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Tuesday, 27 July 2021

Egypt prepares to issue Islamic sovereign bonds (sukuk) for the first time

The bill paves the way for Egypt’s government to usher in an Islamic financing system, which recorded $2.7 trillion in transactions globally by the end of June, according to Maait

Doaa A.Moneim , Monday 7 Jun 2021
Maait
A file photo of Egypt's Finance Minister Mohamed Maait (Photo: Al-Ahram)
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Egypt is set to offer its first sovereign bonds (sukuk), almost the first of its kind for the country, following parliament’s — House of Representatives — approval on the sovereign bonds (sukuk) bill, said Minister of Finance Mohamed Maait on Monday.

The parliament approved on Sunday the new bill, which is waiting on the final vote of a two thirds majority of MPs.

The bill received cabinet approval in November 2020.

The bill paves the way for Egypt’s government to usher in an Islamic financing system, which recorded $2.7 trillion in transactions globally by the end of June, according to Maait.

Through the bill, if passed, Egypt is expected to attract new segments of investors who will pour extra finances and liquidity into Egypt’s governmental financial market and will contribute to put the cost of the state’s public budget deficit on a downturn as well, according to the minister.

Egypt’s Islamic sukuk are expected to be offered in both local and hard currencies for the sake of providing cash liquidity for the Egyptian economy and decreasing the cost of investments, he added.

Egypt is expected to issue its Islamic sukuk in either a paper or electronic certificate according to the specs the bill’s bylaws will set, according to Maait.

He added that a state-owned corporation will be established to be an agent for sukuk owners and will manage and execute the sukuk issuance.

He also noted that the time ceiling of right to use the state-owned assets, under sukuk bonds, is set at 30 years with the availability of re-letting these assets.

The bill bans foreclosing on these assets and forbids taking any kind of regulatory procedures on them, according to the minister.

The sovereign sukuk bill is part of the finance ministry’s plan to diversify its base of investors who want to invest in governmental financial securities, especially that the new bill will be issued in line with the principles of Islamic Sharia.

It will also allow utilising state-owned assets according to the beneficial right system through ownership without usufruct or renting.

According to Islamic sukuk purchasing rules, the issuer must make a contractual promise to buy back the bond at a future date at par value.

Sukuk is a financial certificate issued in Islamic countries that allows investors to have a share of ownership in a portfolio of existing or eligible assets, providing them with a proof of ownership in a specific asset and various financial obligations while conducting trade and other commercial activities.

In developed Islamic-finance markets, confidence and demand for Islamic products remain the highest, according to a report issued by Fitch Ratings in February.

Islamic banking in such markets has achieved systemic importance and mainstream relevance, according to the report.

At the sovereign level in the top-10 key Islamic-finance jurisdictions, awareness and acceptance are rising, as the share of sukuk and Islamic loans as part of the GCC and Malaysia’s sovereign total funding mix reached around 17 percent at end of 2020, according to the report.

The report also said that confidence and demand are also high in emerging Islamic-finance markets.

Despite the COVID-19 crisis that has harshly hit world economies, the volume of outstanding Fitch-rated sukuk recorded $116.2 billion by the end of the third quarter of 2020.

Moreover, the volume of outstanding Fitch-rated green and sustainability sukuk reached $7.2 billion by the end of the third quarter of 2020.

Throughout September and October 2020, Egypt issued sovereign governmental green bonds worth $750 million domestically and in the London exchange stock market, the first of their kind in the Middle East and North Africa.

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