Securities and Exchange Commission (SEC), Nigeria’s apex capital market regulator, has called for issuance of issuance of a sovereign Sukuk bond by the Federal Government to deepen the fledgling alternative finance market in Nigeria.
Director General, Securities and Exchange Commission (SEC), Mr Mounir Gwarzo, said the Debt Management Office (DMO) should consider issuance of Sukuk bond on behalf of the Federal Government. DMO oversees and issues sovereign debt issues on behalf of the Federal Government.
At a parley with the Director General of Debt Management Office (DMO), Dr. Abraham Nwankwo, SEC noted that a major plank of the 10-year capital market master plan, which the apex regulator is currently implementing, is the development and deepening of the non-interest capital market in Nigeria.
Unlike interest-paying conventional bond issue, Sukuk makes returns to the investors through sharing of profit or cash flow from the underlying asset with them in addition to redemption of the principal upon maturity. Nigeria currently has only one Sukuk bond issued by the Osun Sate Government.
Gwarzo said the issuance of Sukuk by the central government would not only provide a benchmark for other issuers of Sukuk like state governments but will also be in line with global trends.
Annual Sukuk issuances have grown from $15 billion in 2008 to almost $120 billion in 2014. This is growth is not only coming from the usual issuers like Malaysia, Saudi Arabia, the United Arab Emirates (UAE), Turkey and Indonesia. In 2014, countries such as the United Kingdom, Hong Kong and Luxemburg, including peer African countries like Senegal, South Africa issued their debut Sukuk.
Gwarzo expressed optimism that Nigeria has potential to become a global leader in Sukuk and non-interest financial market and urged the DMO to contribute to actualizing that aspiration by issuing sovereign Sukuk for Nigeria.
SEC’s Rules on Sukuk Issuance in Nigeria underline that Sukuk shall be structured as Sukuk Ijarah – leased contract; Sukuk Musharakah– sharing contract; Sukuk Istisnah– exchange contract; Sukuk Murabahah– financing contract; and any other form of contract that may be approved by the Commission.
According to the rules, eligible issuers of Sukuk include public companies including Special Purpose Vehicles (SPVs), State Governments, Local Governments, and Government Agencies as well as multilateral agencies.
The rules stipulate that any issue, offer or invitation of Sukuk by a public company which is capable of being converted or exchanged into equity with the intention of being listed shall be subjected to the additional requirements stipulated in the listing requirements of a securities exchange.
Both SEC and DMO agreed to work in synergy for the growth and development of Nigeria’s financial system, particularly, the domestic bond market.
Gwarzo applauded the DMO’s role in the ongoing restructuring of loans owed by state governments while emphasizing the need for closer collaboration between SEC and DMO to catalyze the development of the bond market, including the non-interest segment.
So far, the DMO has been able to convert about N575 billion in state government loans into longer tenured debt instruments.
Gwarzo pledged further support from the SEC to ensure states enjoy a cost effective restructuring as well as reduced debt-servicing burden.
While outlining a number of initiatives which require closer collaboration with the DMO to achieve, the SEC DG applauded the role DMO plays in sustaining the Irrevocable Standing Payment Order (ISPO) framework which has been critical for investor confidence in the domestic bond market.
He urged the DMO to focus on conducting more robust debt sustainability analyses for the states in line with its mandate enshrined within the DMO Establishment Act 2003.
Both institutions agreed to work together to avoid crowding-out effect by Federal Government bond issues by ensuring that states and companies also have easy access to long term capital.
With increasing interest from multilateral institutions in the domestic bond market, both SEC and DMO emphasized the need for synergy to efficiently coordinate such applications. The World Bank’s private sector arm, International Finance Corporation (IFC), and the African Development Bank (AfDB), have both issued naira-denominated bonds within the past two years. Both multilateral development finance institutions have also expressed interest in registering medium term note programmes that ensure periodic issuances to deepen the bond market.
The two institutions agreed to strengthen the interagency team already in place and ensure that issues concerning the development of the bond market are jointly addressed.
(The Nation / 11 November 2015)---
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