Given the modest success the Debt Management Office (DMO) has achieved in utilising Sukuk bond to rehabilitate and construct new roads across the country, it is about time the instrument was extended to fixing other key infrastructures in the country, ABDULWAHAB ISA reports
Since its adoption as a means of financing major infrastructure in the country, Sukuk bond, as an instrument, have gained traction. Initiated by the Osun State Government and popularised by Debt Management Office (DMO), the debt agency has adopted the instrument as an efficient and convenient means of funding key infrastructures.
Impassable and decapitating roads have been fixed using the Sukuk instrument. From Zuba, an outer axis of Federal Capital Territory Abuja, to Abaji, stretching to Koton-Karfi in Kogi State, further up to Marina in Lagos, a major road connecting Lagos Island to Victoria Island, Falomo and Ikoyi in addition to other roads across the length and breadth of the country, Sukuk, as a debt instrument, has given government succor. An Islamic bond structured in a way to generate returns to investors without infringing Islamic law that prohibits “riba” or interest, Sukuk bond has been integrated into Nigeria’s financial space. Sukuk holders are entitled to a share in the revenue generated by the Sukuk assets.
Instrument for fixing road
It was in 2013 that the Osun State government blazed the trail by experimenting with the Islamic bond. The state was the first to adopt Sukuk for financing its major projects. It issued a N10 billion ($62) Sukuk, yielding 14.75 per cent. The state received N11.4 billion in total subscriptions for its seven-year paper from asset managers and Islamic funds.
From the modest beginning by Osun State in 2013, Sukuk gained rapid adoption. It was integrated into Nigeria’s debt instrument by the Debt Management Office. The debt agency latched on to the debt instrument, raising funds with it to rehabilitate bad roads and construct new ones across the country. In 2017, government took Sukuk a notch higher.
It raised N100 billion via Sukuk to facilitate the construction and rehabilitation of 25 priority road projects across the six geopolitical zones. The Minister of Finance at the time, Mrs. Kemi Adeosun, who presented a cheque of N100 billion to the Minister of Works and Housing at the time, Mr. Ba-batunde Fashola, said the money would be used to construct roads necessary for the country’s economic growth. “This is the first Sukuk for Nigerians. It’s an important development in our financial markets, because it’s about financial inclusion and deepening of our financial markets.
“The proceeds will be used to further support government capital spending for 2017 in the construction and rehabilitation of 25 key economic roads across the six geo-political zones of the country. The roads will ease commuting, spur economic activities across the country and further close our infrastructural gap,” she said. Proceeds of the first Sukuk raised by DMO were equally distributed at N16.67 billion for construction, fixing of some key roads spread across the six geopolitical zones.
The North Central had five projects, which included dualisation of Lokoja-Benin road, Abuja-Abaji-Lokoja road section one, three and section four and construction of Oju-Loko-Oweto Bridge over River Benue. Also, the North East got four projects namely the dualisation of Kano to Maiduguri road section two, three, four and five. Similarly, the North West region had four projects namely the dualisation of Kano to Katsina road Phase one, dualisation of Suleja to Minna roads in Niger State, phase two, construction of Kano Western bypass and the construction of Kaduna Eastern by-pass road.
Four projects benefited from the South East – rehabilitation of Enugu-Port Harcourt dual carriage way section two, Onitsha to Enugu expressway, Enugu to Port Harcourt dual carriageway sections one and three. For the South South, five projects benefited from the fund – dualisation of Yenegwe to Kolo to Otuoke to Bayelsa palm road. Other projects in the region included rehabilitation of Enugu to Port Harcourt road section four and the dualisation of Lokoja to Benin road sections two, three, four and five.
Three projects were executed in the South West region – reconstruction and asphalt overlay of Benin to Ofosu to Ore to Ajebandele to Shagamu dual carriageway phase three and four. Also the dualisation of Ibadan to Ilorin road section two was completed using the raised funds. Contractors, who benefitted from the funds were Arab Contractors Nigeria Limited, CCECC Nigeria Limited, CGC Nigeria Limited, Dantata and Sawoe Construction and Gitto Construction Generalli Nigeria Limited. Others were Salini Nigeria Limited, Mothercat Limited, RCC.
Between 2017 when DMO issued the first Sukuk bond, the debt agency had issued two additional ones. It issued N100 billion in 2018 and another N162.557 billion in 2020. Last week, it hinted at a plan to raise N250 billion via Sukuk this year. Between September 2017 and June 2021, DMO, on behalf of the Federal Government, had issued a total sum of N362.577 billion Sovereign Sukuk for financing roads across the six geo-political zones of the country. T he N250 billion bond being worked on is for financing of critical road projects across the country this year for the fourth consecutive time.
FG mulls extension to other projects
Sukuk bond as of today is restricted to road financing. However, there are strong indications that government is mulling the idea to adopt it in financing other infrastructure projects. DMO’s Director-General, Ms. Patient Oniha, alluded to it recently as a means of revenue generation. Oniha, who spoke recently at the third edition of Islamic Finance News Nigeria Road show organised by Nigerian Exchange (NGX) Ltd, said that the Federal Government was considering upscaling Sukuk for financing other key projects outside of roads. The DMO DG had said the issuance of Sukuk bonds could be used to support other projects that would be revenue-generating to service the Sukuk, even if it had to be issued in another currency.
“Certainly, we are working on Sukuk issuance for 2021. We have already received notification of interest; we are in the process of appointing transaction parties. I expect that by the third quarter of this year (2021), it will be out; it will almost be the same structure, although tenure may be different,” she was quoted saying .
“Going forward however, it may not be in the immediate term and not even next year; we need to upscale the Sukuk issuance to include other projects,” she added. She further explained that the existing capital market master plan recognised non-interest banking, which was initiated by the Central Bank of Nigeria (CBN), followed by the capital market, which also recognised non-interest financial products.
Given the value for money exemplified by Sukuk bond instrument in its application to fixing of roads across the country, its deployment to financing other key infrastructure would leave a legacy of optimum development.