Nigeria looks to sukuk for infrastructure funding needs

JAKARTA, May 18 (Reuters) - Nigeria hopes to use a proposed Islamic bonds issuance programme to help fund big infrastructure needs in Africa’s biggest economy, aiming to tie the transaction to one of several projects, a Nigerian finance official told Reuters.

Nigeria plans to borrow as much as $10 billion from debt markets, with about half of that coming from foreign sources, to help fund a budget deficit worsened by the slump in oil prices that has slashed revenues and weakened the naira.

The federal government is working on a sovereign sukuk with details expected within the year as part of diversifying its funding sources, Alhaji Mahmoud Isa-Dutse, Nigeria’s permanent secretary of finance, said on Wednesday.

“We want to use debt more efficiently than we used to in the past. We are looking to borrow, but tied to infrastructure projects,” Isa-Dutse said on the sidelines of the annual meeting of the Islamic Development Bank in Jakarta.

The government wants to primarily access concessionary sources to fill its funding needs, but any shortfall would be covered through the capital markets, he added.

“Out of those debt plans, hopefully sukuk will be one of the sources - either domestic or foreign,” he said, adding sukuk could be linked to a wide range of projects, from power plants to railways.

Issuance of a sovereign sukuk is part of a strategic plan developed by the country’s debt management office to develop alternative sources of funding and to establish a benchmark curve for corporates to follow.

In 2013, Nigeria’s Osun State issued 10 billion naira ($62 million) of sukuk, but no other sukuk transactions have followed. (Reporting by Bernardo Vizcaino; Editing by Robert Birsel)