Another Sovereign Sukuk is Waiting in the Wings

IFN Monthly Article on Nigeria

Another Sovereign Sukuk is Waiting in the Wings


In the southeastern state of Cross River, the Ikom Bridge connects that state with the northern part of the country. Originally constructed in the 1960s, the bridge has over the years become obsolete, leaving it ill-suited to conveniently accommodate more modern and heavier vehicles of today. Consequently, there has been much talk of a new bridge over the years but a paucity of funding has hampered government’s best intentions. Until 2019 that is, as work finally commenced on the construction of a new bridge over the River Cross at Ikom. Thanks to the 2018 sovereign Sukuk, the national government received funding for a new bridge which is expected to ease movement along the road leading to the port.

Like Cross River state, other parts of Nigeria may witness a turnaround in physical infrastructure too, as plans are afoot to launch a third sovereign Sukuk. Just as the President hinted in his 2020 Budget speech a few months back, the Federal government announced to the public, through the Debt Management Office (DMO), of its intention to raise Sukuk in the first quarter of 2020. Similar to the two previous issuances, this proposed issue is aimed at the construction and rehabilitation of roads spread across the nation’s geopolitical zones. In response to the enthusiastic oversubscription witnessed in the last two issuances, the government is scaling up its offer this time to ₦150bn (c. $490mn), up from ₦100bn it raised in each of the prior issues. In a similar vein, I recall that in 2018, three new road projects were added to the then existing twenty five funded via Sukuk in 2017. Thus, the upsize in the offer might mean this Sukuk may fund a higher number of road projects than seen in the previous issuances.

Although, there is no information about the tenor yet, I suspect that the DMO may opt for options ranging between seven to ten years due to the nature of the projects to be financed with the Sukuk.

Asides playing a primary role of bridging Nigeria’s infrastructural deficit, the sovereign Sukuk issuances have also played a key part in enhancing financial inclusion in the country. Comparable to the jump in oversubscription from 5% in the first issuance to 32% in the second issue, retail participation in the second Sukuk climbed from 6.71% to 17.33% as investors saw evidence of use of proceeds in shorter travel times all over the nation. In my opinion, the regular payment of rentals on the existing instruments and a nationwide media campaign in the build up to the public offer should result in even higher retail numbers in this issuance.

On the institutional front, I expect that the rapid growth since the last issuance in the non-interest fund management space in particular and the non-interest finance industry in general, should lead to increased participation from this investor class this time around.

From the shape of things, 2020 is off to a flying start!

Hajara Adeola

CEO/Managing Director

Lotus Capital Limited – the Pioneer Islamic Financial Institution in Nigeria