Egyptian assets for Sukuk identified, but cost of issuance a concern (By IFN)

Egyptian assets for Sukuk identified, but cost of issuance a concern

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EGYPT: After a longstanding debate on the Sukuk draft law to enable the issuance of a sovereign Sukuk along with subsequent issuances in the country, the nation has finally achieved consensus. According to reports the cabinet has now completed its Sukuk draft law, with the incorporation of revisions by the ruling Freedom and Justice Party and Shariah scholars, and has identified over 25 projects to serve as assets for securitization. However, Egypt’s current tumultuous political situation, along with its risky credit standing following a slew of downgrades earlier this month, means that the cost of insuring the country’s sovereign Sukuk issuance – or indeed debt in general - could be higher than in the GCC or other established markets. Market players are anticipating that the country will pay “a lot” for its upcoming sovereign Sukuk issuance; which is estimated to be between US$500 million to US$1 billion. Following a rash of ratings downgrades by Moody’s across five major government-backed banks, reportedly due to doubts over the ability of the Egyptian authorities to support its state banks, and a drop in sovereign ratings by one notch to ‘B-plus’, an Islamic finance lawyer told Islamic Finance news that the downgrades were likely to affect the Sukuk’s premium and pricing. The issuance may as a result be put on hold until the ratings are revised at a higher level; reflecting higher issuer credit worthiness.