IslamicFinance.de

The Egyptian government reportedly plans to raise up to $1bn by June through sukuk sales, with one for domestic investors and one for foreign investors. The cabinet has finished a draft law to pave the way for the issuance, which would be debated in parliament this week. The Egyptian sukuk is expected to trade with a yield of 6 to 6.5 per cent, however, the market conditions between now and the eventual issuance could change significantly. Moreover, any issuance in unlikely prior to the settlement of a deal with the IMF on the stalled $4.8bn loan package. Negotiations with the IMF will re-open in early March.

The development of the sukuk market is sending mixed signals. On the one hand, issuance of sukuk in the last year has attracted not just Islamic but conventional investors by the yield, diversification and risk profile. Many deals were innovative, enjoyed popularity and performed well in the aftermarket. On the other hand, the market remained utterly dominated by domestic transactions, and there are still mixed reports about liquidity, both in domestic and cross-border markets. Although sukuks still don’t trade with anything like the volume common in conventional markets, a record year for global sukuk issuance is expected.

Lack of capitalisation of banks, households and the state is a key policy issue according to Professor Willem Buiter, who wrote a blog in the Financial Times online. Instead of defaults and bankruptcy with all its associated costs he suggests to turn debt to equity as the more efficient economic solution; calling explicitly the application of Islamic finance principles for this purpose as a possible solution.