• Wednesday, November 29, 2023
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Explainer: What to know about federal government’s N150bn sukuk issuance

On October 03, 2023 the Debt Management Office (DMO) announced an Offer for Subscription of its sixth Sovereign Sukuk for ₦150 billion (sukuk V1) with which it intends to again, pull in more money to enable government fund infrastructure.

The issuance which is the sixth in the series since the debut in 2017 is a 10-year Forward Al Ijarah, at a rental rate of 15.75%, payable half yearly and bullet sum at maturity.

Proceeds will be used solely for the construction and rehabilitation of key road projects and bridges across the six geopolitical zones of the country as identified by the implementing agencies of the government.

So far, the Debt Management Office (DMO) has raised ₦742.557 billion from the previous five issuances and deployed same to the rehabilitation and construction of 4,000 kilometers of road projects and bridges across the six geopolitical zones and the Federal Capital Territory.

Based on prescribed principles of Islamic law, Sukuk refers to sharia-compliant financial instruments representing undivided interests in the ownership of defined assets.

In September 2017, the DMO which is the government agency responsible for managing the public debt, commenced the issuance of Sukuk in September 2017 when the need to diversify sources of infrastructure funding became obvious.

Read also Nigeria’s Sukuk issuance win-win for government, investors, says DMO

But beyound developing infrastructure, sukuk was also launched as a tool to achieve other associated multiplier benefits which include: to offer ethical investors an opportunity to invest in government securities; achieve a higher level of financial inclusion; deepen the domestic financial markets, and set benchmarks for corporates and subnationals.

For the latest N150 billion issuance, Transaction parties include BURAQ Capital which is the Financial adviser; Greenwich merchant bank, Stanbic IBTC Capital, Vetiva capital management are the issuing houses.

Apel Capital and trust and FBNQuest are the delegate trustees while Abdulai Taiwo &Co as well as TSEDAQUA Attorneys are the solicitors.

The DMO further described it as a direct, unconditional, unsubordinated unsecured obligations of the Federal Government of Nigeria which ranks pari passu with other outstanding present and future unsecured obligations of the Federal Government of Nigeria

It also qualifies as Government securities within the meaning of Company Income Tax Act (“CITA”) and Personal Income Tax Act (“PITA”); Qualifies as Government securities within the meaning of Company Income Tax Act (“CITA”) and Personal Income Tax Act (“PITA”) for tax exemption for Pension Funds amongst other investors

Read also NGX admits DMO’s N130bn Sukuk

Like the earlier series, it is also classified as Liquid Assets by the Central Bank of Nigeria (CBN) and, therefore, qualifies as liquid assets for banks and other financial institutions. It further allows as securities in which trustees can invest under the Trustees Investment Act as well.

It is a Fixed-price public offering to all investors with a minimum subscription level of N10,000 at N1000 per unit and in multiples of N1,000 thereafter.

As a sovereign instrument, it is fully backed by the federal government and will be listed on the Nigerian Exchange Limited and FMDQ Securities Exchange Limited.

At the Investor Meeting on the issuance on Thursday in Abuja, Patience Oniha, Director General DMO, told investors that there are many reasons to invest in the Sukuk, including that it is responsible Investing, meaning that they are specifically structured to ensure that all funds are utilised on infrastructure projects.

Sukuk also encourages financial inclusion by providing an avenue for non-interest investors to participate in the fixed income securities market

The Sukuk provides an opportunity to further develop the savings culture in Nigeria, particularly among individuals and other retail investors.

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It is an appropriate investment opportunity for ethical investors and a vey low since te payment obligation under the it is an irrevocable obligation of the federal government of Nigeria.

In terms of liquidity, Sukuk holders can trade it on the Nigerian Exchange Limited and FMDQ Securities Exchange Limited.

Also, the Sukuk investment certificate may be used as collateral for securing credit facilities from financial institutions.

At the event, Oniha, said the sukuk issuance, so far, has been a win-win for the investors, federal government and citizens who use the infrastructure built with the proceeds.

Oniha said that in these past six years, sukuk has been a viable funding and investment option for the federal government’s infrastructure drive and investors respectively.

“The sukuk is a win-win for all of us, whether you are investing, using the roads and bridges, whether your travel time is now reduced on better roads, whether your business is leveraging better infrastructure built by the proceeds to expand and so on, it benefits everyone and the economy,” she told investors.