The federal government is seeking to raise some N300 billion through a new Sukuk issuance as part of efforts to diversify government’s funding sources and accelerate the pace of infrastructural development.

The N300 billion Sovereign Sukuk is a seven-year Sukuk due 2032; a non-interest, alternative instrument designed in a form of annual rental income. The annual rental income is 19.75 per cent. Sukuk is a non-interest, asset-backed instrument, based on the principles of Islamic finance.

The Debt Management Office (DMO), which oversees Nigeria’s government debt issuances and management, indicated yesterday that the offer would open today with a minimum subscription of N10,000. The offer closes on May 20, 2025.

The Sukuk serves the dual purposes of diversifying government’s funding for critical national infrastructural projects and also expanding the domestic investment market to meet the need of ethical investors.

The Sukuk is being offered at N1,000 per unit, subject to a minimum subscription of N10,000 and in multiples of N1,000 thereafter.

The rental payment will be made half-yearly while the bullet repayment will be done on the date of maturity.

As a sovereign issuance, the Sukuk is backed by the full faith and credit of the Federal Government and it qualifies as securities in which trustees can invest under the Trustee Investment Act. It also qualifies as government securities within the meaning of Company Income Tax Act and Personal Income Tax Act for tax exemption for pension funds among other investors. It is also classified as liquid asset by the Central Bank of Nigeria (CBN) and certified by the Financial Regulation Advisory Council of Experts of the CBN.

The N300 billion Sukuk will be listed on the Nigerian Exchange (NGX) and FMDQ Securities Exchange Limited upon completion.

Managing Director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe, described the Sukuk as a high-yielding investment with predictable cashflows.

According to him, the Sukuk provides a good route for wealth accumulation and investment compounding.

“Aside from the fact that it is a gilt edge bond that is covered by the full faith and credit of the Federal Government, this particular instrument has good rate of return at nearly 20 per cent. It also provides an excellent investment outlet for ethical investors that do not what interest-based investment to put their investments in,” Amolegbe said.

He noted that the Sukuk is recognised as a liquid asset as it can be converted to cash within two days on securities exchanges.

Sources said the government could raise more than N300 billion, citing the historical issuance trend.

The federal government had in 2017 launched its sovereign Sukuk issuance as a strategic initiative to support the development of critical infrastructure, promote financial inclusion and deepen the domestic securities market.

Sukuk as an alternative instrument to conventional bonds and it is based on the tenets of Islam which prohibits usury or lending with interest payments. Sukuk does not indicate the existence of any debt obligation as the issuer uses the proceeds from the certificate to purchase an asset, of which the investor also receives partial ownership.

Nigeria’s N150 billion third sovereign Sukuk issuance had recorded oversubscription of N519.12 billion, sustaining a trend of oversubscription that started with the maiden issuance 2017. The Federal Government had in June 2020 issued a N150 billion seven-year Ijarah Sukuk due June 2027 with approximate rental of 11.200 per cent per annum.

The Federal Government had in September 2017 floated its first sovereign Sukuk, a N100 billion seven-year issue with a rental rate of 16.47 per cent. It was oversubscribed by 5.8 per cent. Government followed in 2018 N100 billion seven-year tenored Sukuk Al Ijarah (Lease) with annual rental rate of 15.743 per cent. It was also oversubscribed.

Director General, Debt Management Office (DMO) Ms Patience Oniha, had said the government recognised the need to issue more Sukuk bonds given the increasing success and strong investor’s appetite for the alternative non-interest bonds.

According to her, the Sukuk initiative by DMO, which oversees national debt management, has been increasingly successful given the strong level of awareness that has been created.

She attributed the success of the Sukuk issuances to the increased confidence from market participants given that the Sukuk bonds are tied to specific projects that can be tracked.

“Looking ahead, we recognise the need to upscale issuances to include other standalone projects beyond road infrastructure, but more importantly, we are looking to support projects that are revenue generating to service the Sukuk,” Oniha said.