The Federal Government has started the sale of a N100bn ($326m) debut sovereign sukuk on the local market to fund road infrastructure, the Debt Management Office has said.

The seven-year Islamic bond, which is structured as a lease, will yield a 16.47 per cent rental rate, payable semi-annually.

Subscription for the bond, which is guaranteed by the Federal Government, will close on September 20.

The debut sukuk was originally planned to go on sale in June for three days via book building.

Nigeria has a series of debt issues lined up this year, including a N20bn in “green bond”.

The Federal Government had raised $1.5bn Eurobond in the first quarter and sold another $300m Diaspora instrument.

The country is planning to borrow both locally and from offshore sources to help fund a budget deficit worsened by lower oil prices which have slashed government revenues and weakened its naira currency.

The country grew out of recession in the second quarter as oil revenues rose, but the pace of growth was slow, suggesting a fragile recovery.

The planned sukuk issue will target retail and institutional investors, with First Bank of Nigeria Limited and an Islamic wealth manager-Lotus Capital-managing the sale.

Nigeria is home to the largest Islamic population in sub-Saharan Africa, with about half of its 180 million people Muslims. It is also home to one of Africa’s growing consumer and corporate banking sectors.

The DMO said the bond would be tradable on the Nigerian Stock Exchange and on FMDQ over-the-counter platform and that it might re-open the offer in case of an undersubcription.

The Islamic bond sale is part of plans to develop alternative funding sources for the government and to establish a benchmark curve for corporates to follow, the DMO said.

In 2013, the Osun State Government issued N10bn sukuk, but no other sukuk transactions followed.

The Central Bank of Nigeria has been working to set regulatory ground rules for such things as Islamic bonds (sukuk) and insurance (takaful) to try to emulate the success of the industry in Malaysia.

The bank has set up liquidity support systems to its non-interest lenders after it issued guidelines last year to enhance the quality of sukuk instruments and grant the Islamic bond liquidity status at its discount window.

The naira is seen trading at between 359 and 362 against the United States currency next week boosted by the level of dollar liquidity on the market, traders said.

The naira, which has at least five different rates of exchange to the dollar, was quoted 360 for exchange bureaus, a rate which the central bank has maintained for retail currency outlets for more than three months.

The naira was quoted weaker at 367 on the black market on Thursday, mirroring the rate at which investors trade.

However, the currency was stuck at 306 on the official market.

“The central bank has been gradually moving its rate but I don’t think they are under pressure to converge the rates,” one trader said, adding that, “The bank would probably narrow the spreads but not a total convergence.”