Betting on sukuks - Egypt - Al-Ahram Weekly

Al-Ahram Weekly

18-04-2025

Egypt is set to embark on its second sukuk bond offering, promising attractive yields for investors
Egypt is preparing to issue $2 billion in sovereign sukuk (Islamic bonds) before mid-year through a series of offerings, with the government having assigned several banks to manage the issue, Finance Minister Ahmed Kouchok said this week.
The ministry's last sukuk offering was two years ago.
Press reports indicated that the banks in charge of this year's offering are the same as those that orchestrated the 2023 issuance, namely HSBC, Citibank, the Dubai Islamic Bank, First Abu Dhabi Bank, and the Abu Dhabi Islamic Bank.
Mohamed Hassan, managing director of Alpha Financial Investment Management, believes the issue will be a success, citing Egypt's stable credit ratings. He pointed out that the return on Egypt's sukuk bonds will hover at around eight per cent or higher, almost double the yield of US debt and likely to increase demand for the sukuks.
Even with the presence of calculated risk due to geopolitical challenges, the Egyptian issuance is appealing to high-yield-seeking investors, Hassan said.
The Ministry of Finance has secured approval for international sukuk issues totalling $5 billion. In early 2023, it launched the first $1.5 billion tranche, which was more than four times oversubscribed, said a ministry statement released last week.
The final cost of the 2023 issuance was more than 70 basis points lower than comparable yields on Egypt's bonds in the secondary market. The yield was reduced by 72.5 basis points from the initial 11.675 per cent to a final issuance yield of 11 per cent, said former finance minister Mohamed Maait at the time.
Hassan believes that the government chose to issue sukuk rather than traditional bonds due to their lower issuance costs, asset-backed nature, and stronger government guarantees. The main objective behind the issue is to make up for capital outflows associated with the maturity of earlier dollar-denominated bond issues.
Press reports noted that the banks will promote the new issue by organising roadshows to the Gulf and East Asia. They added that the timing will be determined by the advisors to the offering, but it is expected to take place within the current quarter, as the roadshows are projected to last around two months.
On the impact of the issue on Egypt's external debt, Hassan said debts due to be paid this year will be replaced with the new sukuks, as approximately $2 billion will be repaid thereby maintaining the external debt at the same level.
According to the Central Bank of Egypt (CBE), the country's external debt has risen by $2.3 billion in three months, reaching $155.2 billion by the end of the first quarter of fiscal year 2024-2025, up from $152.9 billion at the close of 2023-2024.
'The sukuk issuance is part of the government's plan to diversify its debt instruments,' said economic expert Mona Bedeir. 'The coming months will be crucial in determining both the local market's stability and investor appetite for this issuance.'
The offering gives Egypt access to an untapped liquidity pool as the sukuk market is largely dominated by Gulf sovereign wealth funds and investors from major Southeast Asian Sharia-compliant funds.
This, according to Bedeir, paves the way for Egypt to leverage its role as an emerging player in the market for Islamic bonds, helping it to strengthen its economic ties with its major players and reducing its exposure to the volatility of US and European markets.
* A version of this article appears in print in the 17 April, 2025 edition of Al-Ahram Weekly
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