The Federal Government has issued a subscription of N150 billion Sukuk through the Debt Management Office (DMO). The offer was opened Thursday as the government plans to use the capital for construction and rehabilitation of key roads across the country.
Sukuk is a legal instrument, deed, and cheque. It is an Islamic financial certificate sold to a group of investors. Usually, the issuer makes a contractual promise to purchase the bond back in the future at par value since Islam is against interest-payment. The capital raised by the issuer is used to acquire assets that will be partially owned by the group investors.
The government has stated that it plans to borrow more to support the government's plans for the year as the 2020 budget has a deficit of N5.3 trillion. So FG is tapping into a different source of credit to enable it fund infrastructure across the six geopolitical zones of the country. Sukuk are structured for identifiable assets.
What you need to know about FG's offer
ISSUER: FGN Roads Sukuk Company 1 Plc. on behalf of the Federal Government of Nigeria.
UNITS OF SALE: N1,000 per unit subject to a minimum subscription of N10,000 and in multiples of N1,000 thereafter.
SECURITY: Backed by the full faith and credit of the Federal Government of Nigeria.
USE OF PROCEEDS: Proceeds will be used solely for the construction and rehabilitation of key roads across the six geopolitical zones of the country.
TENOR; Rental rate is 11.20 % per annum, payable half-yearly. The bond has a tenor of 7 years and will mature in June 2027.
What you need to know about Sukuk and regular bonds
Unlike the regular western bonds which involve debt obligations, Sukuk is only asset ownership. Also, while regular bonds' profit is from interest rate, Sukuk earns gain when the asset backing the Sukuk appreciates. Meanwhile, assets backing Sukuk are based on Shaira laws.
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