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.
Highlights of the issue
- The minimum offer subscription is for N10,000 and in multiples of N1,000 thereafter.
- 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.
About Sukuk bonds
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.
Difference between Sukuk and regular bonds
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.
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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.