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Thank you @FinPlanKaluAja1 for the question, attached below. When this particular friend asks me, I am obliged to answer :)

This relates to the topic of Islamic bonds (Sukuk) which I explain here:


Now, let's look at this Sukuk issued in Nigeria...
Ok, this is an interesting structure for the FGN roads Sukuk.

I believe this is the diagram here below:

I hope you can read it, if not the link is here:
barometerng.com/all-you-need-t…

So, what is going on here?
First, the Investors deliver funds to the SPV called FGN Roads Sukuk Company, and this SPV then uses the funds to purchase the rights to some tracts of land from the government.

AND also engages the FGN to deliver a project, which is the construction of roads.
Once this project is completed, then these roads are leased by FGN from the SPV and lease payments made to the SPV, and funnelled through to investors.

This raises a question – the lease payments can only begin once the roads are complete, but Sukuk investors
want their coupon to start immediately.

So how is this fixed?

Well, FGN enters starts to make ADVANCE lease payments, before the roads are completed. This ensures the investors get their coupons from day 1.
Now, when the Sukuk matures, the SPV, as owner of the roads now SELLS these roads back to FGN. FGN delivers the sale price, which will be the face value of the Sukuk / bond, and this money is used to repay the investors and the Sukuk matures.
The key here is credit risk – the lease payments are backed by the credit risk of FGN, as is the final purchase of the roads. Hence, the investors face credit risk of FGN both on coupons and redemption at maturity. And this is the exact risk the investors want.

Hope its useful
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