Monday 07 June 2021
I wrote – Yasmine Selim:
Egypt is preparing to issue its first sovereign sukuk offering soon, after Parliament approved the Sovereign Sukuk Law.
Yesterday, the House of Representatives approved the draft sovereign sukuk bill as a whole, to be finally approved in a second parliamentary session.
The draft sukuk law contributes to providing additional cash to the Egyptian economy and reducing the cost of financing investments, especially since these sukuk are issued in accordance with formulas compatible with Islamic Sharia principles, according to a press release by the Ministry of Finance today, Monday.
In 5 questions, Masrawy explains what are sovereign sukuks and how does Egypt benefit from them?
What are sovereign sukuk?
Sukuk is one of the recognized types of government securities to finance the needs of the general budget, such as bonds and treasury bills.
The issuance of sovereign sukuk is based on the usufruct of state-owned assets in private ownership, by selling or leasing the usufruct of these assets, or by any other method consistent with the issuance contract and guaranteeing the owner’s share in accordance with the principles of Islamic Sharia, according to previous statements by Muhammad Maait, Minister of Finance. .
It means usufruct, that is, the full exploitation of the assets during the term of the instrument.
The Prime Minister issues a decision defining the state-owned fixed and movable assets as “private property” on the basis of which the sukuk are issued, so that there is a mechanism for evaluating the right to use those assets on the basis of which the sukuk are issued or in return for leasing them for this purpose, according to a statement by the Ministry of Finance.
How is the instrument issued?
It is issued in the form of a paper or electronic certificate with the specifications determined by the executive regulations of the law. It is nominal and of equal value. It is issued for a specified period in Egyptian pounds or foreign currencies through public or private offerings in the local market or in international markets.
The draft law establishes a company called the Sovereign Sukuk Company, under which it manages and implements the sukuk process and concludes the necessary contracts in accordance with the law as an agent for the owners of the sovereign sukuk.
Why does the government issue sukuk?
A statement by the Ministry of Finance said today that the sukuk contributes to providing additional cash to the Egyptian economy and reduces the cost of financing investments, especially that these sukuks are issued in accordance with formulas compatible with Islamic Sharia principles.
The proceeds of the sukuk are used to finance the state’s general budget, to finance investment, economic and development projects included in the state’s economic and social development plan, according to the draft law.
According to the explanatory note to the draft law, the state seeks to improve financial performance, achieve short and long-term goals, and reduce the state’s general budget deficit, through several means.
The state aims to reduce the debt service bill, increase the life of the debt portfolio, develop mechanisms and means to finance the state’s general budget deficit, diversify sources of financing by providing new products to the debt instruments market, developing its mechanisms, and stimulating demand for government issuances of securities and debt instruments that are issued in local currency in foreign currencies.
What is the end date of the instrument?
The instrument will have a fixed maturity date of no more than 30 years from the date of its issuance, and at the end of its life, its value will be redeemed by its owner and the usufruct established on the assets that was taken as the basis for its issuance shall expire.