Egypt's cabinet agrees to start procedures for issuing sovereign sukuk in int'l markets

CAIRO - 19 January 2022: The Egyptian Cabinet approved Wednesday to start the procedures for issuing sovereign sukuk in international markets by the Ministry of Finance.

Earlier, the Egyptian Finance Minister, Mohamed Maait, confirmed that Egypt is preparing to issue the first sovereign sukuk offering during the second half of the current fiscal year in order to contribute to providing the necessary funding for investment projects included in the economic and social development plan in the state’s general budget, to achieve development goals in a manner consistent with the state’s efforts to enhance aspects of spending on improving the standard of living of citizens, pointing out that the timing, size and type of offering will be determined later.

The minister added that work will be done to issue the executive regulations of the law within three months, in cooperation with the Financial Regulatory Authority (FRA) and Al-Azhar Al-Sharif; this is to give a legal and technical character in accordance with formulas compatible with the principles of Islamic Sharia, in a way that contributes to attracting a new segment of Egyptian and foreign investors wishing to invest in accordance with Islamic law in both local and foreign currencies.

In June 2021, the Egyptian House of Representatives approved a draft law submitted by the government to issue the Sovereign Sukuk Law.

The government is seeking to develop new mechanisms and means to finance the state’s general budget deficit, and to diversify the sources of funding; by introducing new products to the debt instruments market and developing its mechanisms, in a way that stimulates the demand for government issuances of securities and debt instruments that are issued in local and foreign currencies.

In order to achieve the aforementioned goals, the government saw the importance and necessity of creating a new type of government securities called “sovereign sukuk”; this is in accordance with the presented draft law. The purpose of issuing these instruments is to finance the state’s general budget, and to finance investment, economic and development projects listed in the state’s general budget.

By issuing these sukuk, the government aims to attract new Egyptian and foreign investors, who prefer Sharia-compliant transactions. As they are reluctant to invest their money in the currently known types of government financial instruments and securities, and according to the presented draft law, sovereign sukuk is required to be issued in one of the forms compatible with the provisions of Islamic Sharia, as it is one of the sources of Islamic financing.

Sukuk differ from other government securities (such as bonds and treasury bills) in that they are subject to speculation and are subject to loss or profit; Because they represent common shares in the rights to benefit the assets owned by the state in private ownership, or for any of the public legal persons. The financier is a partner in the rights to use the said assets. As for bonds and treasury bills, they are fixed-term securities that are guaranteed with an additional interest return for their value that is disbursed at the end of their term.

The sukuk is characterized by a high return, due to the high volume of risks in it. As for bonds and bills, the low interest rate is the distinguishing element for them because there are no risks in their trading.