Egypt nears issuing sukuk bonds as bill moves through parliament

CAIRO, June 7 (Reuters) - Egypt will start issuing sukuk, or sharia-compliant Islamic bonds, as soon as a law making its way through the country's parliament goes into effect, the finance ministry said in a statement.

"Egypt is preparing to issue its first offering of sovereign sukuk upon approval by Parliament, ... which helps achieve financial, economic, and development goals by diversifying the sources that finance the state budget deficit," it said, adding that the they help to finance investments.

The draft law received initial approval from the parliament on Sunday, and could be granted final approval as early as Tuesday, or as late as the end of the month before the start of the new fiscal year, said parliament member Yasir Omar.

The law would then go to the country's presidency to be signed into law.

The sukuk will help finance the country's deficit as well as facilitate investment in projects, the finance ministry statement said.

In its budget for the fiscal year beginning in July, Egypt forecasts an overall deficit of 6.7% of GDP, down from 7.7% in the current year.

The country is investing in several mega projects, including a new capital, and expects borrowing needs to rise by 7.1% to $68.1 billion according to the budget.

The sukuk could be offered in local and foreign denominations on public or private offerings in both the domestic stock exchange and abroad, the finance ministry said.

In May 2020, rating agency Moody's affirmed Egypt's B2 rating.

The draft law states that a state-owned company would be created in order to manage the offerings.

Sukuk could offer a cheaper source of funding for Egypt compared to local currency treasury bonds, says Allen Sandeep, head of research at Naeem Brokerage.

"What remains to be seen is the scale of issuance, which in our view could be measured to start with," he added.

Reporting by Nashaat Hamdy and Ehab Farouk, additional reporting by Nafisa Eltahir and Alistair Bell

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