Given the modest success the Debt Management Office (DMO) has had in using Sukuk bonds to rehabilitate and build new roads across the country, it is time for the instrument to be extended to repair other key infrastructures in the country, reports ABDULWAHAB ISA
Since its adoption as a means of financing the country’s major infrastructure, Sukuk bonds, as an instrument, have gained ground. Initiated by the Osun State government and popularized by the Debt Management Office (DMO), the debt agency has adopted the instrument as an efficient and convenient way to finance key infrastructure.
Impassable and scouring roads were repaired using the Sukuk instrument. From Zuba, an axis outside the territory of the federal capital Abuja, to Abaji, extending to Koton-Karfi in Kogi State, further to Marina in Lagos, a main road connecting the island of Lagos to Victoria Island, Falomo and Ikoyi in addition to other routes across the length and breadth of the country, Sukuk, as a debt instrument, provided support to the government. An Islamic bond structured to generate returns for investors without breaking Islamic law which prohibits “riba” or interest, the Sukuk bond has been integrated into the Nigerian financial space. Sukuk holders are entitled to a share of the income generated from the assets of Sukuk.
Instrument for road fixing
It was in 2013 that the Osun State government led the way in experimenting with the Islamic bond. The state was the first to adopt Sukuk to finance its major projects. He issued a 10 billion naira ($ 62) sukuk, earning 14.75 percent. The state received N11.4 billion in total subscriptions for its seven-year paper from asset managers and Islamic funds.
From the humble beginnings of Osun State in 2013, Sukuk was quickly adopted. It has been incorporated into Nigeria’s debt instrument by the Debt Management Office. The debt agency latched onto the debt instrument, raising money with it to rehabilitate bad roads and build new ones across the country. In 2017, the government took Sukuk up a notch.
It has raised 100 billion naira through Sukuk to facilitate the construction and rehabilitation of 25 priority road projects in the six geopolitical zones. The then finance minister, Ms Kemi Adeosun, who handed over a check for 100 billion naira to the then minister of public works and housing, Mr Ba-batunde Fashola, said the money would be used to build the roads necessary for the economic growth of the country. âThis is the first Sukuk for Nigerians. This is an important development in our financial markets, because it is about financial inclusion and the deepening of our financial markets.
âThe proceeds will be used to further support the government’s capital spending for 2017 in the construction and rehabilitation of 25 key economic roads across the country’s six geopolitical zones. The roads will facilitate commuting, stimulate economic activity across the country and further bridge our infrastructure gap, âshe said. Proceeds from the first Sukuk raised by DMO were split evenly at N16.67 billion for construction, repairing some key roads spread across the six geopolitical zones.
The north-central had five projects, which included the dualisation of the Lokoja-Benin road, sections one, three and four of the Abuja-Abaji-Lokoja road and the construction of the Oju-Loko-Oweto bridge over the Benue river. Also, the Northeast obtained four projects, namely the dualisation of road sections from Kano to Maiduguri two, three, four and five. Likewise, the North-West region had four projects namely the dualisation of the road from Kano to Katsina Phase one, the dualisation of the roads from Suleja to Minna in the State of Niger, phase two, the construction of the ring road. West Kano and construction of the East Kaduna Bypass.
Four projects benefited South East – rehabilitation of section two of the two-lane Enugu-Port Harcourt road, the highway from Onitsha to Enugu, sections one and three of the two-lane road from Enugu to Port Harcourt. For the South South, five projects have benefited from the fund – dualisation from Yenegwe to Kolo to Otuoke to Bayelsa palm road. Other projects in the region included the rehabilitation of section four of the Enugu road in Port Harcourt and the dualisation of the Lokoja road in Benin of sections two, three, four and five.
Three projects were carried out in the South West region – reconstruction and asphalt paving from Benin to Ofosu to Ore to Ajebandele to Shagamu two-lane, phases three and four. In addition, the dualisation of Ibadan at section two of the Ilorin road was carried out thanks to the funds raised. The contractors who benefited from the funds were Arab Contractors Nigeria Limited, CCECC Nigeria Limited, CGC Nigeria Limited, Dantata and Sawoe Construction and Gitto Construction Generalli Nigeria Limited. The others were Salini Nigeria Limited, Mothercat Limited, RCC.
Between 2017, when DMO issued the first Sukuk bond, the debt agency issued two more. It issued 100 billion naira in 2018 and another 162.557 billion naira in 2020. Last week, he hinted at a plan to raise 250 billion naira through Sukuk this year. Between September 2017 and June 2021, DMO, on behalf of the federal government, issued a total of 362.577 billion sovereign naira for the financing of roads through the six geopolitical zones of the country. The 250 billion naira bond being worked on is intended to fund critical road projects across the country this year for the fourth time in a row.
FG is considering an extension to other projects
The Sukuk bond as of today is limited to road financing. However, there are strong indications that the government is considering the idea of ââadopting it in the financing of other infrastructure projects. DMO’s CEO, Ms. Patient Oniha, recently alluded to it as a way to generate income. Oniha, who recently spoke at the third edition of the Islamic Finance News Nigeria Road show hosted by Nigerian Exchange (NGX) Ltd, said the federal government is considering increasing Sukuk to fund other key projects outside roads. The DMO CEO had said that the Sukuk bond issue could be used to support other projects that would generate income to serve the Sukuk, even if it were to be issued in another currency.
âCertainly, we are working on the Sukuk show for 2021. We have already received a notification of interest; we are in the process of appointing parties to the transaction. I expect that by the third quarter of this year (2021) it will be out; it will be almost the same structure, although the mandate may be different, âshe said.
âIn the future, however, it may not be immediately and not even next year; we need to increase Sukuk’s show to include other projects, âshe added. She further explained that the existing capital market master plan recognized interest-free banking services, initiated by the Central Bank of Nigeria (CBN), followed by the capital market, which also recognized interest-free financial products.
Given the value for money exemplified by the Sukuk bond instrument in its application to repairing roads across the country, its deployment to finance other key infrastructure would leave a legacy of optimal development.
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