Sukuk

The paucity of funds to execute contending projects has seen governments around the world resorting to varied forms of borrowings.

Over the years, the international and domestic capital markets, in exploring various forms of funding options, have facilitated the prominence of ethical-based debt financing.

In recent times, the government and corporate entities in Nigeria have increasingly been accessing the capital markets to attract funding from investors inclined to a peculiar form of ethical-based debt instruments known as Sukuk.

Sukuk is sharia-compliant financial instruments representing undivided interests in the ownership of defined assets.

It is based on prescribed principles of Islamic law and proportionate interest of the holders in the ownership of tangible assets and services.

It also involves investment in the assets of particular projects and activities that adhere to the principles of Sharia.

When it was introduced in 2017, the Soveriegn Sukuk was received with suspicion by some stakeholders, due to its Sharia-compliant model.

However, over time, it appears to have gained accepted by Nigerians across ethnic and religious divides.

The Minister of Works and Housing, Babatunde Fashola, was one government official who dismissed insinuation that followed the sourcing of infrastructure funds from Sukuk, which assumed that it was part of the plan to Islamise the country.

Speaking at the inauguration and handing over of some completed roads in Benue recently, Fashola said that several road projects were currently funded under the Sukuk programme.

He said that the completed roads would positively impact the lives of the host communities, commuters, and the general public.

“These projects represent major investment in road transport infrastructure, which is a commitment of the Buhari administration as a driver for economic growth and prosperity.

“They are visible and incontrovertible assets in proof of what Nigeria’s resources are invested in from a combination of our earned resources and borrowings.,” he said.

Fashola was also present at the handing over of N250 billion 2021 Sukuk proceeds to the Ministries of Works and Housing, Federal Capital Territory and Niger Delta Affairs, for the implementation of various road projects, across the country.

He commended the Debt Management Office (DMO) for the Sukuk initiative, which, he said, was heavily criticised by some members of the public.

According to him, some calm came when the Federal Government explained that the first N100 billion was going to be applied equally to all the six zones of Nigeria.

“Meaning that each zone was going to get about N16. 6 billion and that any zone that felt that it was an attempt to islamise Nigeria should indicate that they don’t want the funds and that was the beginning of our journey,” he said.

He described the Sukuk option as a method of Public Private Partnership that had become successful in the country.

He said that the first Sukuk of N100 billion was deployed to 25 roads and delivered a total of N482 km

He added that the second Sukuk in 2018 was deployed to 28 roads and it delivered a total of 643 km.

“The third one in 2020, of N162 billion was deployed to 44 roads and delivered 757 km .

“Many of these roads had been awarded before we came but were not funded. Each year Sukuk came we were told the number of kilometres that we must deliver with this money,” he said.

Fashola said that part of the impact of Sukuk is that “it created jobs for 97 construction and contraction companies who are keeping people at work.

“They are demanding supplies of diesel, bitumen, asphalt and that is how the money is moving round the economy.

“When you pass any of these roads, say a prayer for DMO, say a prayer for the Ministry of Finance and say a prayer for the members of the National Assembly, because in government, nobody can do it alone, ” he said.

The Minister of the FCT, Muhammed Bello said that Sukuk had become a veritable means of funding infrastructure projects with private funds.

He said that the inclusion of FCT as beneficiary in the Sukuk funds, would facilitate completion of some critical roads, which would significantly ease traffic gridlock across the territory.

In 2017, the Federal Government, through the DMO raised N100bn seven-year debut Sukuk bond for the financing of 25 road projects across the six geo-political zones of the country.

The N100bn sukuk bond, which had a subscription of N105.88bn, was oversubscribed by about six billion Naira by investors including pension fund administrators, banks, and fund managers.

The DMO disclosed that some of the roads financed by the bond included the Abuja-Abaji-Lokoja Road, the Obajana-Okene Road, the Suleja-Minna Road, the Kaduna Eastern Bypass Road, Ibadan-Ilorin Road, Kolo-Otuoke-Bayelsa-Palm Road, Enugu-Port Harcourt Expressway, Kano-Maiduguri Road, and Damaturu-Potiskum Road.

In 2018, the DMO received over N132bn subscriptions from 2,073 investors for its N100bn seven-year 15.74 per cent, second Sukuk offer.

In 2020, the N150bn, third Sukuk offered to investors was also oversubscribed by N519.12bn.

The offer attracted a total subscription of N669.12bn, representing a subscription level of 446 per cent.

The DMO, again, offered N100 billion in its fourth Sukuk offer, at N1,000 per unit in November.

That, too, recorded about 165 per cent oversubscription.

According to the Director-General of the DMO, Patience Oniha, Sukuk bond offerings are designed to improve roads infrastructure, develop the financial market and also promote financial inclusion.

Oniha said that the Sukuk bond was significant in the sense that it provided the opportunity to raise that quantum of funds just for roads and bridges.

“The Sukuk has become a product that sells itself, but we will be happy to have a lot more people invest in it.

“We have several other products that both local and foreign investors can invest in, but the Sukuk has an added advantage in that it is financing infrastructure, driving retail investors and promoting financial inclusion.

“We are developing the financial market and also giving Nigerians more investment opportunities,” she said.

She added that the Sukuk was a product that Nigerians were demanding.

“Even the contractors are interested because they want to work, and once they are assured of payment they go to site and begin to work,” she said.

Oniha said that the recently issued N100billion Sukuk, which was issued at a rental rate of 15.64 per cent, brings the total Sovereign Sukuk issuance, since inception in 2017, to N752, 557 billion.

“The level of subscription is evidence of investors’ confidence in the use and impact of Sukuk in the construction and rehabilitation of road infrastructure across the country.

“The proceeds of the 2022 Sovereign Sukuk, like the previous Sukuk proceeds, will be used solely for the construction and rehabilitation of key road projects.

“The strong participation of retail investors, ethical funds and non-interest financial institutions in the Sukuk offering attest to the fact that the government’s objective of promoting financial inclusion is being achieved,’’ she said.

She said that the Sukuk funds had so far funded construction and rehabilitation of 71 roads and six bridges across the country, measuring 1,881 kilometres.

She assured that the DMO would work to sustain laudable achievements recorded so far in the use of Sukuk proceeds for the construction and rehabilitation of Nigerian roads.

The success of the Sukuk offers by the DMO has also encouraged some private financial institutions to embrace the model.

In September, TAJ Bank, a non-interest bank announced the commencement of its N10 billion 15 per cent Sukuk issuance programme.

According to the TAJBank’s Managing Director, Mr Hamid Joda, the Sukuk bond issuance is a very important milestone in the history of Nigeria’s capital market.

“I believe that after this issuance, we will see a number of companies in the Nigerian market coming out to issue Sukuk bonds and that will lead to deepening of the non-interest market and eventually economic development of Nigeria,” he said.

he Debt Management Office (DMO) has raised N615.557 billion through Sukuk for the rehabilitation and construction of new roads across the country in four years.

The director-general of DMO, Ms. Patience Oniha, made this known in her presentation entitled: ‘Nigeria Public Debt, Some Considerations’, at the Capital Market Correspondents Association of Nigeria (CAMCAN) 2022 conference in Lagos.

A Sukuk is an Islamic financial certificate that complies with Islamic religious law commonly known as Sharia. Corporations or governments invest capital raised in accordance with Sharia.

Oniha said N615.557 billion had been raised through Sukuk from September 2017 to December 2021, with N365.557 billion deployed to the construction of 1,881km of roads and six bridges.

She stated that the last Sukuk issued in December 2021 targets 71 road projects.

According to Oniha, some of Sukuk-funded projects are the reconstruction of Bida-Lambata road in Niger State, rehabilitation of Lagos-Ota-Abeokuta road in Lagos and Ogun states and rehabilitation of Enugu-Port Harcourt road section III Enugu-Lokpanta, in Enugu State.

“Others are the rehabilitation and reconstruction of Enugu-Port Harcourt dual carriageway section II (Umuahia-Aba in Abia State) and rehabilitation of Kano-Katsina road Phase I, Kano State, among others.”

The DMO director-general said the funds had been deployed to seven selected projects in various sectors, including renewable energy, agriculture, water, transport and afforestation.

Speaking on the purpose for borrowing, Oniha said governments borrow to finance budget deficits, finance specific projects and refinance maturing debt obligations.

TAJBank Limited, Nigeria’s foremost non-interest lender, says it has concluded plans to begin the issuance of its N100 billion Sukuk bond.

This is according to a statement by TAJBank’s Managing Director, Mr Hamid Joda.

According to Joda, the commencement followed the signing of all parties for issuance of the first ever non-interest private Sukuk bond offer in the nation’s capital market.

He said that the bank had secured all regulatory approvals required for opening the Sukuk to the general public, adding that the bond would be listed on the Nigerian Exchange.

Joda described the bank’s latest investment initiative as a very important milestone in the annals of Nigeria’s capital market development, while assuring investors of good returns on their investment in the TAJBank Sukuk bond.

“The Sukuk bond issuance is a very important milestone in the history of Nigeria’s capital market.

“I believe that after this issuance, we will see a number of companies in the Nigerian market coming out to issue Sukuk bonds and that will lead to deepening of the non-interest market and eventually economic development of Nigeria.

“My message to the investing public is to take advantage of the opportunity in view of its potential for good returns,’’ he said.

Joda said that the instrument was coming out at an expected rate of 15 per cent.

“It is also an ethical instrument and there are very few ethical instruments out there and I believe a lot of investors are looking for instruments that have ethical leaning,” he said.

Also speaking, TAJBank’s Executive Director, Mr Sheriff Idi, emphasised the importance of the Sukuk bond to the bank’s operations.

He said that TAJBank had capacity to provide financial support to needy enterprises with the attendant positive implications for the nation’s economic growth.

“In the last two years of the bank’s operations, we have raised additional capital apart from the Sukuk we are issuing now.

“With the Sukuk bond issuance, we wanted to raise TAJBank’s capital base to about N30 billion by the end of the year.

“That means we can now finance those sectors that probably some initially thought we cannot provide funding support. That is the essence of this Sukuk bond issuance,” he said.

Idi said that when the bank commenced business about two years ago, its capital base or finance obligor element was little, adding that it limited the bank’s financial support to people and businesses.

According to him, in view of the lender’s improved capital base and other positive financial trajectory recorded over the last two years, TAJ Bank will be fully positioned to surpass public expectations.

“It will ensure improved returns to shareholders and more positive impact on the economy.

“In the last two years, we have raised additional capital apart from the Sukuk we are issuing now,’’ he said.

The bank’s Chairman, Alhaji Tanko Gwamna said that the Sukuk bond would benefit investors in multidimensional ways.

According to him, the impact of the Sukuk bond on the economy is that we are trying to provide more liquidity for the economy and return on the investment is very favourable.

“We are virtually competing even more than what is available in the market because its potential returns on investment is going to be very huge to investors.

“The funds raised through the Sukuk bond and innovative deployment to needy sectors of the economy will help to create jobs and boost economic activities.

“It will also improve the non-interest banking sub sector’s contributions to the nation’s Gross Domestic Product (GDP) growth in the years ahead,” he said.

The Debt Management Office (DMO) has listed N250 billion Sovereign Sukuk on the Nigerian Exchange (NSE) Limited and the FMDQ Securities Exchange.

The N250 billion Sovereign Sukuk was issued in December 2021.

Proceeds from the Sovereign Sukuk, which was heavily oversubscribed, were meant for execution of infrastructural projects across the country.

According to the DMO, the listing is done to maximise market liquidity for investors in the Sovereign Sukuk

“To maximise market liquidity for investors in the Sovereign Sukuk, the DMO is listing the N250 Billion Sovereign Sukuk, which was issued in December 2021, on the NSE and the FMDQ Securities Exchange.

“The N250 Billion Sovereign Sukuk is the fourth one issued by the DMO and had a massive oversubscription of N865 Billion at time of issuance.

“This made it the highest subscription level recorded since the first Sukuk issuance in September 2017.

“It is also a representation of investors’ growing confidence in the benefits of Sukuk to the development of the Nigerian economy,” the DMO said.

It said that proceeds of the Sovereign Sukuk since its inception have been deployed towards the construction and rehabilitation of road networks across the six geopolitical zones.

It added that the impact of such projects have been evident.

“Currently, proceeds from the N250 Billion Sovereign Sukuk are being utilised across 77 key economic road projects in the country

“The projects include the completion of roads B6, B12 and Circle road, Abuja; Abuja-Lokoja road (Koton Karfe-Lokoja); and rehabilitation of Yola-Hong-Mubi road in Adamawa State.

“Others are dualisation of Kano-Katsina road; dualisation of Sapele-Ewu road; rehabilitation Of Old Enugu – Onitsha road; dualisation of Ibadan-Ife-Ilesah road; dualisation Of Akure – Ado Ekiti road, among others,” it said.

NAN reports that the DMO started the issuance of sovereign Sukuk in September 2017 as one of the measures towards attaining its strategic objective of bridging the infrastructure gap in Nigeria to promote job creation and economic growth.

Following the successful issuance of the N100bn debut Sukuk in 2017, the DMO issued another N100bn Sukuk in 2018.

Through the sovereign Sukuk initiative, the DMO said it had raised a total sum of N362.57bn in less than three years for the rehabilitation and construction of major economic roads across the country.

It said by issuing sovereign Sukuk, the product range available to investors in the domestic financial market had increased, while several retail investors had been attracted to the financial markets.

The Debt Management Office (DMO) says Kano has the highest number of subscribers in the Federal Government of Nigeria (FGN) Sovereign Sukuk offers.

Patience Oniha, the Director-General of DMO, said this on Tuesday in Kano, at the FGN Securities Issuance Awareness Programme organised by DMO in collaboration with CSL Stockbrokers Limited.

Oniha, who was represented by Hadi Barkun, DMO’s Director, Legal Services, urged Nigerians to take advantage of the investment opportunities in FGN securities.

“After this awareness programme, which will be beneficial to all, I urge residents of Kano to embrace all the available products,’’ she said.

According to Muhammed Bara, Team Head, Securities Issuance, the minium investable amount for the Sovereign Sukuk is N10,000, while there is no maximum.

Bara said that the DMO gave priority to retail investors in the instance that the Sukuk offer was oversubscribed.

He said that the Federal Government borrowing money from the local capital market through the various FGN securities was safer, though more expensive.

“Just like individuals are advised to diversify their investment portfolios, it is also advisable for the Federal Government to diversify its source of funding.

“Although, the risk in local borrowing is less, but the interest is higher,’’ he said.

Earlier, Ifeoma Ukwunna, Head, Retail Business of CSL Stockbrokers Limited, said that CSL was collaborating with the DMO to sensitise Nigerians on ways to diversify their investment portfolios.

Ukwunna said that the various attractive incentives provided by FGN securities were to encourage Nigerians to invest.

“FGN securities provide an opportunity for Nigerians to diversify their investment portfolios and to invest monies that are, otherwise, idle.

“Asides equities, real estate, agriculture and other investment opportunities, Nigerians are encouraged to also invest in FGN securities.

“There is safety, there is no threat of default and they are viable collateral for bank loans,’’ she said.

According to Ukwunna, if all resources are invested in one platform, it is exposed to risk.

“FGN securities provide opportunity for diversification of investment portfolio, provides steady income and they are liquid assets which are easily convertible to cash,’’ she said.

According to her, FGN securities are structured to meet easy investment needs of Nigerians.

She assured that interest payments remained constant, irrespective of the amount invested.

“For example, in the last FGN bond offer, interest rate was fixed at eight per cent per annum. This is applicable to those who invested N5,000 as well as those who invested N50million,’’ she said.

She said that payment of interest, as well as the principal sum at maturity was usually prompt.

“If there is delay in interest payment or bullet payment, investors shall contact CSL Stockbrokers Limited. The Federal Government pays on time,’’ she said.

A stockbroker, Sam Onabanjo, said that diversification of investment portfolio was required to dilute risky investments.

“A portfolio is a collection of individual securities. Equities are risky while government bonds are risk-free.

“Diversification of portfolios will dilute the risky investment. It is about reducing your average risk,’’ he said.