Fashola Takes over N100bn Sukuk Infrastructure Bond

•  Fund earmarked for 28 roads in six geopolitical zones

Chineme Okafor in Abuja

The Minister of Power, Works and Housing, Mr. Babatunde Fashola, was Thursday in Abuja handed the second tranche of the federal government’s N100 billion sovereign Sukuk bond initiated to fund about 28 key road projects across the country.

Speaking at the handover ceremony performed by the Debt Management Office (DMO), the Minister of Finance, Mrs. Zainab Ahmed, disclosed that Pension Fund Administrators (PFAs); Deposit Money Banks (DMB) and retail investors were top subscribers of the bond.

The minister who explained that the seven-year bond was oversubscribed by 132.2 per cent as at December 2018, added that over 642 kilometres of road networks across six geopolitical zones of Nigeria would benefit from the fund.

She added that the PFAs which manages Nigeria’s largest pool of domestic capital of N8.3 trillion pension fund subscribed to the Sukuk bond by 40.69 per cent or N40.692 billion; followed by the N17.5 billion (17.5 per cent) and N17.32 billion (17.3 per cent) the DMBs and retail investors respectively subscribed with.

Other subscribers to the fund, the government said included fund managers and other non-bank financial institutions with N11.652 billion or 11.65 per cent; non-interest bank and ethical funds with N10.943 billion or 10.94 per cent; and other institutions investors who subscribed to the tune of N1.885 billion or 1.89 per cent.

According to her, each of the six geopolitical zones would get N16.67 billion from the fund, to undertake road projects which include six in North-central and South-south states, respectively; five in the North-east states; four in the North-west and South-east states respectively; and three in the South-west states.

It stated that key road projects such as the dualisation of the Lokoja-Abuja-Benin; Abaji-Lokoja; Kano-Maiduguri; Oyo-Ogbomosho; Benin-Shagamu; and rehabilitations of the Enugu-Onitsha and Enugu-Port Harcourt roads would be considered in the second Sukuk funding window.

Ahmed stated that there was a significant increase in the level of participation by retail investors in the fund subscription from about four per cent in the debut issuance in 2017 to 17.33 per cent in 2018, adding that this represented a good development in the government’s push for financial inclusion and deepening of investors’ base of government’s securities.

Ahmed, who noted that a total of 1,876 retail investors participated in the second Sukuk issuance, explained that the proceeds would support the government’s capital spending in its 2018 budget for road constrained rehabilitation.

“Each of the zones has equal allocation of N16.67 billion. The roads will ease commuting, spur economic activities across the country and further close our infrastructure gap,” said Ahmed.
She further stated: “The Sukuk funding option is part of the initiatives of the government to diversify government funding sources; while also deepening the Nigerian capital market, mobilising more savings and promoting financial inclusion.”

The minister added that the use of the Sukuk proceeds has an in-built investor protection mechanism, which includes the registered trustees monitoring the disbursements, and the fund been ring-fenced in a dedicated account at the Central Bank of Nigeria (CBN) to ensure that they are utilised only for road projects.

“The funds will be released to the federal ministry of power, works, and housing based on the framework agreed with the trustees in order to ensure transparency and accountability in the use of the proceeds,” Ahmed indicated.

Similarly, the Director General of the DMO, Patience Oniha, in her remarks about the Sukuk issuance, said investors in the bond had become comfortable with its offerings and impacts on Nigeria’s economy, and were willing to participate in the second tranche.

Oniha explained that borrowing by the government has had a multiplier effect on the economy.
She added that contractors on the country’s roads had now gone back to their construction sites and that work would now start in the interest of Nigeria’s economy.

“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,” said Oniha.

According to the DMO, the Sukuk bond, which would be due in 2025, has an interest rate of 15.743 per cent. It is also part of the domestic borrowing plan of the government’s 2018 budget.