ISLAMIC FINANCE
Nigeria Sukuk As part of its policy to diversify its sources of public debt financing, the Federal Government of Nigeria (FGN) is turning to sukuk issuance as a viable alternative fund-raising instrument, linked exclusively to road infrastructure development
By Mushtak Parker
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ccording to Fitch Ratings, “Sukuk instruments have been made part of the government’s debt management strategy for 2020-2023.” In February 2022, Patience Oniha, the Director-General, of the Debt Management Office (DMO) at the Ministry of Finance, together with the Minister for the Federal Capital Territory (FCT) Malam Muhammad Musa Bello,
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launched the FCT Sukuk Technical Committee “towards the issuance of the FCT’s debut sukuk in the nearest future.” Compared with the DMO’s prolific FGN conventional bond issuance, Nigeria’s local sukuk market, says Fitch, remains in its early stages of development, with its share of the global sukuk market low at 0.15% at end-2020. However, Nigeria’s sukuk market global share was the highest among African countries, ahead
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of Egypt (0.04%), Senegal (0.04%), and Morocco (0.02%). But “local-currency sukuk issuance,” added Fitch, “is expected to pick up in the medium term, as the sovereign seeks alternative funding sources and domestic investor appetite for sukuk as an alternative asset class increases. The Islamic finance industry in Nigeria is expected to continue its moderate growth trajectory in 2022-2023. Growth will be driven by top-down government support for the sector, sukuk issuance by the federal government, asset growth by newly-established Islamic banks and enabling regulations.” In February 2022, Oniha handed over a cheque for N250bn ($610m) to Nigerian Finance Minister Dr Zainab Shamsuna Ahmed and the Minister for Works and Housing Raji Babatunde Fashola, the proceeds from the DMO’s latest benchmark 10-year Sukuk Ijarah sovereign domestic offering at end December 2021. The FGN sukuk embodies two key sustainability features – infrastructure and financial inclusion. “We consider sukuk to be one of the useful and accepted products for raising funds,” explains Oniha. “The proceeds from the issuance will be used solely for the construction and rehabilitation of 44 arterial roads across the six geopolitical zones of the country. Issuing further Sukuk in 2022, will depend on eligible projects in the 2022 Appropriation Act.” According to Oniha, sovereign Sukuk diversifies the product range available to investors in the domestic financial market, widens the investor base and promotes financial inclusion by attracting several first-time retail investors. This latest 10-year sukuk is the fourth such offering of the DMO to date, bringing Nigeria’s aggregate naira-denominated sukuk issuance to N612.57bn ($1.49bn), building up a yield curve for the instrument in the process. The sukuk are guaranteed by the FGN and is priced at a fixed rental rate of 12.8% per annum. The transaction involved
