Egypt strives to rise agricultural productivity    Egypt Knauf launches its first training centre in Egypt    Gold prices in Egypt on May 17    Egypt purchases 1.75m tons of local wheat    Egypt-first to have new climate targets ahead of UN summit    Egypt uncovers official logo for COP27    Ukrainian people say goodbye to Leonid Kravchuk – first elected president    Noura Al-Mutair – first Gulf female boxer in World Championships    Egypt unveils 50 pound coin minted to mark Avenue of Sphinxes grand reopening    Canada's Robert Oliphant starts Egypt, Morocco visit today    Liverpool fans: "You'll Never Walk Alone" to Cristiano Ronaldo    Hot, rainy weather hits Egypt this week    COVID-19 in Egypt: infections fall to 124 cases last week    Realme announces Global Photography Contest 2022    Egypt to play key role in integrating water, climate issues globally – World Bank official    Egypt's telecoms regulator announces working hours for holy month of Ramadan    Maha karara joins AAIB as Head of Corporate Communications, Sustainability    Egypt works on charting cooperation strategies with international institutions for 5 years: Al-Mashat    Over 2.4 million newborns examined for hearing impairment: Health Ministry    Netflix releases trailer of Arab adaption of 'Perfect Strangers' film    Balqees to headline concert celebrating launch of streaming giant LIVENow in MENA    Sawsan Badr to be honoured at Aswan Women Film Festival    MP Abdel Hady Al-Qasby calls government to facilitate and support NGOs    Al-Sisi follows up on 'Great Transfiguration Project' in St. Catherine    Cairo, London stress need to strengthen cooperation to face climate change    Foreigners account for 22.6% of Egypt's T-bills issuances in 1H 2021: CBE    Egypt's ambassador to Italy passes away    Egypt confirms readiness to help African countries face terrorism and extremism    An estimated 235 million people needed humanitarian assistance and protection in 2021, an increase of 40% compared to 2020: IOM Egypt    Egypt, DRC discuss water cooperation during WYF    Egypt, DR Congo discuss boosting bilateral cooperation during WYF    Cameroonian police probe assault on three Algerian journalists covering AFCON    Pharaohs start AFCON 2021 campaign with fierce clash against Nigeria    Foreign Ministry opens capacity building course for French-speaking African diplomats    Egypt's trade with Nile basin countries climbs 26% y-o-y in 9 months    Ethiopia halts work at its embassy in Egypt for 'economic reasons'    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    

Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.

FRA finalises Sukuk regulations' amendments, paving the way for promising investment
several companies want to issue sukuk in 2020, including real estate investment, services, agricultural reclamation
Published in Daily News Egypt on 11 - 04 - 2020

After the great success of the first Sukuk issuance for the Talaat Mustafa Group (TMG), Daily News Egypt met with the Financial Regulatory Authority's (FRA) team responsible for issuing Sukuk in Egypt. The team is led by Sayed Abdel Fadeel, head of Central Department for Corporate Finance at the FRA. The success of the first Sukuk issuance can be credited to Abdel Fadeel for creating an attractive and accessible legislative climate for companies to enter this new field easily and quickly.
Participants in the interview are Abdel Fadeel along with Noha Ehab, supervisor of the Sukuk department at the FRA; Marwa Mahmoud, a researcher at a financial consulting company; and Mohamed El-Beltagy, chairperson of the Egyptian Islamic Finance Association.
How long did it take the FRA to create a appropriate legislative environment for sukuk issuance?
Sayed Abdel Fadeel: We started preparing the legislative structure for the sukuk in August 2018. We have been keen throughout this period to facilitate the procedures and make them simple, clear, and uncomplicated. The FRA prepared guiding models with all the required steps in the various stages of issuing the Sukuk. The issuer of the Sukuk is required to only fill out and complete those documents. The FRA's work team also had a role in marketing and promoting the Sukuk product, which resulted in several companies currently wishing to issue it, including CIAF Leasing whose Sukuk issuance was postponed due to the ongoing coronavirus pandemic. In addition, other companies from the private sector seek to issue their own Sukuk, from construction, agricultural reclamation, and service sectors, plus Sarwa Capital. We are targeting EGP 5bn worth Sukuk issuances this year.
How long did it take TMG to obtain the FRA approval for its Sukuk issuance?
Sayed Abdel Fadeel: TMG started the procedures on 23 March and its request was approved on 8 April. It's a record time in light of the current conditions. Most of the time was spent in obtaining the credit rating of the issuance and preparing its feasibility study, so once TMG had completed these two steps, the next move was simple and easy, in contrary to the long period that companies usually took in IPOs.
After this experience, has the FRA felt the need to make amendments to the regulations of Sukuk issuance?
Sayed Abdel Fadeel: The executive regulations has not represented an obstacle to the issuance of the TMG's Sukuk, however, the FRA has prepared amendments to the regulations to make them more comprehensive for all types of Sukuk in the global financial markets. The amendments included adding five new types of Sukuk: Istisna'a, investment agency, Salam, Muzaraa, and Musaqat. The current regulations include four types: Murabaha, Ijara, Musharaka, and Mudaraba. The amendments have been sent to the cabinet for approval.
What is the advantage of Sukuk over other financing instruments?
Sayed Abdel Fadeel: Sukuk has more than one competitive advantage over other financing instruments. Most notably, financing through Sukuk has the least burdensome, in addition to participating in profits, as the issuing company determines a specific return for the holders that they receive throughout the life of the Sukuk. They also share the loss if the project incurs losses, so it is a balanced financing instrument between stocks and bonds, besides being compatible with the Islamic law, a great feature that attracts new blood and a broad segment of investors who prefer this type of investments.
In addition, the issuing party also gets the advantage of separating its financial performance and the new project funded by Sukuk. This means that the issuing company may not have a good financial performance, but the company has strong and successful feasibility studies for its issuance. The Sukuk depends only on feasibility studies and credit ratings for the issuance, not the company, in contrary to bonds and other financing instruments. So the Sukuk is very attractive for companies, especially in the public enterprise sector.
Noha Ehab, supervisor of the Sukuk department at the FRA
As for the investor, the Sukuk is safer than stocks and bonds. Stocks are known for their high risk. But the Sukuk gives its holder regular returns according to the projected cash flows from the issuance based on a feasibility study. At the same time, the Sukuk holder is considered a partner in the process [profit and loss], so it is compatible with the Islamic law.
Sukuk is also distinguished from bonds in being evaluated, monitored, and followed by more than one authority, starting with feasibility studies, credit rating, the Central Shariah Supervisory Committee and other Shariah sub-committees, the FRA, and the Egyptian Exchange.
How many companies have got Sukuk issuer licence in Egypt? Have you received new licensing requests?
Noha Ehab: Currently, there are only two companies that have obtained a Sukuk issuance licence, EFG Hermes and Sarwa Capital. There are also licensing requests from more than one company, the most prominent of which are the First Abu Dhabi Bank and Banque Misr.
When do you expect the CIAF Leasing's Sukuk issuance?
Noha Ehab: CIAF's sukuk issuance is in an advanced stage, and I expect it to be ready in the fourth quarter (4Q) of the year. The current flight suspension was expected to affect the issuance. However, the success of the TMG Sukuk will increase investors' appetite for this type of financing instruments. This would stimulate the Sukuk issuance operations for companies during the coming period. In addition, the interest rate cut by 300 basis points will push the market for non-bank financial activities in general.
Would the repercussions of the coronavirus affect the Sukuk issuance?
Noha Ehab: There are four companies working on issuing Sukuk with the FRA. The 3Q 2020 will see another issuance after the coronavirus situation abates.
A booklet for individual investors is being presented in the form of Q&A to clarify all the issues related to Sukuk. The FRA issued also a Sukuk guideline to clarify the procedures for the investors and the different types of Sukuk.
Marwa Mahmoud, a researcher at a financial consulting company
What are the criteria for choosing the Sukuk type?
Marwa Mahmoud: The entity wishing to issue Sukuk shall determine the type or the appropriate formula for the issuance according to two factors: the nature of the project and which financing formula will be more appropriate with it. For example, if a project relies on buying and selling goods and speculation to make profits, then the best Sukuk type is Mudaraba. But if a project is a building that makes profits from rents, the best type is Ijara with a stable and semi-guaranteed return. The type of instrument is also determined according to the tendency of the issuing party. In many cases, the issuing party is not willing to share the project's profits with Sukuk holders and only disburse a certain amount periodically. In this case, the most appropriate type of Sukuk is Ijara or Murabaha. In the event that the company desires to include the Sukuk holders in profit and loss, the most suitable type is Mudaraba or Musharaka, and it has the highest risk compared to other types.
Do the current Sukuk legislations need amendments?
Marwa Mahmoud: During the period of preparing Sukuk legislations, the FRA's work team reviewed all global legislations on Sukuk issuance. This stage took a lot of time and effort that resulted in the FRA's success in presenting appropriate legislation for the Egyptian market.
To determine if we need amendments, we have to first study TMG's Sukuk offering, being the first in the local market. With more companies working in different fields, the FRA would make amendments to provide more types of Sukuk.
Mohamed El-Beltagy, chairperson of the Egyptian Islamic Finance Association
How did you ensure that the Sukuk complies with the Islamic law?
Mohamed El-Beltagy: Aside from the nature of the project, which must be in line with the Islamic law, it must be ensured that the accounting standards, financial foundations, revenue calculation mechanisms, and the company's liquidation mechanisms are compatible with the Islamic law. This is ascertained before the issuance of the instrument, through its review by the Sharia supervisory committee of the company, on the one hand, and also by the Central Sharia Supervisory Committee of the FRA.
How do you see the success opportunities of Sukuk locally, especially with the increase in Islamic financing locally and globally?
Mohamed El-Beltagy: The sukuk will be a preferred financing instrument at banks, both Islamic and non-Islamic, which will be issued to exploit surplus capitals and as an alternative to treasury bills. It will be attractive to a broad segment of investors who prefer investments compatible with the Islamic law. The size of investors in banking products compatible with the Islamic law is about 3 million customers out of a total of 15 million customers in Egypt. Those 3 million customers are expected to direct their investments to Sukuk to diversify their investment portfolio.
I expect the sukuk to contribute to the growth of the Islamic transactions in Egypt. The volume of Islamic deposits in the Egyptian market reached about EGP 280bn in 2019, and constitutes 6.6% of the Egyptian banking market, an increase of EGP 42.9bn from 2018. The number of Islamic bank branches of Egyptian banks is 236 branches, which constitutes 6.2% of bank branches in Egypt.

Clic here to read the story from its source.