Kampala. Uganda's inaugural sovereign Sukuk has received a major boost after the Bank of Uganda classified its certificates as High-Quality Liquid Assets (HQLA).
According to the lead consultant for the Islamic bond, Sheikh Mohamed Issa, the move is expected to enhance its attractiveness to both institutional and individual investors.
The designation follows requests from prospective investors in Tanzania and Kenya during recent non-deal roadshows conducted by a delegation from Uganda's Ministry of Finance, Planning and Economic Development.
The delegation, led by Deputy Secretary to the Treasury Patrick Ocailap, met potential investors across the region to market the forthcoming Islamic bond.
Sheikh Issa said investors expressed interest in seeing the Sukuk qualify as HQLA, a status that has now been granted by the central bank.
HQLA refers to highly liquid assets that financial institutions can easily convert into cash during periods of financial stress.
The classification enables banks and other regulated institutions to include the Sukuk in their liquidity buffers to meet requirements under international banking standards such as Basel III.
“The status is expected to increase demand for the Sukuk by making it more attractive to commercial banks, fund managers and other institutional investors seeking liquid and low-risk assets,” he said.
In addition to supporting regulatory compliance, HQLA assets can be traded or converted into cash with minimal loss in value during periods of market volatility, he said.
For individual investors, the designation provides an additional benefit, as Sukuk certificates may be accepted as collateral by banks when seeking financing facilities.
Uganda is moving closer to issuing sovereign Sukuk worth €405 million.
The bond is backed by the government and has received Cabinet approval for both the issuance and the establishment of the special purpose vehicle (SPV) responsible for asset securitisation and Sukuk management.
The instrument is also supported by Uganda's strong economic outlook. According to project promoters, the country's sustained economic growth enhances investor confidence in the sovereign-backed offering.
To further strengthen investor protection, the Sukuk has been structured with Takaful insurance cover against potential defaults on rental payments and redemption obligations.
The arrangement involves several regional and international reinsurers, including C&C Re-Takaful, Africa Re, Tan Re and Kenya Re.
The Sukuk structure also includes a dedicated escrow, or sinking fund, account to support redemption payments and build technical reserves that can cushion against financial shocks.
In addition, the instrument benefits from Uganda's sovereign credit ratings of B (Stable) from Fitch Ratings and S&P Global Ratings.
The Sukuk itself is also expected to receive a rating from the International Islamic Rating Agency (IIRA).
