Egypt: Cairo targets Islamic investors with sukuk and Sharia index, report

Egypt’s stock exchange plans to launch an Islamic index by November, states Egyptian Financial Regulatory Authority.

Egypt has permitted local companies to issue multiple sukuk (Islamic bonds) issuances with just single regulatory approval and without the need for a credit rating, as part of amendments to the Capital Market Law, according to a statement by the country’s Financial Regulatory Authority (FRA) on 21 August.

“The amendments enable companies to issue new sukuk programs including multiple issues over three years with a single approval required from the FRA for the whole program, not for every issue,” according to the statement.

Sukuk are Sharia-compliant debt capital market instruments, and account for around 18% for all activity in the global Islamic finance industry (which is set to reach is set to reach $6trn by 2026), according to ICD-Refinitiv Islamic Finance Development Indicator Report 2022.

The Arab world’s most populous nation sold its debut sovereign sukuk in February. It printed a three-year $1.5bn Sharia-compliant debt issuance, offering an annual profit rate of 10.875%. The issuance is part of a wider $5bn three-year sukuk program that the Ministry of Finance established on 14 February and listed on the London Stock Exchange.

Around 250 global investors including asset managers, pension funds and investment banks from the Gulf, Asia, Europe and the US subscribed to the sukuk, according to a statement by Mohammed Maait, the country’s finance minister.

Egypt’s maiden sukuk joins a larger global sukuk market worth $750bn, according to some estimates. Global sukuk issuance is set to reach between $160bn to $170bn in 2023 compared to $156bn in 2022 and $170.4bn in 2021, according to S&P Global Ratings research.

In addition to sukuk, the Egyptian Exchange (EGX), the country’s stock exchange plans to launch a Sharia index by November in cooperation with S&P, according to an interview Rami El Dokani, chairman of EGX on 12 August.

The new index would offer investors and funds access to specific Sharia-compliant stocks on the EGX. The index could also increase investment flows on the stock exchange as well as help asset managers benchmark the performance of Sharia-compliant portfolios.

Initial shares that correspond to the Islamic index range from 20 to 25, said El Dokani in his interview, adding that the exact volume of the shares to be added to the index has not yet been determined.

Currently, the S&P Egypt BMI Shariah offers a Sharia-compliant version of the S&P Egypt Broad Market Index (BMI), a broad-based benchmark covering large-, mid- and small-cap Egyptian stocks.

A new EGX Sharia index would join an increasing number of Islamic indices that track regional and global equities. Among the most widely used Islamic indices include Dow Jones Islamic Market index and MSCI World Islamic Index.

However, investors say that whilst an EGX Sharia index is a welcomed development, Egypt will have address its economic challenges.

“An EGX Sharia index is an incremental improvement but is unlikely to meaningfully alter the investment landscape for now,” says Dipanjan Ray, portfolio manager & head of research at Emirates NBD Asset Management.

“Furthermore, Islamic or not, at present Egypt’s key issue is the currency stability/potential devaluation and unless that headwind is cleared, international public equity investors are unlikely to be enthused with the new development.”