Capital Markets

Property developer to issue Sh3bn Sukuk bond


Only 4.5 percent of women in Kenya aged between 15 to 49 years own a house alone. PHOTO | SHUTTERSTOCK

Kenya is set for its first Sukuk bond after the Capital Markets Authority (CMA) approved a Sh3 billion issuance by a firm looking to use the proceeds to develop institutional houses.

The CMA said that it has granted Linzi Finco Trust the go-ahead to float the Shariah-compliant bond, but did not give a timeline of when the issuance is expected to hit the market.

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Kenya has over the years considered issuing Islamic bonds, otherwise known as Sukuk, to help finance its budget deficit, with corporates also looking to such bonds as part of their capital-raising mix.

Sukuk bonds, which are tradeable on a securities exchange, differ from conventional bonds by representing a beneficial ownership in the underlying asset, as opposed to a debt obligation in the case of the other bonds.

Islamic law prohibits interest, so Sukuk bonds offer investors a share in the returns generated by an underlying asset.

These Islamic bonds are, therefore, suitable for financing housing, energy, healthcare, transport, water and sanitation projects.

“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,” said the CMA in a statement on Wednesday.

“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 path to issuance of Sukuk bonds in the Kenyan capital markets was smoothed by amendments to various laws in the Finance Act of 2017, including the Income Tax and VAT Acts to provide clarity on the taxation of Islamic banking products in the country.

Other Acts that were amended to recognise Islamic financial products included The Stamp Duty Act, The Public Finance Management Act, the Co-operative Societies Act and the Sacco Societies Act.

While the Treasury is yet to use a Sukuk bond in its budget financing programmes, this type of security has been considered among the options available to the country to refinance the $2 billion Eurobond that matures next June.

A Sukuk would, for instance, allow the State to tap into the Middle Eastern financial market for funding, providing an alternative to the Eurobond and syndicated loan markets whose cost of funds has gone up for smaller markets.

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A number of African countries have dipped into the Sukuk bond market in recent years, enjoying oversubscriptions that demonstrate a demand for such issuances.

Morocco and Nigeria issued $105 million (Sh15.4 billion) and $327 million (Sh48 billion) of Sukuk securities, respectively in 2018.

In February this year, Egypt raised $1.5 billion (Sh220.7 billion) via three-year Sukuk bonds, which attracted bids worth $5.4 billion (Sh794.5billion).

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