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Shortage of Diverse Investment Channels Drives Demand for Nigeria’s 3rd Sukuk Issuance

Nigeria on Friday said investors lapped up its third offering of Sovereign Sukuk bond with an overwhelming 446 percent subscription level to the N150 billion it had intended to raise at the auction.

According to the Debt Management Office (DMO), investors demanded a total of N669.124 billion of the bond but only N162.557 billion worth of the Islamic bond was allotted to investors. The debt was issued at a rental rate of 11.20 percent per annum with seven years tenor.

Nigeria had offered to raise N150 billion worth of the Islamic Sukuk bond in a bid to raise funds for some infrastructural projects across the country.

Analysts said the strong investors’ appetite for fixed income was due to the shortage of diverse investment channels to put their surplus cash in the face of falling yields across the board on all debt instruments. They said the 11.20 percent returns on the Sukuk represent a premium over many other fixed income instruments, including some of the high risk Commercial paper in the market.

“The impressive demand for the Sukuk came from a wide range of investors which included Ethical Funds, Insurance Companies, Fund Managers and Retail investors amongst others.

“This participation by a wide range of investors is in line with the DMO’s objectives of diversifying the investor base for Government Securities and promoting financial inclusion,” the debt office said in a statement late Friday.

The statement said the issuance of the third Sovereign Sukuk, which followed the debut issuance of N100 billion in September 2017 and the second issuance of another N100 billion in December 2018, was based on the DMO’s commitment to using borrowed funds to finance infrastructure.
It said the Sukuk Issuances are project-tied and are used to finance specific projects which are disclosed to investors.
The DMO said the proceeds of the issuance will be used to finance 44 critical Road projects across the Six geopolitical zones of Nigeria.

“The benefits from the earlier Sukuk Issuances, which were also used to finance roads, include improved safety on the roads, faster travel times, access to markets for farm produce and opening up parts of the country for development,” the debt office said.

sukuk is an Islamic financial certificate, similar to a bond in Western finance,  which complies with Islamic religious law commonly known as  Sharia. Sukuk involves asset ownership while bonds are debt obligations. Both sukuk and bonds provide investors with payment streams.

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