head of debt capital markets at Lagos-based FBN Merchant Bank, which served as an adviser in the transaction, said Friday in an emailed response to questions. “We expect to see a few states launch within the next one year,” he said.

Nigeria, which normally derives two-thirds of government revenue from oil exports, is being forced to seek alternative sources of financing after a decline in the price and output of crude slashed its revenue. The West African nation plans to spend a record 7.4 trillion naira this year and targets infrastructure investments to help lift the economy from the worst slump in 25 years.

More foreign investors are showing interest in Nigerian sukuk bonds at a time authorities are looking “at more innovative ways of raising financing,” said Ndako Mijindadi, a portfolio manager at Abuja-based Lotus Capital Ltd., which had also advised on the sukuk bonds.