Sukuks are investment certificates or notes that evidence proportionate interest in ownership of tangible assets, goods and services, or investment in the assets of projects that adhere to the principles of Shariah. The holder has an ownership right in a particular asset and is, therefore, entitled to the return generated by that asset. Sukuk issuances in Nigeria are regulated by the Investment and Securities Act and the SEC Rules on Sukuk Issuance.

Features

• It complies with the provisions of the Sharia law.
• It involves an underlying asset(s) that must also be Sharia-compliant.
• It also involves the use of a Special Purpose Vehicle (SPV).
• Sukuk holders own the underlying asset(s).
• Sukuk holders are entitled to a share of the revenues generated from the underlying asset(s)
• The sales price is determined by the underlying asset.

Advantages

• It appeals to faith-based investors as well as other conventional investors.
• Competitive means of financing compared to bank loans.
• It provides an alternative source of funding for developmental and expansion projects.
• Low risk of default as investments are usually tied to underlying profit-generating assets.
• Several tranches can be issued in one programme with opportunities for a fixed return or flexible pricing and repayment structures.

Structuring of Sukuk Bonds

• Sukuk can be structured in different ways; these structures are based on a specific contract of exchange that can be made through the sale and purchase of an asset based on deferred payment, leasing of specific assets or participation in a joint-venture business.
• Generally, in 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.
• A sukuk investor has a common share in the ownership of the assets linked to the investment, although this does not represent a debt owed to the issuer of the bond. Hence, Sukuk is a trust certificate.

1. Ijarah
   Ijarah (lease) is a contract according to which a party purchases and leases out equipment required by the client for a rental fee. The duration of the rental and the fee are agreed in advance, and ownership of the asset remains with the lessor.
2. Mudaraba
   This is a partnership in business whereby one party provides capital (Rabbul Maal), and the other party provides labour (Mudarib).
3. Musharaka
   This means a relationship established under a contract by mutual consent of the parties for contributing capital, sharing profits and losses in the joint business.
4. Salam
   This is the sale of a specific commodity, well defined in its quality and quantity, which will be delivered to the purchaser on a fixed date and at a place in the future against an advanced full payment of the price at spot.

Other types of Sukuk structures are Wakala, Istisna, and Murabaha.

Meristem Capital Limited, as a financial adviser and issuing house, can advise on the general structure of the transaction, prepare and review all offer and marketing documents, ensure compliance of the transaction with non-interest financial principles, and engage the regulators for registration of the Sukuk.