The Federal Government will today open application list for a new sovereign Sukuk, seeking to raise N100 billion to fund additional road projects across the country.
The N100 billion Series V Sovereign Sukuk is a 10-year Sukuk; a non-interest, alternative instrument designed in a form of a lease with rental rate. Application list for the N100 billion Sukuk will close next week. The Sukuk will be listed on the Nigerian Exchange (NG) and FDQ Securities Exchange after completion
The Debt Management Office (DMO) which oversees Nigeria’s government debt issuances and management, indicated yesterday that the government is raising the new capital through a special purpose vehicle- FGN Roads Sukuk Company 1 Plc, which will apply the net proceeds of the Sukuk to development of identified roads.
The DMO outlined that the net proceeds from previous issuances had been used to finance the rehabilitation and construction of road projects, which were identified by select Federal Government’s ministries.
According to the DMO, as at June 2022, 25 projects had been funded from the earlier sovereign Sukuk including the dualisation of Lokoja-Benin Road, Abuja-Abaji- Lokoja Road sections one, three and four, construction of Oju-Loko-Oweto Bridge over River Benue , the rehabilitation of Enugu-Port Harcourt dual carriageway section two, Onitsha to Enugu Expressway and rehabilitation of Enugu to Port Harcourt Road section four.
The Federal Government had in 2017 launched its sovereign Sukuk issuance as a strategic initiative to support the development of critical infrastructure, promote financial inclusion and deepen the domestic securities market.
Sukuk as an alternative instrument to conventional bonds and it is based on the tenets of Islam which prohibits usury or lending with interest payments. Sukuk does not indicate the existence of any debt obligation as the issuer uses the proceeds from the certificate to purchase an asset, of which the investor also receives partial ownership.
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Nigeria’s N150 billion third sovereign Sukuk issuance had recorded oversubscription of N519.12 billion, sustaining a trend of oversubscription that started with the maiden issuance 2017. The Federal Government had in June 2020, issued a N150 billion seven-year Ijarah Sukuk due June 2027 with approximate rental of 11.200 per cent per annum.
The Federal Government had in September 2017 floated its first sovereign Sukuk, a N100 billion seven-year issue with a rental rate of 16.47 per cent. It was oversubscribed by 5.8 per cent. Government followed in 2018 N100 billion seven-year tenored Sukuk Al Ijarah (Lease) with annual rental rate of 15.743 per cent. It was also oversubscribed.
S&P Global Ratings projected that total Sukuk issuances may be between $145 billion and $150 billion in 2022; slightly optimistic yew than the previous year
According to the global rating agency; total Sukuk issuance stabilised at $147.4 billion last year compared with $148.4 billion in 2020 but foreign currency denominated issuance increased 10 per cent.
“We forecast total issuance of about $145 billion-$150 billion in 2022” S & P Global Ratings stated.
The report noted that Sukuk issuance volumes would be flat at best in 2022 amid lower and more expensive global and regional liquidity, increased complexity, and reduced financing needs for some core Islamic finance countries.
“On a positive note, we see opportunities created by the energy transition in core Islamic finance countries, higher environmental, social and governance (ESG) awareness from regional issuers, and stronger automation using fintech solutions as likely to support future Sukuk market growth” S & P Global Ratings stated.
Director General, Debt Management Office (DMO) Ms Patience Oniha, had said the government recognised the need to issue more Sukuk bonds given the increasing success and strong investor’s appetite for the alternative non-interest bonds.
According to her, the Sukuk initiative by DMO, which oversees national debt management, has been increasingly successful given the strong level of awareness that has been created.
She attributed the success of the Sukuk issuances to the increased confidence from market participants given that the Sukuk bonds are tied to specific projects that can be tracked.
“Looking ahead, we recognise the need to upscale issuances to include other standalone projects beyond road infrastructure, but more importantly, we are looking to support projects that are revenue generating to service the Sukuk” Oniha said
She added that there must be a focus on growing and diversifying the investor base for the Sukuk as well as other investment products.