The federal government has started the process of refunding about N1.91 trillion in excess subscription funds from its latest Sukuk funds, with most funds from high networth individual investors and institutional investors to be returned.
High-level sources said yesterday that the Debt Management Office (DMO)-which oversees the issuance and management of government’s debt issuances, had drawn a line and would not absorb the excess funds, despite overtures by several fund managers to scale up the issuance.
Federal government’s N300 billion 19.75 per cent seven-year Al’Ijarah Series V11 Sovereign Sukuk, which was settled last week, had recorded total subscription of N2.206 trillion, representing subscription of 735.3 per cent.
The Sukuk, issued on May 23, 2025, is due in May 2032 with annual rental rate of 19.75 per cent, payable twice a year.
Sources said while the government seen the huge oversubscription as a vote of confidence in mid to long-term macroeconomic direction, the nature of the Sukuk and government’s commitment to disciplined financial management would not allow absorption or warehousing of the excess funds.
A senior investment banker said Sukuk, as a project-tied issuance, does not allow for general fund raising as the size of the fund must be matched with intended projects prior to the issuance.
“Statutorily they have to refund the excess funds beyond the offer since they cannot accommodate beyond that. We must realise that Sukuk, unlike conventional bond, is project-tied and the projects and their relative costs must have been stated in the offer documents, which is legally binding,” the source said.
Another source said the May 2032 Sukuk had a specific approval from the National Assembly and could not be altered without recourse to the legislature.
An investment adviser said the huge oversubscription must have signaled to the government the macroeconomic outlook and the attractiveness of its return, thus the possibility of scaling down the rate in line with the improvement in the economy.
It was also gathered that the huge oversubscription could encourage the government to return to the alternative bond market for funding of critical infrastructure, given the depth of the market. The N300 billion Series VII Sukuk opened only for seven working days and was not extended. In five days, it had recorded its huge oversubscription and several intending subscribers were shut out to limit the excess funds.
A breakdown of the funds to be returned analysed by The Nation indicated that the highest amount of N578.25 billion would be returned to commercial and merchant banks, which had formed the highest subscribers to the Sukuk. These would be followed by non-interest financial institutions, which would be refunded about N499.12 billion.
A total of N341.22 billion would be returned to asset and fund management companies and another N149.42 billion to be refunded to corporate subscribers.
Other funds to be returned includ ethical pension funds administrators, N52.9 billion; general pension funds administrators, N90.7 billion; non-bank financial institutions, N170.2 billion; high networth individuals with subscriptions above N100 million, N12.82 billion, Islamic insurance or Takaful operators, N20.1 billion; microfinance and mortgage banks, N6.35 billion and general insurance companies, which N1.85 billion would be returned out of N2.06 billion committed to the offer.
Commercial and merchant banks had committed N642.5 billion to the offer, followed by non-interest financial institutions, with N599.18 billion. The other highest categories of subscribers were assets and fund managers, N341.22 billion; non-bank financial institutions, N179.15 billion; corporates, N166.02 billion and general pension funds administrators, with a total subscription of N100.82 billion.
The DMO had stated that the overwhelming response to the offer demonstrated the growing appetite among investors for non-interest financial instruments, as well as increasing confidence in the government’s borrowing framework and transparency in fund utilization.
“The level of subscription received is a strong indication of investors’ belief in the value of the Sukuk product, which also affirms the success of the DMO’s strategy to broaden the domestic investor base while providing ethical investment opportunities to all Nigerians,” the DMO stated.
A breakdown of the investor profile revealed that subscriptions came from a wide range of stakeholders. These included retail investors, non-interest banks and financial institutions, conventional banks, pension fund administrators, asset and fund managers, and a variety of other institutional investors.
The DMO stated that the diverse participation reflected a deepening awareness and acceptance of Sukuk as a viable and credible investment option within Nigeria’s fixed-income market.
According to the debt management agency, proceeds from the N300 billion raised would be deployed to finance critical infrastructure projects, particularly in road and bridge construction and rehabilitation across all six geopolitical zones and the Federal Capital Territory (FCT).
DMO noted that infrastructure investments financed through Sukuk have consistently delivered tangible results across the country.
DMO pointed out previous issuances under the Sukuk programme had been utilized to complete over 44 key road projects spanning more than 4,000 kilometers, while also improving access to rural and urban communities and reducing travel time and vehicle operating costs.
According to the agency, the Series VII Sukuk would build on that legacy by expanding the scope of infrastructure renewal, with several new projects expected to commence or reach completion under this latest funding phase.
It explained that project selection is usually coordinated in partnership with the Federal Ministry of Works and Housing and the Federal Ministry of Finance, ensuring alignment with national priorities and technical due diligence.
DMO reiterated its role in fostering access to safe and liquid investment products while facilitating inclusive participation in the capital market.
It also reaffirmed its commitment to supporting the implementation of the federal government’s medium- to long-term development plans, especially those that target inclusive growth through investment in transportation and logistics infrastructure.
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. (The Nation)
