Egypt has signed a new sukuk bill into law, paving the way for an Islamic issue that could go some way towards relieving the country’s spiralling financial condition.
Access to the capital markets is likely to be crucial for the country, which has seen its foreign currency reserves dwindle dramatically since the uprising that ousted Hosni Mubarak in early 2011, although they did increase by $1 billion in April to $14.43 billion following a deposit from Libya.
Last Thursday, Standard & Poor’s cut Egypt’s credit rating from B- to CCC+, saying: “The downgrade reflects our view that the Egyptian authorities have yet to put forward… a sustainable medium-term strategy to manage the country’s fiscal and external financing needs.”
Egypt is lobbying for a $4.8 billion loan from the International Monetary Fund (IMF), to which a great deal of additional funding is also linked, but has not yet implemented subsidy reform that the IMF has made a condition for the loan.
It is understood that Egypt may seek to issue an international sukuk before the end of June, and since sukuk must be linked to tangible assets, the funding would likely be for infrastructure development.
The bill has had a difficult progression into law following objections from the country’s powerful Al Azhar body of scholars that it was un-Islamic. Only after Al Azhar’s suggestions were incorporated did the bill pass Egypt’s Shura Council last month.
Egypt will have studied the successful debut sukuk issues from other sovereigns in the last year, most obviously Turkey, which raised $1.5 billion in a 5.5-year sukuk issue in 2012 in an issue, which priced 10 basis points cheaper than yields on Turkey’s comparable non-Islamic bonds at the time.