Nigerian federal government to continue Sukuk momentum with third offering this year

In a bid to fund infrastructure projects, diversify its sources of funding and further achieve financial inclusion, Nigeria’s Debt Management Office (DMO) will print a third consecutive Sukuk facility by the end of the year following two successful issuances in 2017 and 2018, with plans for a dollar paper on the horizon. MARC ROUSSOT writes.

The forthcoming transaction, set to make Nigeria a regular African issuer of Shariah papers, should be similar to the past two deals worth NGN100 billion (US$271.37 million) each, as it will likely be denominated in the Nigerian naira and follow the Ijarah structure, Patience Oniha, the director-general of the DMO, revealed during the inaugural IFN Nigeria Forum which gathered over 200 market players in Lagos.

However, the Islamic facility could be of a larger size depending on market appetite and could have a longer tenor, extending from seven years for the past two papers to 10 years. The underlying asset has yet to be identified.

With this new Sukuk plan, the DMO is targeting to widen its investor base and to further promote financial inclusion, aiming for 30% or more of retail investors in the next deal.

In the first issuance, 5.1% of Sukukholders were retail investors, a percentage which jumped to 17.33% in the second issuance. This was achieved through a massive awareness and education campaign.

Besides domestic Sukuk, the DMO also has an international Sukuk issuance in the pipeline but the deal will certainly not be closed this year, Oniha said, adding: “The DMO’s strategy seeks to achieve a target of 40% external debt. As of December 2018, the DMO was at 22% so there is some room to go.” The DMO, which closed its second green bond sale worth NGN15 billion (US$41.31 million) on the 10th June, is also looking at green Sukuk in the future, although it would need more research to be done prior to going down that road.

With potentially three Sukuk in three years, and more Shariah papers in the pipeline, Nigeria would become one of the most advanced African sovereigns in leveraging the capacity of the Islamic capital market to fund infrastructure-based projects and achieve financial inclusion.

As of today, Nigeria, Sudan, Gambia, Morocco, Mali, Togo, Senegal, Mauritania and South Africa have issued Shariah securities in Africa. More are to come with Algeria, Kenya and Egypt having Sukuk plans.