Friday, April 24, 2020 / 1.00 PM / Bukola Akinyele for WebTV / Header Image Credit: Twitter; @InfraCredit
Head of organization & Structuring Infracredit, Mr Daniel Mueller, speaking on market Gaps and Opportunities in the fixed income Islamic finance market points out that Ijara Sukuk could provide the much-needed capital to finance the infrastructure deficit in Nigeria. He was sharing his views at a recent Non-interest finance forum held in Lagos.
The Ijara Sukuk has been described as a veritable tool for providing convenient leasing arrangements to finance equipment acquisition in the health care, agriculture and alternative energy sectors.
Ijara is particularly critical in the global healthcare industry, as governments grapple with the COVID 19 Pandemic that has affected over 180 countries worldwide and seen 981 confirmed cases as at 11.30PM, Thursday April 23 2020.
According to Mueller, Ijara Sukuk can be deployed effectively to bring efficiency to the healthcare system, especially focusing on hospital upgrades and equipment acquisitions including personal protective equipment (PPE).
He said that through Infracredit there was a structure for healthcare guarantee up to $5billion. Hospitals through this provision could gain access to Sukuk Trusts Issuers, Sukuk Holders, OEM/Leasing Company, Infracredit Guarantor, and Trustees.
Mueller note that Islamic finance is a segment of finance that could support long-term investments and projects of involving huge capital outlays spread over extended periods. According to the finance expert, "With a growing supply of capital from pension funds, and limited investment instruments to channel these funds towards infrastructure, our market demands the creation of a funding instrument that can facilitate the efficient allocation of this long-term capital to bankable infrastructure assets in a sustainable manner", he said.
He said the current pension fund assets in Nigeria was over N10trillion and could be deployed to support long-term infrastructure projects in the country.
The Infracredit executive noted that investments in infrastructure was less than 1% of investment capital outlay by categorization.
"If we are going to convert pension funds into long-term capital assets, we must look at 10 year and 15-year debt instruments, if we are going to crowd pension funds into infrastructure which is what the country needs, there would be a need for credit enhancement. Rather than going blindly into infrastructure projects, or general corporate lending" he said.
He cited the infrastructure masterplan for the country which was laid out 5 years ago, noting that Nigeria needs $3trillion in investments in infrastructure over the next 30 years which is about $ 100billion a year. Mueller stressed the need for mobilizing local capital.
Mueller noted that Infracredit was a specialised guarantor established by the Nigeria Sovereign Investment Authority (NSIA) in Collaboration with GuarantCo to provide guarantees to enhance the credit quality of local currency debt instruments issued to finance eligible infrastructure related assets in Nigeria. They started with $50million and later grew to a $136million base.
Mueller said that Sukuk was part of the eligible guarantor criteria and other senior obligations taking 100% risk on the performance of the borrower or the issuer on the project or infrastructure companies.
"Since inception, we have facilitated first-time
access to local currency finance of up to 15- year tenor from the domestic
market for three clients. Each transaction was oversubscribed by local pension
fund investors, signifying strong investor appetite" he observed.
He noted that Infracredit's key features were double-sided with a Guarantee and Legal Documentation feature.
Giving further insight into the credit guarantee business, Mueller said that Infracredit's track record till date showed N31.5billion from 23 investors. He highlighted the fact that the N18. 5bn Debt Securities issued by Viathan and North South Power were backed by InfraCredit.
According to him "On Infrastructure, InfraCredit put up a construction compressed natural gas plant in Abeokuta and expanded their existing generating capacity by 7.5MW and also acquired 30MW in hydro power generation capacity in Kaduna".
He believed projects would have a huge impact on strengthening power supply by providing clean and sustainable power to local businesses, hospitals, street lighting and public waterworks.