1. Sukuk in Nigeria: Structuring, Packaging and selling a first time Nigerian Sukuk
Mas’ud Balogun – Lotus Capital

2. Differences Bonds Sukuk Nature Debt of Issuer
Bonds
Sukuk
Nature
Debt of Issuer
Undivided ownership share in specific assets/projects/services
Relationship
Debtor/creditor
Lessor/lessee, agent/principal or seller/buyer
Purpose
Can be issued for any purpose.
Must be issued only for ethical (halal) purposes
Assets based
Not generally required
A minimum percentage of tangible assets are required
Claims/credit
Creditors’ claims on the borrowing entity, and in some cases liens on assets.
Ownership claims on the specific underlying assets/projects/services.
Issue Price
Price is determined by issuer’s creditworthiness
Price can be affected by the performance/market value of the underlying asset

3. Differences Bond Sukuk Effect of cost
Bond
Sukuk
Effect of cost
Bond holders generally aren’t affected by costs related to the asset, project, business, or joint venture they support.
Sukuk holders are affected by costs related to the underlying asset. Higher costs may translate to lower investor profits and vice versa
Security
Generally unsecured debentures
Secured by ownership rights in the underlying assets or projects in addition to any other enhancements
Recourse
To the issuer
Usually to the asset

4. Differences Bond Sukuk Nature of Trading Sale of a debt instrument
Bond
Sukuk
Nature of Trading
Sale of a debt instrument
Sale of an ownership interest in a specific assets/projects/services.
Trading restriction
No restriction
Restrictions on certain types of sukuk
Return
Fixed or Variable
Guarantees
Permissible
Only permissible for some types of sukuk
Sharia compliance risk
Not applicable
Applicable (a sukuk can become non-complaint prior to maturity) – this can affect returns to investors

5. Conventional Investors
Sukuk Invetors
Anyone who invest in bonds can invest in sukuk
Pension funds
Sovereign wealth funds
Fund managers
Mutual funds
Central banks
Multilateral corporations
Commercial Banks
Insurance companies
Corporates
Individuals
Faith based investors
Conventional Investors
Bonds
Sukuk

6. Sukuk Investors Sample projects Suitable contract Mass Housing
Musharaka (joint ventures)
Road & Railway construction
Istisna (construction financing)
Farmers’ working capital management
Salam (forward sale agreements)
Non –oil export
Murabaha
Construction of Schools
Ijarah
Acquisition of meters for DISCOs, and equipment for generating companies
Murabaha and Ijarah (cost plus and leasing contracts)

7. Benefit of Sukuk Issuance
On the global scene, Islamic finance assets are in excess of $2trillion.
An Islamic structuring can attract participation from this large pool of assets, which includes assets of banks, insurance companies and mutual funds.
In Nigeria, the industry is nascent; nevertheless, total investible funds within the industry is estimated in excess of N50 billion within non-interest banks, takaful operators and collective investment schemes.
15.71% CAGR
Asset Breakdown (2015 )

8. Benefit of Sukuk Issuance
Full Fledged Non Interest Bank
Window Operators
Micro Finance Bank
Capital Market Operators
Full Fledged Takaful operator Takaful Window Operators
Operators
Nigerian financial Institutions have gradually increased their participation in non interest finance;
The industry has attracted patronage from individuals, institutions and cooperates
Jaiz Bank
Stanbic IBTC
Sterling Bank
Albarka Microfinance
Lotus Capital
ARM
Kord Capital
Noor Takaful
Niger Insurance
Cornerstone Insurance
Africa Alliance

9. Sukuk Trading
Most Issuers have preferred listing on the Luxembourg Stock Exchange , NYSE or London Stock Exchange in order to gain visibility, access to a wide investor basis as well as cost benefits. Dual listing is also a common listing practice for sukuk issuances.
The LSE is the only major listing venue which does not charge an annual fee to issuers for debt securities and alternative finance investment bonds such as sukuk
London Stock Exchange Sukuk Listing Snapshot

10. Adapting Sukuk Structures
Sample projects
Suitable contract
Mass Housing
Musharaka (joint ventures)
Government: Road & Railway construction
Istisna (construction financing)
Farmers: Working capital management
Salam (forward sale agreements)
Traders: Non –oil export
Murabaha
Construction of Schools
Ijarah
Acquisition of meters for DISCOs, and equipment for generating companies
Murabaha and Ijarah (cost plus and leasing contracts)

11. Adapting Sukuk Structures
Sample projects
Suitable contract
Airlines: Aircraft acquisition
Forward lease ijarah/leasing (emirates sukuk)
Large retail stores: Inventory financing
Istisna (construction financing) Murabaha sukuk
Central banks: Treasury functions
Salam (e.g. Bahrain Central Bank)

12. Thank You