Hats Off to Nigeria – Third Sovereign Sukuk Records over 400% Subscription

IFN Monthly Article on Nigeria

Hats Off to Nigeria – Third Sovereign Sukuk Records over 400% Subscription


“Investors Scramble for the Third Sovereign Sukuk” was the headline of the official press release issued by the Debt Management Office (DMO) of Nigeria following the its just concluded Sukuk 2027 offer. After a hiatus in 2019 due to a change in the budget cycle, the Nigerian government returned to the Sukuk market for the third time on May 21, 2020. Unlike previous issuances which were for N100 billion each, the DMO upped the offer size by 50% to N150 billion. It also increased the number of road projects earmarked for Sukuk funding to 44, from 28 in the prior issuance. After an offer period that cut through the Eid holidays, subscriptions of N669bn ($1.86bn) poured in – more than four times the amount offered. Following the enthusiastic reception, the DMO allotted a total of N162.6 billion ($450 million) or 8% more than the initial N150bn.

The Sukuk is based on the ijara mawsoofa bi al dhimma structure and has a tenor of seven years. The rental rate is set at 11.20% per annum with scheduled semi-annual payments and a bullet final payment. The duo of Lotus Financial Services Limited and FBNQuest Merchant Bank who advised on the previous issuances also served as Joint Financial Advisers and Joint Book runners in this round.

For avid followers of the Nigerian Islamic finance space, the results of the Sukuk offer are nothing short of spectacular. For one, the impressive subscription outstripped previous levels of 132% and 105% for issuances in 2018 and 2017 respectively, highlighting increased investor acceptance and confidence in the instrument. Furthermore, the Sukuk offer occurred against the backdrop of the COVID-19 pandemic and movement restrictions in many cities. This required the effective usage of media and technology for marketing and administration during the Offer, which is a feat in itself in this part of the world. Despite the challenges, the number of retail subscribers more than doubled from prior issuances, furthering the government’s financial inclusion objective.

The icing on the cake is that investors are demonstrably excited to see their funds being used to build critical infrastructure in one of Africa’s most promising countries. From the first Sukuk, the Nigerian government has consistently applied the proceeds to constructing and rehabilitating roads and bridges across all its major economic centres. The government expects its focus on critical infrastructure to shorten journey times, improve road safety, enhance commercial activities and ultimately create more jobs and prosperity. For me, like many investors who have traversed the country by road and come across smooth sections of road marked, ‘funded by Sukuk’, the proof of the value of the ‘Sukuk pudding’ is very much in the eating. While announcing the results of its latest offer, the DMO gave clear indications of its readiness to return to the Sukuk market. With the demand for the Sukuk outstripping supply four-fold, the Nigerian sovereign Sukuk has joined the global experience of Sukuk issuance. It also means that pricing is tighter, and we can expect to see more sovereign issuances and hopefully corporate Sukuk to follow swiftly. What is clear is that with close to $2bn chasing a Sukuk offer of $420m, the question of whether or not there is a market for Sukuk in Nigeria has been unequivocally answered in the affirmative!