Cairo, Egypt (CNN) — Egypt issued, for the first time in its history, sovereign Islamic sukuk worth $1.5 billion, with a return of 11%, to finance investment and development projects included in the public budget.
Economists stressed the importance of issuing sukuk to cover the gap in demand for foreign exchange, and to enhance investor confidence in the Egyptian economy, noting that the return rate on sukuk reached 11% as a result of the increase in the interest rate on the dollar and the reduction of Egypt’s credit rating, but it is considered a return. Not high under these conditions.
This issuance is part of an international program for issuing sovereign sukuk for Egypt for the next several years, at a value of $5 billion. This program was registered on the London Stock Exchange on February 14.
Banking expert Tarek Metwally, former vice president of Blom Bank, said that Egypt tended to issue sovereign Islamic sukuk for the first time in its history to cover the gap in demand for foreign exchange, which appeared as a result of the exit of indirect foreign investments and the rise in global commodity prices in the wake of the Russian-Ukrainian war. He pointed out that Egypt chose to issue sukuk as a result of the remarkable growth in this market of debt instruments, in which the issuance volume reaches $2 trillion, with total bonds ranging between $80-100 billion.
Prior to the issuance of sovereign sukuk, Egypt approved a law for sovereign sukuk and its executive regulations. To provide the necessary legislative umbrella for creating a new type of government securities that is compatible with the principles of Islamic Sharia, according to an official statement.
Metwally believes that the price of issuing Egyptian sovereign sukuk with a return of 11% is not high because Egypt’s last offering in the global debt instruments market 3 years ago reached the rate of return at that time at 5.8%, except that following the interest rate on the dollar increased from 1% to 4.5%, and the rating was lowered. The credit rating of Egypt by Moody’s for credit rating from B2 to B3 level, the return rate on sukuk is good, especially since it was reduced from the level of 11.675% in the opening prices, to close the issue pricing at 11%, as a result of the high demand for subscription.
According to the Ministry of Finance, the cost of issuing Islamic sovereign sukuk was less than the required return on bonds in the international secondary markets by more than seventy points.
Tarek Metwally noted that reducing the return rate on sovereign sukuk from the level of 11.675% at the opening prices, to close the issuance pricing at 11%, is a positive matter and confirms investors’ confidence in Egypt’s ability to pay its debts.
According to a statement by the Ministry of Finance, the issuance of Islamic sovereign sukuk attracted more than 250 investors from the United States of America, Europe, the Gulf states and East Asia, and the diversification of investors between asset managers, pension funds, insurance and investment funds, and banks.
Regarding the continued reluctance of indirect foreign investments, the banking expert said that the state is trying hard to approve incentives and facilities to attract indirect foreign investments, but bureaucracy still hinders attracting foreign investments, despite the uniqueness of the Egyptian economy of many competitive advantages that make it capable of attracting huge investments annually. .
According to the latest official data, foreign direct investment flows into Egypt during the past fiscal year 2021/2022 grew by 71.4% to reach $8.9 billion, which is the highest growth rate in the last 10 years.
Banking expert Mohamed Badra said that Egypt’s issuance of sovereign Islamic sukuk comes within the framework of the new economic reform program agreed upon with the International Monetary Fund, which includes provisions for extending debt maturity, and this is the first issuance within an international program for issuing sovereign sukuk at a value of $5 billion. Pointing out that the subscription coverage is more than 4 times a good indication of the confidence of investors in the Egyptian economy and its ability to pay its obligations.
Badra added, in exclusive statements to CNN in Arabic, that the increase in the interest rate on Egyptian debt securities from 7% to 11% in sovereign Islamic sukuk came as a result of the increase in the interest rate on the dollar and the decrease in Egypt’s credit rating, expecting that Egypt will offer new Islamic sukuk with terms of more than 3 years.
For the first time in 10 years, Moody’s downgraded Egypt’s credit rating from B2 to B3, with a stable outlook, as a result of its fear of a decline in Egypt’s foreign exchange reserves.