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DMO hands over N100bn Sukuk proceeds to govt’ for road projects

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The Debt Management Office (DMO) on Thursday handed over the proceeds of the second tranche of the N100bn sukuk issuance for the construction and rehabilitation of twenty-eight (28) key economic Road Projects contained in the 2018 Budget.

The Road Projects totaling 642.69 kilometers are located in the six geo-political zones of the country with each zone having a total allocation of N16.67 billion.

Babatunde Fashola, minister of Power, Works and Housing received that the symbolic cheque at a brief event in in Abuja.

Finance minister Zainab Ahmed who handed over the cheque assured on adequate utilization of the fund to build some of those critical roads which would ease commuting, spur economic activities across the country and further close our infrastructural gap.

The Federal Government of Nigeria on December 28, 2018, issued a 7-year N100 billion Sovereign Sukuk (15.743% N100BN Al Ijarah Sukuk due 2025) as part of the new domestic borrowing in the 2018 Budget to finance road projects.

Details from the DMO indicate that the offer attracted significant interest from a wide range of retail and institutional investors with a total subscription of N132.20 billion, which represents a
subscription rate of 132.2 percent.

FBNQuest Merchant Bank Limited, Lotus Financial Services Limited, Banwo & Ighodalo and Sefton Fross, FBNQuest Trustees Limited and STL Trustees Limited serve as the Transaction Parties of the deal which the DMO calls a huge success.

Retail Investors accounted for 17.33 percent of the total allotment compared to 4 percent recorded in the debut issuance, and authorities say this indicates that the objectives of financial inclusion and deepening of the investor base for FGN securities, in addition to infrastructure funding were being achieved.

“The significant increase in the level of participation by Retail Investors from about 4% in the debut Issuance in 2017 to 17.33% in 2018 means that the objectives of financial inclusion and deepening of the Investor Base of FGN Securities are gradually being achieved,” Ahmed said.

“A total of 1876 Retail Investors participated in the Sukuk Issuance.”

However Pension Fund Administration invested the largest amount, N40.69 billion representing almost 41 percent of the total, followed by the Deposit Money Banks which invested N17.5 billion; Retails investors, about N17.3 billion; fund managers & non-bank financial institutions, N11.65 billion; Non-interest banks/ethical funds, N10,94billion; while other institutions investors committed about N1.885billion.

The finance minister further explained that the Sukuk funding option was part of the initiatives of the government to diversify government funding sources, while also deepening the Nigerian capital market, mobilising more savings and getting more people into the financial net.

She said that the use of proceeds of the issuance has an in-built investor protection mechanism in two forms: The Trustees (FBNQuest Trustees Limited and STL Trustees Limited) both registered by Securities & Exchange Commission will monitor the disbursement of the
Sukuk Proceeds.

She also noted that the funds were released to the Ministry of Power, Works & Housing based on the framework agreed with the Trustees in order to ensure transparency and accountability in the use of proceeds.

According to her, “The Sukuk proceeds have been ring-fenced in a dedicated account at the Central Bank of Nigeria to ensure that they are utilised only for the Road Projects.

Patience Oniha, Director General of DMO noted that the high level of subscription and participation by a diverse range of investors demonstrate the high level of investor confidence in the financing product, particularly, “because the Road Projects funded with the Proceeds of the first Sukuk that was issued in 2017 were evident for all to see.”

She maintained that the twenty-five (25) Road Projects, which benefited from the debut Sukuk have resulted in improved transportation across the six (6) geo-political zones.
“The proceeds of this second Sovereign N100 billion Sukuk will also be deployed to financing infrastructure, in keeping with the Government’s commitment to bridging the infrastructural gap.

“The proceeds will be for the Construction and Rehabilitation of Twenty-Eight (28) key economic Road Projects in the 2018 Budget. The Road Projects are located in the six (6) Geo-political Zones of the country with each Zone having a total allocation of N16.67 billion.”
She further noted that the “Sukuk has become a veritable tool for financing infrastructure which has several multiplier effects including job creation and boosting economic activities.
“In addition to being a viable tool for financing infrastructure, the Sovereign Sukuk promotes financial inclusion and the development of the domestic financial markets”

In his comment, Minister Fashola emphasized that the huge impact of the first tranche in terms infrastructure, economic growth and multiplier effect was huge.

“We are borrowing to finance infrastructure projects that will last for a long time and make the needed impact,” he argued.

 

Onyinye Nwachukwu, Abuja

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