Property Developer To Issue Sh3bn Sukuk Bond
Kenya is poised to debut its first Sukuk bond, following approval from the Capital Markets Authority (CMA) for a Sh3 billion issuance by a company intending to use the funds for developing institutional housing.
The CMA has given the green light to Linzi Finco Trust for the issuance of a Shariah-compliant bond, although the exact release date has not been specified.
In recent years, Kenya has explored the issuance of Islamic bonds, known as Sukuk, as a means to finance its budget deficit. Corporates have also shown interest in these bonds as part of their capital-raising strategies.
Sukuk bonds, which can be traded on a securities exchange, differ from conventional bonds in that they represent beneficial ownership in an underlying asset, rather than a debt obligation.
Islamic law prohibits interest, so Sukuk bonds offer investors a share in the returns generated by the underlying asset. These bonds are suitable for financing various projects, including housing, energy, healthcare, transport, water, and sanitation.
The CMA stated, “Linzi Finco Trust, the Issuer of this pioneering Sukuk named Linzi Sukuk that offers an internal return of return at 11.13 percent, is set to raise Sh3 billion with the primary aim of developing 3,069 institutional housing units.”
“This landmark Sukuk will contribute significantly to expanding the availability of affordable housing and positively impact the lives of many Kenyan citizens. This innovative financing mechanism is expected to attract both domestic and international investors seeking ethical and socially responsible investment options.”
The issuance of Sukuk bonds in Kenya was facilitated by amendments to various laws in the Finance Act of 2017, providing clarity on the taxation of Islamic banking products in the country.
Amended Acts included the Income Tax and VAT Acts, the Stamp Duty Act, the Public Finance Management Act, the Co-operative Societies Act, and the Sacco Societies Act.
While the Treasury has not yet utilized a Sukuk bond in its budget financing programs, it is being considered as an option to refinance the $2 billion Eurobond maturing in the coming year.
A Sukuk could enable Kenya to access funding from Middle Eastern financial markets, offering an alternative to Eurobond and syndicated loan markets with increased costs for smaller markets.
Several African countries have ventured into the Sukuk bond market in recent years, with oversubscribed issuances indicating strong demand.
Morocco and Nigeria issued $105 million (Sh15.4 billion) and $327 million (Sh48 billion) of Sukuk securities, respectively, in 2018. In February of this year, Egypt successfully raised $1.5 billion (Sh220.7 billion) through three-year Sukuk bonds, drawing bids worth $5.4 billion (Sh794.5 billion).
