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Saudi Arabia on the verge of issuing Sukuk to Nigeria

Indications emerged yesterday that the federal government is not only in talks with the investment arm of Saudi Arabia-based Islamic Development Bank (IDB) about issuing the country’s first sukuk as the country looks to diversify its sources of funding, but all is set for the delivery.

 “We are engaged in discussions with Nigeria,” Khaled al-Aboodi, Chief Executive Officer of the Islamic Corporation for the Development of the Private Sector, said Tuesday in an interview in Ivory Coast’s commercial capital, Abidjan. “Once they feel this is a good option to go, we’ll be very happy to accompany them on this process.”

Nigeria is trying to diversify its funding sources to support an economy that’s been battered by the collapse in oil prices since mid-2014. Output is set to shrink this year for the first time since 1991, according to the International Monetary Fund.

The head of the country’s Debt Management Office (DMO) said in January that selling sukuk would help in attracting capital from Gulf States and Islamic markets. Nigeria is planning to issue a $1 billion Eurobond this year, which would be its first such deal since 2013.

Osun State in southwestern Nigeria has sold the only sukuk from the country. In 2013, it raised 10 billion naira ($32 million) that is due in 2020 and pays the equivalent of 14.75 percent interest.

“There has been issuance in the past by one of the states inside Nigeria but now there are discussions at the level of federal government,” Al-Aboodi said. The timing of any potential transaction was up to the Nigerian government, he said.

Currently, government is planning to borrow more abroad than locally to fund next year’s budget in a bid to benefit from lower debt costs and reduce pressure on its interest bill, Budget and National Planning Minister Udoma Udo Udoma said recently.

The government also plans to raise as much as $4.5 billion in international markets through 2018, according to the DMO.