Stockbrokers on The Nigerian Stock Exchange have advocated more issuance of fixed income securities by the government to finance infrastructure deficit, describing the recent over-subscription of Sukuk Ijarsh, issued by the Federal Government as a clear demonstration of the market’s absorptive capacity.
Recently Federal Government floated a N150 billion Sukuk Ijarah, a financial instrument for ethical Investors that provides regular bi-annual tax-free payment with seven-year maturity and it was oversubscribed in excess of 400 percent.
But market watchers yesterday described the over- subscription of the N150 billion Sukuk Ijirah Offer as a double-edged sword as the Offer which snapped up over N600 billion from the market has largely contributed to the current bearish trend amid other perceived variables.
Appraising the historic subscription of the instrument at the weekend despite the inclement operating environment, Securities Dealers on The Exchange ascribed the success to factors such as investor confidence as the instrument is project-tied and assurance of ease of redemption being backed by full weight of the government. They urged the fe government to leverage such an instrument to mobilize fund to revive Nigeria’s ailing industrial base.
“ Federal Government should increase the pace of issuance of such an instrument as the market has demonstrated its absorptive capacity given the over 400% over subscription letter of the last Sukuk.”, the President, Chartered Institute of Stockbrokers, Mr Olatunde Amolegbe told The Kernel at the weekend.
Corroborating him, the Managing Director and Chief Executive Officer, Global Asset Management, Mr Babatunde Sobamowo noted that Sukuk was becoming famous of its structure as an Investment vehicle being used by the Federal Government. According to him, the instrument can boost implementation of the government’s Economic Recovery and Growth Plan (ERGP).
“ Sukuk confers on the subscribers, ownership of the assets being financed which in most cases are for ethical purposes. In recent times, they are used to finance roads ,railways and other infrastructure which are lacking in the country. They will serve as catalyst to the much needed development to boost our industrial and agricultural growth which will impact positively on our GDP as clearly spelt out in the Economic Recovery and Growth Plan (ERGP)
“ In order to ensure probity in the management of these underlying assets. It is advisable that Project Management Offices ( PMOS) are opened in all the sites where these funds are being deployed. It will afford all stakeholders to have an on the -spot assessment of the projects and the expected cash flows to be generated in paying the rental incomes due to the subscribers. Furthermore, regular facts behind the bonds should be done during its lifespan to avail all stakeholders to ask questions and profer solutions on projects that seem not to be meeting the set targets. This may open avenues and more awareness to the general public to participate in future.”, said Sobamowo.
The Managing Director and Chief Executive Officer, APT Securities and Fund Limited, Mallam Garba Kurfi explained that the projects being executed with Sukuk proceeds were visible across the country and this enhanced the instrument’s patronage by investors.
“ The FGN SUKUK 111 was over subscribed by over 400% which has not appeared in any public offer in Nigeria both in equity and bonds. This confirmed the confidence people have in Sukuk. It can be attributed to the underlying structure of Sukuk which is based on the existing projects and people can see across the country as shown on the road network. Therefore, the Investors are living testimonies of the projects, unlike a bond which cannot be directly attached to a project. Osun state started it but now FGN has taken the issues and this is third Sukuk despite lower rate compared with first and second which were 16.47% and 15.74% respectively. Although the rate has been crash to 11.20%, a reduction of 5.27% or by 33% , yet it was over -subscribed. It shows that FGN and State should employ this fina instrument means for infrastructure development as done in other jurisdictions.”, Kurfi told The Kernel.