For the first time. Egypt issues $1.5 bln sovereign sukuk

Egypt aims to raise $5 billion in sukuk issuances within 6 months
For the first time. Egypt issues $1.5 bln sovereign sukuk
Egypt Central Bank note

Egypt on Tuesday began issuing dollar-denominated sukuk for the first time in its history at $1.5 billion, nearly a year after Egypt’s last bond offering on international markets in March 2022.

The Sukuk to be listed on the London Stock Exchange will be issued through the Egyptian Financial Company for Sovereign Sustainability, with the Egyptian Ministry of Finance assuming the status of binding.

Egypt aims to raise $5 billion in sukuk issuances within 6 months.

The issuance comes about two weeks after the state offered 32 public investment companies to fill a financing gap estimated at $18 billion, according to data from the International Monetary Fund.

It also comes at a time when Egypt suffers from a shortage of foreign currency as a result of the repercussions of the Russian-Ukrainian war, which strained the Egyptian economy and caused the exit of overwhelming funds, estimated at about $20 billion.

Reuters reported that the initial indicative price is in the range of 11.625 percent, followed by subsequent news that the indicative price has been reduced to 11 percent for three years. It suspected that the bids were oversubscribed.

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Moody’s downgrading of Egypt’s rating has led to a high yield of this level.

But Egypt does not appear to have many options for securing hard currency at a time when it must pay a Feb. 21 maturity of $1.25 billion in the form of five-year international bonds which hold a fixed interest rate of 5.577 percent.

It may be very difficult, if not impossible, for Egypt to offer these sukuk at levels close to this range after the Federal Reserve raised interest rates by 4.5 percentage points over the past year and following Moody’s downgrading Egypt’s rating.

Egypt issued a sovereign sukuk issuance law in 2021 with the aim of attracting new investors.

Sukuk is a financial product that abides by the rules of Islamic Sharia that combines in its composition elements of the characteristics of shares and other elements characteristic of bonds.

The issuance follows a roadshow for seven international banks selected by Egypt to market and manage the issue: Abu Dhabi Islamic Bank, Emirates NBD, Capital, First Abu Dhabi Bank, Citigroup, Credit Agricole, and HSBC.

Egyptian media reported that the sovereign sukuk would be secured by real estate assets, without specifying those assets.

Today’s offering is Egypt’s first in the global debt market since a $500 mn private placement of its first yen-denominated bond (samurai) in March 2022.

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