LEGISLATION WATCH– Egypt inches closer to maiden sukuk issuance as FinMin completes Sukuk Act: The Finance Ministry has completed the drafting of the Sovereign Sukuk Act and passed it to cabinet for review, an official draft suggests (pdf). Cabinet will, after approving the legislation, send it to the House of Representatives for discussion and a general assembly vote. The executive regulations will follow within three months of the passage of the legislation.

This probably means that we’re unlikely to see any sukuk issuance within the timetable floated by Finance Minister Mohamed Maait, who suggested in December that the government could issue the sharia-compliant bonds before the end of the current fiscal year. Sources told us earlier in 2019 that the ministry plans to issue up to USD 1.5 bn in medium and long term sukuk after the legislative framework is in place.

What are sovereign sukuk? The short answer is that they are a form of sharia-compliant bond. The difference is that sukuk are asset-based securities, not debt-based like conventional bonds. The new legislation paves the way for the formation of a new company that will oversee the issuance of sukuk and a committee that includes representatives from Al-Azhar to decide the rules for issuing the new security. Sukuk will be issued against state assets either for rent or to give usufruct rights for up to 30 years and will be tradable on the secondary market. They can be issued in EGP or any other foreign currency to be traded on foreign markets.