DMO hands over N100bn Sukuk proceeds to govt for road projects
The Debt Management Office (DMO) on Thursday handed over the proceeds of the second tranche of the N100-billion sukuk issuance for the construction and rehabilitation of 28 key economic road projects contained in the 2018 Budget.
The road projects totalling 642.69 kilometres are located in the six geopolitical zones of the country, with each zone having a total allocation of N16.67 billion.
Babatunde Fashola, minister of Power, Works and Housing, received the symbolic cheque at a brief event in Abuja.
Finance Minister Zainab Ahmed, who handed over the cheque, assured on adequate utilisation of the fund to build some of those critical roads which would ease commuting, spur economic activities across the country and further close the country’s infrastructure gap.
The Federal Government of Nigeria on December 28, 2018 issued a seven-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 percent in the debut Issuance in 2017 to 17.33 percent 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 Administrators 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 invested about N17.3 billion; fund managers & non-bank financial institutions, N11.65 billion; noninterest banks/ethical funds, N10,94 billion, while other institution investors committed about N1.885 billion.
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 and Exchange Commission will monitor the disbursement of the sukuk proceeds.
The minister also noted that the funds were released to the 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 proceeds.
“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,” she said.
Patience Oniha, director general, 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”.