The Debt Management Office (DMO) is banking on the N250bn sukuk issuance to enable it to comfortably meet or even surpass the federal government’s N3.145 trillion domestic borrowing target for 2021.
The DMO hopes to achieve an oversubscription of the Sukuk offer, as it again wooed investors on Monday to take up the instrument scheduled to finance critical road projects across the country.
“The New Domestic Borrowing for budget deficits for 2021 (including the Supplementary Budget) is N3.145 trillion out of which we have raised N2.895 trillion leaving an outstanding of N250billion. This is what we want to issue as Sukuk.
“Any other securities issuance we did in 2021 outside of the above was for refinancing maturities,” Patience Oniha, Director General, Debt Management Office (DMO) confirmed to BusinessDay Monday in a chat.
The N250bn issuance – the fourth in the series is a 12.80%, 10-year Ijara sukuk due 2031, and will be used to finance up to 71 key economic road infrastructure, identified by the Federal Ministry of Works and Housing, Federal Capital Territory Administration and the Ministry of Niger Delta Affairs.
As contained in the 2021 Fiscal Framework, the federal government projected N8.12 trillion total revenue to fund the 14.57 trillion aggregate expenditure – inclusive of the supplementary budget. The supplementary budget had pushed the fiscal deficit to N6.45 trillion, or 4.52 percent of GDP, expected to be financed mainly by domestic and external borrowings.
On December 6, Oniha disclosed that so far, the government had raised up to N2.8 trillion, some 90 percent of the domestic component, and hopes to shore the gap with the N250bn sukuk proceeds which is already on offer and closes on Wednesday, December 22.
The federal government, through the DMO had raised N362.557 from three ijara (Lease ) sukuk issuances in 2017, 2018 and 2020 which were all oversubscribed and used to fund a total of 97 roads, according to figures from the DMO. Proceeds from the three tranches were solely utilized by the Federal Ministry of Works & Housing (FMW&H).
The fourth tranche is expected to be utilized by the Federal Ministry of Works & Housing (FMW&H), Federal Capital Territory Administration (FCTA) & Ministry of Niger
Delta Affairs (MNDA), at N200bn, N37bn and N75bn respectively.
Read also: Debt has helped Nigeria rebound from economic shocks – DMO
At the investors forum for the sukuk which was held in Abuja on Monday Oniha, said that the expected investors include Individuals, Financial Institutions such as Deposit Money Banks, Insurance Companies, Pension Fund Administrators, Asset Management Companies, Non-interest financial Institutions. Others include, Cooperative Societies, Religious bodies, State Investment companies.
Oniha said the federal government opted for sovereign sukuk for a number of reasons, including to enable it fund the construction and rehabilitation of key economic roads across Nigeria and offer ethical investors an opportunity to invest in government-issued securities.
The government also hopes to achieve a higher level of financial inclusion, raise project-tied funds, and deepen the domestic financial markets as well.
Sounding great optimism of raising the N250bn, she said: “Certainly we believe we will raise the money or even surpass it, so, we have set the time as one week, similar to other offers in the market.
“But the reality is that since a month or two ago, we have already started the sensitisation process for the Sukuk. So investors have already set aside funds knowing that the Sukuk is coming.
“The second point is that investors have bought into the concept of Sukuk, so there is awareness and they will support it.
“Then thirdly, don’t forget one the major objective for issuing the Sukuk is for financial inclusion, so there are institutions and individuals who will not invest in our conventional products but will invest in this one, so the market is large.”
Speaking on reasons for the growing appetite for Sukuk, Oniha explained: “The first year we issued Sukuk was 2017, we offered a N100 billion, and we got subscription of N103 billion, so we had only 3 percent over subscription, the second year we got about N130 billion, last year we offered N150 billion, we have just been making progress, we got subscription of about N660 billion last year, we understand that it was COVID-19 period, but since then, our investors are becoming more aware.
“We are seeing increasing demands, but what has happened again is that with the national pension commission who regulate pension fund, the process for creating dedicated sukuk retirement savings account had taken off in June, meaning retirees or people who have contribution still working but want their funds invested in products like Sukuk, the funds can move away from the pool that are invested in FGN bonds, shares and the likes. So there is a dedicated liquidity coming from there.
“The third point I will say is that now we have a number of non-interest financial institutions, we have two banks already, there was only jaiz, but now there is TAJ, but there are others that are not banks, but there are non-interest financial institutions.
“So there is demand coming from different directions apart from the history of even the three Sukuk we have issued, and that is why we are optimistic.”
