Considering the huge infrastructural deficit facing Nigeria, and the challenges being faced by the Federal Government of Nigeria due to a decline in oil revenue amongst other related issues, it has become imperative for State Governments and corporates to access alternative financing techniques to meet their capital development needs.

Activities in the equities market in Nigeria have slowed down considerably from the levels seen during the equities boom of 2004 – 2008 which has compelled corporates and governments to embrace the debt market by floating bonds. From 1960 to November 2013, there have been 80 corporate bond issuances in Nigeria and 34 state and local bond issuances; with state bond issuances dominating the market in recent times.

This article examines the potentials for using sukuk as a tool for capital raising and infrastructural development in Nigeria and discusses the recent sukuk issuance by the Osun State of Nigeria under the State’s N60 Billion Debt Issuance Programme. The sukuk issuance attracted international acclaim by winning the IFN Africa Deal of the Year Award 2013.

Sukuk as a tool of Islamic Finance

Sukuk provides access to a vast and growing Islamic liquidity pool in addition to the conventional debt and are commonly referred to as Islamic Bonds. However, this representation is not entirely correct.

Sukuk is defined in the Rules and Regulations of the Securities and Exchange Commission (SEC Rules 2013) as investment certificates or notes of equal value representing undivided shares in the ownership of tangible assets, usufructs and services or investments in the assets of particular projects or special investment activity using shariah principles and concepts approved by the Securities and Exchange Commission (“the Commission”).  In simple terms, sukuk can best be called trust certificates.

In addition, under a sukuk structure, returns to sukuk holders (Investors) represent rights to receive payments from a trade transaction or ownership of a particular asset or business venture, while the returns to conventional bondholders represent the right to receive interest for borrowed monies.

Traditional bonds are not allowed in Shariah-compliant transactions due to their interest based nature as interest is prohibited in Islamic law as aforesaid. It is important to note that the underlying asset for a sukuk issuance must itself be Shariah-compliant. For example, a building does not qualify as an underlying asset for sukuk issuance if the major tenant will be a producer of alcohol. 

The Commission explicitly recognizes the following sukuk structures under Rule 571 of the SEC Rules:

• Sukuk Ijarah – (lease contract)

• Sukuk Musharakah– (sharing contract)

• Sukuk Istisnah– (exchange contract)

• Sukuk Murabahah– (financing contract)

Legal Framework for the Issuance of Sukuk in Nigeria 

Several Laws regulate the issuance of sukuk in Nigeria including the Investments and Securities Act 2007, the SEC Rules and the state law authorizing the sukuk issuance. The Commission in recognition of the development of Islamic finance introduced new rules on February 8, 2013 to regulate the issuance of sukuk in Nigeria. Rule 572 of the SEC Rules provides that all public companies (including SPV’s), state governments, local governments, and Government agencies as well as multilateral agencies are eligible to issue, offer or make an invitation of sukuk upon seeking the Commission’s approval.

The Rules apply to:   

i. sukuk which are offered by local or foreign entities that are within the regulatory purview of the Commission;

ii. sukuk which are denominated in Naira or in foreign currencies; and 

iii. sukuk which are listed, convertible, exchangeable, redeemable or otherwise.

From the wording of Rule 572, sukuk issued by private companies appear not to fall within the regulatory purview of the SEC. In a similar vein, a strict interpretation of Rule 567 will suggest that bonds issued by private companies will not be regulated by the SEC as this Rule specifically mentions only bonds issued by public companies, foreign public companies and supranational bodies. However, the SEC will exercise its supervisory powers over any instrument issued to the public by private or public companies. 

In addition to the advisers who advise on bond issuances, an issuer of sukuk must appoint a Shariah adviser who shall inter alia advise on all aspects of the sukuk including documentation and structuring and who shall also issue shariah certification which outlines the basis and rationale of the structure and mechanism of the sukuk.

Osun Sukuk Company Plc.’s Sukuk Al –Ijarah – Blazing the Trail

The Government of Osun State (“OSG”) through a wholly owned Special Purpose Company, Osun Sukuk Company Plc issued on the 8th of October, 2013 the first sukuk in Sub-Saharan Africa worth N11.4 billion ($70.6 million) 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 Osun State.

  The sukuk was issued at a rate of 14.75% per annum at N 1,000 per unit and matures on 8th of October, 2020. The issue which was rated A by Agusto & Co was successfully subscribed to by domestic investors with the price set through a book building process that lasted for 10 days.   

Structure of the Osun Sukuk

The SPC, Osun Sukuk Company Plc is a wholly owned Special Purpose Company of the Osun State Government incorporated with an authorised share capital of N1, 000,000.00 (One Million Naira) with Ninety Nine Percent of the shares held by the Osun State Government and One percent held in trust by the Attorney General of Osun State on behalf of the State.

The sukuk was structured as an Al-Ijarah; with the Osun Sukuk Company Plc. issuing sukuk certificates to the investors.

In accordance with Islamic law principles, each certificate represents an undivided beneficial ownership interest in the sukuk assets (i.e. the Schools). The sukuk assets are however held in trust for the sukuk investors by the Issuer. The sukuk investors’ payment for the certificates represents the cost of construction of the schools.  Holders of the Certificates have no recourse to any assets of the Issuer other than the sukuk assets. Since the sukuk holders are the owners of the assets (schools), they are free to trade the certificates in the secondary market.  The land upon which the schools will be built was transferred by the OSG to the SPC and a Certificate of Title (Certificate of Occupancy) was issued to the SPC.

The Issuer under an Agency Agreement, appointed the OSG as its agent to inter alia engage a construction company to construct the schools, obtain all government approvals, manage the operational and financial aspects of the construction for a prescribed fee and transferred the agreed cost of construction to the OSG.

The SPC forward leased the schools to the State Government against rental payments which will be remitted to the Issuer to make distributions to the sukuk investors; thus earning income for the investors during the construction of the schools.

A Purchase Undertaking was executed by the OSG in favour of the Issuer to give assurances that at the end of the lease/maturity of the sukuk or upon the occurrence of an event of default or early termination of the lease under the Ijara Agreement, the OSG will purchase the sukuk assets; with the purchase price being used by the Issuer to redeem the sukuk certificates at maturity.

The Purchase Undertaking is essential in Islamic Finance as it creates a debt obligation on the part of the OSG which eliminates market risk on the part of the investors. A Sale Undertaking was also executed by the Issuer in favour of the OSG in like manner. 

Sukuk – What Lies Ahead 

The issuance of the first state sukuk by Osun Sukuk Company Plc attests to the huge potentials for Islamic Finance in Nigeria, while its subsequent international acclaim creates integrity within the market which has the propensity to promote foreign direct investment. 

The Central Bank of Nigeria (CBN) has so far registered Jaiz Bank Plc. to provide full Islamic Banking Services and has licensed Stanbic IBTC Plc to operate an Islamic Banking Window. In addition, Sterling Bank Plc has also been given an approval in principle to operate an Islamic Banking Window.

With the right team of professional advisers, it is clear that focusing on substance over form can contribute significantly to the rapid development of the Nigerian economy through the issuance of Islamic Finance products.  Nigeria should not miss out on this opportunity. 

About the Author

Oladele is called to the Nigerian Bar and is a qualified solicitor in England and Wales. He currently heads the Banking and Finance law Practice of Kola Awodein & Co. Lagos, Nigeria. He obtained his Masters Degree (with Distinction) from the University of Warwick, UK. He has advised on several capital market transactions.

Oladele Oladunjoye – Business Day

OSUN State governor, Rauf Aregbesola, on Wednesday, said that education is critical to the realisation of sustainable national development and the achievement of national security.
He made this known while delivering a lecture titled: ‘Education as a panacea to national insecurity and developmental challenges’ at the 6th Prince Bola Ajibola annual lecture series, organised by the Magna Curia Chambers of Obafemi Awolowo University (OAU), at the Oduduwa Hall of the institution in Ile-Ife.

“Sadly, the Nigerian state today is assailed by manifold layers of insecurity and its progress is hampered by a myriad of developmental challenges all because of the continual erosion in the quality and standard of its educational system,” Aregbesola asserted.
Aregbesola stated, “even in the South-West, where we used to have a 50 years education head start, it is no longer a bed of roses. When our administration came in 2010, we discovered to our chagrin, from the SSSCE result of that year, that just about five per cent of the candidates from Osun had the requisite pass needed for matriculation into higher institution.”
The Vice Chancellor of OAU, Professor Bamitale Omole who was represented by the Deputy Vice Chancellor, Professor Ajayi Adebisi, stressed that the topic of the lecture was most appropriate at the time the nation is facing security challenges.
TRIBUNE

The 2014 edition of the annual conference of the Brand Journalists Association of Nigeria (BJAN), will take place in  Osun State at the weekend.
The State’s Commissioner for Information and Strategy, Hon. Sunday Akere who received the representatives of the association, said the state, under Ogbeni Rauf Aregbesola is always willing to identify with individuals and organisations that could aid its developmental drive for the state.
BJAN leadership, led by its National Chairman, Goddie Ofose, had paid a courtesy visit to the commissioner to intimate him on the decision by his association to settle for the State of Osun as venue of this year’s conference as a result of the giant stride the state has recorded in the area of tourism. The topic for the conference, which will hold between November 20 and 23 is ‘Tourism marketing as catalyst for economic development’. The 2013 edition was held in Ogun State.
According to Ofose,  “BJAN members have taken pain to follow up the activities of the State of Osun in the area of Tourism, particularly the way the annual Osun Osogbo cultural fiesta has suddenly turned to international festival. We do not only consider it necessary to reel out the economic benefits of tourism, we want to add our voices to how it can be better marketed.  We want other states to learn from Osun and we want Federal Government to invest more in the industry,”
Responding, Akere described the Aregbesola led administration as a media friendly government that would continue to contribute its quota to every step taken to add values to journalism practice in the country.
He said: “As a government that appreciates the place of effective communication in government, the administration of Ogbeni Rauf Aregbesola has always regarded the media as a major partner in the journey to touch lives and bring rapid development into  the State of Osun,”
While assuring the association that he would table the proposal before Governor Aregbesola, the commissioner called on the media practitioners  not to derail in their responsibility as watchdogs and agenda setters in the society. He said Nigeria democracy needs effective media to blossom.
Speakers expected at the conference include; President Nigeria Guild of Editors,  Femi Adesina; MD, Chain Reaction, Israel Jaiye Opayemi; and COO, 141 Worldwide,   Bunmi Oke. Meanwhile, Hon. Sunday Akere has been penciled down to open the conference while it will be chaired by the Registrar Advertising Practitioners Council of Nigeria, Alhaji Garba Bello-Kankarofi.
THISDAY

As the entire World celebrated the annual Global Hand washing Day yesterday, people of the state have been enjoined to cultivate the habit of washing hands with soap as a preventive measure in contacting deadly diseases.

This was disclosed by the Programme Manager, Rural Water and Environmental Sanitation Agency, RUWESA, in the state, Alhaji Posi Adiatu unbehalf of the Special Adviser to the state governor in the Ministry of Water Resources, Rural and Community Development, Hon.Kunle Ige during a meeting with the State Task Group on Sanitation, STGS, at the RUWESA Conference room, Abere.

The RUWESA boss said; washing hands effectively will adequately promotes germs free and create zero tolerance for any deadly diseases in the society.

  According to Adiatu, this year celebration witnessed a sensitization for workers in the state Ministries, as well as teachers and students in both public and private schools on the importance of global hand washing day to kick starts the activities.

The Programme Manager said; further that, creation of awareness would follow by various media organisations about the benefit of hand washing with soap.

The grand finale of the events is expected to hold come next week Thursday at Nelson Mandela Freedom Park in Osogbo where the Wife of the state governor who is also the Ambassador of Community Led Total Sanitation, CLTS, Alhaja Sherifat Aregbesola will flag off this year Annual Global Hand Washing Day celebration formerly.

Speaking with our Correspondent shortly after the meeting, the Director of Hygiene in the RUWESA, Mr. Segun Moyinoluwa said people should join hands with them to spread the habit of washing hands not only in the state but around the world.

VANGUARD

Osun Government has said that the state would collaborate with the Federal Government to facilitate the presence of more agricultural facilities in the state.
The state Commissioner for Agriculture, Mr. Wale Adedoyin, told newsmen in Osogbo that more agricultural facilities were needed in the state to boost food production and achieve national food security.
“Although we have felt the presence of the Federal Government in the state in the areas of cassava production, provision of storage facilities and provision of modern equipment for food processing from the Federal Ministry of Agriculture, but we want more of them,’’ Adedoyin said.
He said that Governor Rauf Aregbesola had approved the establishment of more farm settlement in parts of the state to be prepared and be allocated to prospective young farmers to produce food crops and livestock.
He also said that the state government had provided facilities in some farm settlements located in Ede, Ife and Ilesha, among others, for use by young farmers.
The commissioner explained that the farm settlements would be designed to provide job opportunities for youths, provide more food for the people and reserve for external consumption.
He said that the government would open up the land, prepare the land and allocate the land to applicants who would also be provided with other inputs, credit facilities and security to farm.
He said the ministry had organised a good number of workshops to train and retrain farmers in the state through farmers’ congress and associations, this year.
Adedoyin assured that the government would not relent in assisting and encouraging farmers to produce more food for internal and external consumption.
NIGERIAN OBSERVER

The government of Osun has on Tuesday condemned in very strong terms what it called the habitual proclivity of the opposition Peoples Democratic Party to mislead members of the public.

In its official position over claims by the PDP that the Court of Appeal in Akure last Friday sacked all federal state constituencies lawmakers from the state who were elected in 2011, the state government, through its Attorney General and Commissioner for Justice, Barrister Wale Afolabi, said the recent brouhaha sponsored by the Peoples Democratic Party in its deliberate misrepresentation of facts and  distortion of the decision of the Court of Appeal on suit concerning Independent National Electoral Commission & Mr. Rufus Oluwatoyin Akeju v. Peoples Democratic Party – Appeal No. CA/AK/46/2011 called for sober reflection.

Saying that his office had obtained a certified true copy of the judgment of the Akure court, the Attorney General argued that though the freedom of expression permits opinions over decisions of courts, the right does not give room for deliberate manipulation of facts.

The Attorney General stated, “We have obtained a certified true copy of the ruling of the Court of Appeal delivered on Friday the 10^th day October, 2014, carefully read and digested the 3-page ruling and are appalled to note that no sentence or paragraph of the said ruling decided any issue pertaining to the 2011 election of any member of the House of Assembly or National Assembly.

“In no part of the ruling did the Court of Appeal nullify any election but rather held that the Notice of Appeal filed by INEC was incompetent and thereby struck out the said Notice of Appeal. One then wonders how on earth the Peoples Democratic Party got the wild imagination by which it sought to seize power through reckless subterfuge by lying that the Court of Appeal had nullified the election of the APC honourable members in the Osun State House of Assembly and the National Assembly.”

The Commissioner said PDP is noted for such manipulations saying that “There is no way any court can nullify an election based on mere application to strike out a Notice of Appeal challenging an interlocutory injunction while the substantive suit is still pending at the Federal High Court.

“The Osogbo Federal High Court, in 2011, granted the PDP an interlocutory injunction restraining Ambassador Akeju from supervising the conduct of the 2011 elections. The same Court refused the prayer that INEC be restrained from conducting the said election. However INEC immediately appealed and obtained a stay of execution of that ruling pending the determination of its appeal.

“Curiously, PDP equally sought for stay of proceedings of the matter at the Federal High Court and same was granted. The subject matter of the appeal before the Court of Appeal was whether the Federal High Court was right to have restrained Ambassador Akeju from supervising the said election and no more. The substantive suit is still pending before the Federal High Court while appeals by other parties on the same interlocutory injunction are still pending at the Court of Appeal up till this moment.

Quoting section 139 (2) of the Electoral Act 2010 (as amended) which states that “[A]n election shall not be liable to be questioned by reason of a defect in the title, or want of title of the person conducting the election or acting in the office provided such a person has the right or authority of the Commission to conduct the election,” he Attorney General said the PDP has embarked on what it called a “wild goose chase.”

He said even if the Court of Appeal had agreed that the Federal High Court was right in restraining Ambassador Akeju from conducting the 2011 Legislative Houses elections, that cannot invalidate or nullify the elections in so far as the person who conducted the said election had the right or authority of INEC to so conduct it.

He explained further, “The law is that no election shall be questioned simply because of the defect in or want of title of the person who conducted the election or acted in the office in so far as the person has the authority of INEC to conduct the election. The unfortunate agitation and labour of PDP cannot produce anything capable of harming the APC but can only end up in a stillbirth.”

The Attorney General also reminded members of the public within and outside Osun to be wary of PDP’s capacity for distortions saying just as he advised the media to also seek details and verify facts before their publication lest they fall victims of what he called PDP’s unrivalled capacity for fraudulent claims”.

Governor State of Osun, Ogbeni Rauf Aregbesola (2rd right); his Kano State counterpart, Rabiu Kwankwaso, former Osun Governor, Prince Olagunsoye  Oyinlola and Members of the National Assembly representing Kano South, Sen.Kabiru Gaya, during Kwankwaso visit to Governor Aregbesola, at the Government  House Osogbo on Sunday 12-10-2014.

Governor State of Osun, Ogbeni Rauf Aregbesola (2rd right); his Kano
State counterpart, Rabiu kwankwaso (2rd left); formal Osun Governor,
Prince Olagunsoye Oyinlola (right) and a Member of National Assembly
representing Kano South, Sen.Kabiru Gaya, during Kwankwaso visit to
Governor Aregbesola, at the Government House Osogbo on Sunday
12-10-2014.

Governor State of Osun, Ogbeni Rauf Aregbesola (2rd right); his Kano
State counterpart, Rabiu kwankwaso ( left) and a member of National
Assembly representing Kano South, Sen.Kabiru Gaya, during Kwankwaso’s
visit to Governor Aregbesola, at the Government House Osogbo on
Sunday 12-10-2014.

Governor State of Osun, Ogbeni Rauf Aregbesola (2rd right); his Kano
State counterpart, Rabiu kwankwaso (left) and formal Osun Governor,
Prince Olagunsoye Oyinlola, during Kwankwaso’s visit to Governor
Aregbesola, at the Government House Osogbo on Sunday 12-10-2014.

A leader of the All Progressives Congress in Lagos State, Chief Ayo Akande, has asked the Federal Government to adopt the “child education” policy of the Osun State governor, Rauf Aregbesola, in primary and secondary schools across the country. A statement on Tuesday quoted Akande as saying this in Ogba, Lagos, at the thanksgiving prayer organised to celebrate the re-election of Aregbesola.
Aregbesola of the APC won a re-election on August 9, 2014, defeating the candidate of the Peoples Democratic Party, Iyiola Omisore, and others. Akande said the feeding of pupils in all the public schools in Osun State was a unique education policy meant not only to give the pupils a sense of belonging but to also promote learning and understanding. He said, “The child education policy is a social responsibility and commitment that provides a solid foundation for the total development of the child and growth of the nation.”
“In view of its novelty and contribution to the development of education, the Aregbesola model should be adopted by the Federal Government in all primary and post-primary schools in the country.” The party chieftain said the provision of a good learning environment was not limited to physical structures in public schools. “The mental stability of the pupils to assimilate what they are being taught by their teachers is equally important, hence the feeding policy of the Aregbesola’s administration to give the mental stability to pupils in Osun public schools should be commended and emulated,” he said.
Akande, who said a hungry man was an angry man, noted that it would be difficult for a pupil to assimilate “what the teacher teaches” if such pupil was hungry. He added that the Federal Government needed to adopt the Aregbesola education policy through a legislation that would compel the three tiers of government to implement. He said he was convinced that the child education policy of the Osun governor during his first term contributed immensely to his re-election. “It is a populist policy, which takes care of the less-privileged pupils,” the politician stressed.
OSUN DEFENDER

Osun State Government has commissioned rural electrification, water project and roads in Eleeru and Igbonla both in the Olaoluwa Local Government Council area of the state.
Performing the commissioning on behalf of Governor Rauf Aregbesola Special Adviser in the Ministry of Water Resources, Rural Development and Community Affairs, Kunle Ige, pledged the commitment of government to the well being of the people.
While assuring that the state government will continue to put in place projects that will have direct impact on the lives of the people at the grassroots, Aregbesola said the present projects were done under the second phase of the UNICEF replication programme in the state.
He said the present administration was poised to make every nook and cranny of the state economically buoyant through the provision of basic needs of the people.
He promised that more boreholes will be provided for the local government while electricity supply to the area and the road network will also be provided for in next year’s budget.
The Governor expressed appreciation to the people of the area for trooping out en masse to vote him back into office for a second term in the just concluded governorship elections in the state
He also urged them to vote for the All Progressives Congress A(PC) in the general elections come 2015.
In a remark, the Executive Secretary, Ola-Oluwa Local Government, Reuben Adegoke, urged the people of the two communities to maintain the projects, while appealing to government for more projects like schools, construction of roads and electrification projects.
In their separate remarks, Adediran Adewoye, a community leader in Eleeru  and Joseph Alagbe of Igbonla-Idiya appreciated Aregbesola for the completed projects while urging him to continue in the good strides.
DAILY INDEPENDENT

Former head of state and national leader of the All Progressives Congress (APC), Muhammadu Buhari, on Monday, declared that the recently concluded governorship elections in Ekiti and Osun states have served as eye openers for Nigerians, as the nation moves closer to 2015 general elections.
Buhari made the disclosure during a courtesy visit to Governor Rauf Aregbesola in Osogbo over his presidential ambition.
He noted that his visit to the state is to specially invite the governor to his formal declaration to contest for the Presidency come 2015.
Buhari described the re-election of Aregbesola as the triumph of people’s will and a victory for democracy.
“Your Excellency, part of why we are here is to congratulate you over your credible re-election and personal leadership qualities.”
According to him, “Ekiti and Osun gave us the latest interpretation of what is ahead of us in 2015 and all Nigerians must be totally aware that it is not going to be very easy in the next five months.
“For the next five months, we are on the road again and we are here to ask for your understanding and support.
Nigerians want change and they have to prepare and be ready to do exactly what Osun people have done, that’s the only way out.”
In a similar vein, the Governor of Kano State, Rabiu Musa Kwankwaso, another presidential aspirant of the APC, had earlier on Sunday night paid a courtesy visit to Aregbesola in Osogbo.
The Kano State governor used the occasion of the visit to Osun to meet with the Hausa community in the state.?
Aregbesola, in his separate responses, thanked the retired Army General and Kano State governor, who visited the state separately, urging Nigerians to be vigilant in 2015.
“Nigerians should be vigilant in 2015 just like they did in Osun during the August 9 election when 73, 000 security men deployed to the state could not scare them away from exercising their franchise.
On the team of Buhari were former speaker, House of Representatives, Alhaji Aminu Bello Masari, former governor of Bayelsa State, Timipre Sylva and former Minister of Information, Tony Momoh, among others.
DAILY INDEPENDENT