Asset Managers Plan to Float Funds for Sukuk Instruments

By Goddy Egene

Asset/fund managers operating are gearing up to float funds that will target Sukuk, a non-interest equivalence of bonds, THISDAY checks have revealed. While the Nigerian conversional bonds market has been very active in recent years, the Sukuk segment has remained untapped despite its huge potential. Osun State is the only state that has issued a Sukuk, through which it raised N11.4 billion in 2013.

More states are eyeing the market, while the federal government is planning to issue a major Sukuk in the first quarter of 2017.  Last week, the Central Bank of Nigeria (CBN) released guidelines for granting asset status to Sukuk instruments issued by state government.

Before now, the Securities and Exchange Commission (SEC) and Debt Management Office (DMO) have been working to ensure that Sukuk gains traction.
Market sources told THISDAY on Monday that given these developments, some fund and asset managers are preparing to float mutual funds that will take advantage of the Sukuk instruments.

“I can confirm to you that very soon funds targeted at Sukuk will be floated because the market is set to witness a major deepening,” a source said.
SEC at the weekend commended the release of guidelines for granting asset status to Sukuk by state governments.

According to SEC, the issuance of the guidelines is a major milestone for Nigeria as it will catalyse the development of non-interest capital market products.
SEC added that the   release of these guidelines follow diligent advocacy efforts from the Capital Market Committee (CMC) on the need to grant liquidity status to Sukuk in order to bolster its appeal as a product for both issuers and investors alike.

“Sukuk  is becoming increasingly attractive as a capital market instrument across the globe. Annual Sukuk issuances around the world have grown from $15 billion in 2008 to over $150 billion in 2015. As the federal and state governments seek alternative funding sources for infrastructure, these new guidelines will make Sukuk   more available option,” SEC had said.

“The guidelines will play a key role in broadening and deepening Nigeria’s financial system by catalysing the development of non-interest products and enhancing financial inclusion. We wish to commend the CBN for this laudable step while appreciating the CMC sub-Committee on non-interest products for their dedicated work leading to the release of these guidelines,” the capital market regulator added.

The absence of a liquid secondary market for Sukuk  had been a key concern for investors like pension funds and other institutional investors. To address this constraint, the Capital Market Master Plan had highlighted the need to push for liquidity status for Sukuk.