BARBARA BAKO, Abuja.
With the successful issuance of Sukuk Bond from which over N100 billion was generated, the federal government is planning the issuance of fresh Sukuk to fund other infrastructure as it looks to bridge the deficit in the facilities required for the growth of the economy.
“By the the time the public is more aware because we would like to say for instance there are capital projects in the budget for N500bn we want to be assured if we issue sukuk of N500b the market can absorb it”, noted the Director General of Debt Management Office (DMO) Mrs. Patience Oniha who said this would be new direction to fund other capital projects.
The payment terms include a seven years agreement redeemable at maturity at every six months at 15.73%.
Sukuk or Islamic Bond is a financial instrument structured to generate returns to ethical investors without infringing on the Islamic law which forbids interest payments.
The government last Thursday gave N100 billion proceeds of the previous issuance to the works ministry to construc 642.69 kilometer of roads across the six geographical zones of the country.
Each of the zones got N16.67 billion for road construction. Breakdown of the roads for each zone shows that six roads would be constructed in the North Central, five in the North East , four in the North West, another four in the South East, six in the South-South and three in the South West.
Sukuk is a borrowing that is already included in the budget which was meant to fund projects in the budget. She said “The sukuk is not a different borrowing, it is a borrowing that was already included in the budget. Our first experience was last year so we are doing roads because the impact was so huge so we tried that and it worked. “So i think going forward we should be able to extend it to other capital projects. Don’t forget the capital releases that are done by the honourable minister also go to capital projects.” She said, “This sukuk we issued is a seven years sukuk and the we would redeem it at maturity meaning seven years from December last year we will redeem it at maturity the rentals like our FGN bond are paid every six months at 15.73% i think.” Commenting on the size of the FGN bonds, the DG said the volumes are large, and it is targeted not deliberately but at institutional investors such as Banks; Pension Fund Administrators; we are talking non-bank financial institutions.
She said “Let us start with the big one which is the federal government savings bonds. When i say big one i mean the volumes are large, and it is targeted not deliberately but at institutional investors. “When we are talking constitutional investors we are talking Banks, Pension Fund Administrators, we are talking non-bank financial institutions so those are the people that buy that one. “If you look at that segment in terms of liquidity because to invest in bonds, you need liquidity.
Its more like the PFA’s and the other segments. She added that “You know that for the banks, monetary policy has been tied so we don’t need to talk about too much so in terms of the surplus they have to invest in FGN securities. “Whether it’s treasury bills or bonds i think in some way because of the monetary policy stance, the ability has some what been reduced but having said that, our goal from about 2009 was to diversify that investment base anyway. “If you look at before up to 2008, the banks were taking up about 64% to 65% auctions.
Now they are taking much smaller because we reached out to Pension Funds; to Insurance companies and to other institutions so i think its a good thing. “For those key investors, the decrease you think you are seeing in the level of subscription, and the inching up of the interest rates has to do with largely with the level of liquidity in the system.” She said the FGN savings bond is targeted at retail investors and attempts had been made to carry the small investors along. She said “If we look at the FGN savings bond, it is targeted at the retail investors so it’s like the small investor some how doesn’t understand the FGN bond and doesn’t know how to invest in it. “Also our primary dealer market are also sitting in their head offices dealing with large decisions so we needed to come down and open a window for the retail investors.
“From the very first month the subscription was good, i wouldn’t say very high if you look at our expectations. What has also happened if you look through, if you buy this month with the savings you have you might not have built up enough the next month to invest in it again. “The retail investor typically has to build up savings to be able to invest, so what are we doing? We are doing alot of sensitisation.” In terms of the number of investors Oniha said, “we are getting, we will be glad to have a larger volumes but being able to get more investors, first time investors it’s also success for us and i think at the last count we had reached about 10,000 retail investors of the Federal savings bonds so that is also a measure of success for us.” On foreign investors pulling out their monies because of election, she said she had rather not tie it to elections but on what is happening in the global market.
She said “I won’t tie it to the elections, i will say what is happening globally, what is happening to interest rate in the international market because the foreign investors are looking for opportunities where ever in the world it is safe and returns are good where they can also come in and go out easily more like ease of entry and exit. “So to that extend i would say probably bigger issues happening outside in terms of interest rates that would affect them more easy than the elections but let me quickly say i believe in May 2015 for instance we actually had a higher level of subscription level from foreign investors.
“When i say higher, when you think they are waiting to see what happens for that FGN bond auction it was actually higher. Having said that lets quickly look at our strategy, generally, we are not looking at concentrating on one investor group which explains why we started diversifying to various other investors segment.” The DG said that the focus of the government is for domestic investors to participate freely in the market. “We are happy to have foreign investors but we also want to have more domestic investors participate in the market,” she added.
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