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FG Trails Aregbesola's Path Over SUKUK By Bicci Alli

The Federal Government of Nigeria is currently making plans to explore the public-financing tools, SUKUK, which was pioneered by the administration of Governor Rauf Aregbesola of Osun state, to finance its infrastructures and projects.

Like the feeding of Osun pupils among other initiatives of the present administration in the state, the administration of President Muhammadu Buhari has concluded plans to toll the path initiated to the country by Aregbesola in 2013, by borrowing from SUKUK.

Amiloaded gathered this development from the work of a Guest Columnist of Thisday Newspaper on Monday, September 18, 2017,  titled “The Case for Nigerian Sukuk” by MS Patience Oniha, Director General, Debt Management Office.

While the columnist explained fully the benefits derivable from the issuance of SUKUK with specific mention of the fact that the SUKUK would be used to raise funds to finance infrastructure which contributes directly to achieving the objective of the Economic Recovery and Growth Plan (2017-2020), Oniha however failed to acknowledge the pioneering efforts and achievements of Governor Aregbesola in deepening the financial market in Nigeria through Sukuk.

The DG DMO and other enlightened commentators made no reference to Aregbesola's pioneering efforts which laid the foundation, teething problems surfaced with issuance of SUKUK and verifiable solutions that were proffered by Ogbeni Aregbesola, his government, advisers and transaction parties.

It would be recalled that on 10th October 2013, the State of Osun issued N11.4 billion ($70.6 million) seven year SUKUK under the Osun State N60 Billion Debt Issuance Programme to fund the development of 20 High Schools, 2 Middle Schools and 2 Elementary Schools in the State.

The SUKUK was issued at a rate of 14.75% per annum at N 1,000 per unit and matures on 08 October, 2020. Although two other African countries (The Gambia and Sudan) are known to have issued small amounts of SUKUK in their domestic markets; the State of Osun SUKUK is widely viewed as the first SUKUK to be issued by the government of a major African economy.

The SUKUK is structured as a SUKUKAL-IJARA, a commonly used structure by sovereign issuers, which is based on a lease arrangement supported by rental payments generated from the underlying SUKUK assets.

Using this structure, Osun State incorporated a special purpose vehicle, Osun Sukuk Company Plc (the SPV), to which it transferred the land for construction of the schools. Official rating for investors was done for the SUKUK and it was rated ‘A’ by Agusto & Co, a local credit rating Agency, and listed on the Nigerian Stock Exchange. It is understood to have been taken up by local banks, fund managers, insurance companies and high-net-worth individuals will eventually pay SUKUK holders a fixed return of 14.75%.

Having tolled the same line with confronted challenges which were well addressed, there is a lot more that the Federal Government can learn from Ogbeni Aregbesola on the workability of SUKUK. Challenges would surely arise from the N100 billions SUKUK Bond but same could be resolved same way Ogbeni and his team handled the N1.4bn ($8.7m) oversubscribed SUKUK in the State of Osun.

For this, Ogbeni deserves accolades and more would surely come his way.

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