‘Accounting games:' The sukukification of Ras Shokeir

Mada

a day ago

The wording of a presidential decree published in the Official Gazette on Tuesday has stirred considerable debate over its potential implications. The decree allocates more than 41,000 feddans in the Ras Shokeir area along the Red Sea to the Finance Ministry, with the stated purpose of helping to reduce Egypt's public debt and facilitate the issuance of sovereign sukuk.
The phrasing has caused confusion. How can the goal be to 'reduce public debt' while simultaneously issuing sukuk, a form of debt instrument?
Beyond the ambiguity, the land allocation has also raised concerns over its implications for the strategically sensitive border zone. Could the move open the door to future land sales?
Mada Masr spoke with legal and economic experts to help unpack the implications of the decree. According to the sources, the issuance of sukuk may nominally reduce the size of public debt through what one source described as an 'accounting game,' reclassifying certain items to create the appearance of a lower debt burden.
Sovereign sukuk are one of several borrowing tools available to governments, alongside more familiar instruments such as treasury bills and bonds. What sets sovereign sukuk apart is that they are asset-backed: each issuance is linked to an asset that serves as collateral. The design — material asset as collateral in exchange for liquidity — allows sukuk to be framed as something other than a loan, which is prohibited under Sharia.
Sukuk are therefore built around the idea that an asset is being acquired in some form, with the purchase price standing in for the loan value. By holding sukuk in a profit-generating asset, the holder earns returns that function like interest, without being labeled as such. This financial engineering is what allows sukuk to sidestep the prohibition on interest under Sharia. Without the need for this workaround, there would be no reason for assets to be part of the sukuk structure in the first place, sources said.
This was a key driver behind the 2021 law that introduced sovereign sukuk. According to Senator Mahmoud Samy — who helped draft the legislation — as well as two other sources, one a member of Parliament and the other a World Bank official, the Egyptian government has long sought access to funding from sources that require Sharia-compliant financial instruments, particularly in Gulf countries and parts of Asia. Sovereign sukuk, they said, provide a gateway to these funds.
Under the law, the state established the Egyptian Financial Company for Sovereign Taskeek (EFCST), a joint-stock entity owned by the Finance Ministry. The EFCST acquires usufruct rights to the sukuk-tied assets and acts as the agent on behalf of sukuk holders.
The law sets out a series of regulations and conditions. The assets used to back sovereign sukuk can be fixed or moveable state-owned properties, but natural resources cannot be turned into sukuk. Sukuk may be issued for a maximum term of 30 years, during which usufruct rights are granted to investors — meaning they gain the right to use and benefit from the asset without any transfer of actual ownership from the state.
These usufruct arrangements can be understood as akin to forming a company. In the case of the Ras Shokeir land, for instance, a company is expected to be established to manage investment in the area, with sukuk holders participating in the arrangement. However, this does not mean that sukuk holders become shareholders — sukuk do not confer ownership stakes in the company.
Sukuk are similar to shares in that 'both represent a common stake in the ownership or usufruct right from a profit-generating asset, or in the capital of a profitable project,' as explained on the EFCST's website.
The key difference, however, is that 'sukuk are a financing tool recorded outside the issuing company's budget, whereas shares represent a common stake in the company's capital, making shareholders part-owners in the issuing company.'
Sukuk also have a fixed term specified as part of the deal unlike shares, which remain valid as long as the company exists. Upon the end of the term, the sukuk holder is entitled to their full capital amount 'regardless of the value of the issuer's assets or their ability to repay debts to others,' unlike shareholders.
This renders sukuk a 'low-risk' investment, according to the EFCST's website.
Since the law came into effect nearly five years ago, the Finance Ministry has issued sovereign sukuk only once in February 2023. The underlying assets were made up of a portfolio of government-owned properties under lease. The three-year issuance, worth US$1.5 billion, was met with strong demand.
The anticipated issuance referenced in the latest presidential decree would mark Egypt's second sukuk offering. In April, Finance Minister Ahmed Kouchouk announced the government's intention to issue $2 billion in sovereign sukuk. This aligns with the ministry's statement on Thursday, which noted that part of the Ras Shokeir land will be used as collateral for the new issuance.
Sources said the mechanism is intended to differ from the Ras al-Hikma deal, in which land ownership was directly sold to a strategic investor via a company in which the Egyptian government holds a stake. By contrast, in the Ras Shokeir case, the sukuk are expected to be offered to a broad range of potential investors — including Egyptian and foreign individuals, as well as banks and investment institutions.
The offering would not transfer ownership of the land itself. Instead, sukuk holders would be entitled to a 'common right' to the project's profits or a share of its financial returns, without holding any direct ownership of the land.
At the end of a sukuk term, holders are repaid the full value of their initial investment, at which point their relationship with the asset ends.
Sources unanimously emphasized that, throughout the sukuk's duration, ownership does not get transferred under any circumstances. This, they stressed, is very clear. Even in the event that the government defaults on repayment, the asset cannot be seized or transferred.
Senator Samy noted that the Senate was particularly keen to prevent any possibility of ownership transfer related to sukuk issuances — a departure from the earlier sukuk law passed in 2013, which did not address the issue of asset ownership and failed to explicitly prohibit agreement clauses that might entitle holders to a stake in the asset in the event of non-payment.
Under the new framework, responsibility for repayment lies entirely with the issuer — in this case, the state — rather than with the asset itself. 'The public treasury is the guarantor,' an official at the Planning Ministry told Mada Masr. 'The investor doesn't need the asset itself, but instead relies on the state's ability to pay.'
A judicial source, who is a deputy to the State Council president, told Mada Masr that the details of the underwriting terms will ultimately be defined in the sukuk's issuance prospectuses. The government could include clauses allowing for the sukuk's term to be extended or other conditions to be introduced. Still, 'if the state is unable to repay the sukuk and its profits, it may be forced to swap debt for assets once again,' the source added. This, however, would reflect the government's broader debt management strategy — not the legal nature of the sukuk itself.
In its Thursday statement, the Finance Ministry reiterated that the land was transferred under its authority to issue sovereign sukuk and 'reduce the government's debt burdens' — a 'favorable' alternative to selling the land, according to the ministry, as it can 'partner with financial and economic entities to replace existing debt with joint investment projects […] and spur the development of the land to generate sustainable income and create new job opportunities.'
The most ambiguous aspect of the presidential decree lies in its reference to debt reduction. After all, sukuk are a form of debt. According to the International Monetary Fund's Government Finance Statistics Manual — and as reiterated in the IMF report on its third review of Egypt's Extended Facility Fund — sukuk are classified as part of public debt in the state budget, just like bonds, treasury bills, and other forms of borrowing.
If these sukuk constitute new debt, how can the decree possibly contribute to reducing Egypt's mounting debt burden?
One straightforward scenario can be found in the Finance Ministry's statement following the decree: only a portion of the allocated land will be used to back the sukuk, while revenues generated from future economic activity on the remaining land could be channeled toward repaying debt and covering interest payments.
The World Bank official, speaking to Mada Masr on condition of anonymity, explained that the government could use its share of project revenues to cover periodic dues to sukuk holders — a strategy they described as a form of 'debt recycling.'
Economic researcher Mohamed Ramadan suggests another scenario: 'an accounting game' in which payments the government owes to sukuk holders are labeled as 'returns' rather than 'interest.' This classification would exclude them from debt servicing records, thereby reducing the nominal size of the country's total debt on paper.
Ultimately, the decree appears to signal the start of a broader shift — one that is likely to be followed by a series of further decisions clarifying the specifics of this approach and its true implications for the public and for public finances.