New Egypt Finance Chief Looks to Sukuk for Funds

(Bloomberg) -- Egypt is considering tapping the international sukuk market in the coming fiscal year, as it looks to diversify funding sources to drive forward its economic revival efforts.

The Shariah-compliant issuance, either in dollar or euro-denominated sukuk, which Finance Minister Mohamed Maait hopes will happen in fiscal 2018-19, would mark a revival of a plan shelved since 2013 when the government under then-Islamist President Mohamed Mursi issued the law to pave the way for the country’s first Islamic bond.

“I expect it will witness great demand as this type of financing instrument has a large market,” Maait said in his first interview since assuming the new post, two weeks before the July 1 start of the new fiscal year. “Sukuk needs an appropriate legislative umbrella, and we can amend the existing law or draft a new one.’’

Maait was sworn in on June 14, replacing Amr el-Garhy who had played a key role in drafting an economic reform plan that began in earnest with the 2016 devaluation of the currency. The move, which came in tandem with the raising of the benchmark interest rate and the cutting of fuel subsidies, helped Egypt secure a $12 billion International Monetary Fund loan that served to bolster investor confidence.

New Egypt Finance Chief Looks to Sukuk for Funds

Since then, the country has seen billions of dollars come in, though much as has been channeled to the debt market. The government has sold more than $13 billion in conventional bonds on the international market since the 2016 flotation. Egyptian officials and the IMF, however, have said that to further boost growth that reached 5.3 percent in the first nine months of fiscal 2017-18, the country needs to see more foreign direct investments come in.

Maait said that the ministry has yet to discuss how much it wants to raise from conventional bond sales in the coming fiscal year. But, he stressed, the focus is shifting “toward long term borrowing rather than costly short-term debt” to finance the fiscal deficit.

This week, the government sold 12-month T-bills at an average yield of 18.928 percent while 10-year T-bonds sold last week at 16.378 percent. In comparison, Egypt’s 12-year euro-denominated bond hit a yield of 6.843 percent on Wednesday.

The government is also planning on launching the first offerings of stakes in public sector companies in July or August, he said, with the first phase running through March 2019. Officials have said they want to raise up to 100 billion pounds ($5.7 billion) by selling minority stakes in up to 20 of the companies, with between four and six of the firms on offer initially.

Maait said he recently met with the public sector minister and “we agreed to move quickly on the initial public offerings file and we will start as soon as possible.” The initial stakes are expected to raise between 15 billion and 18 billion pounds.

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