The acceleration of Egypts quest for an Islamic bond might have something to do with the countrys difficulty in accessing more traditional forms of finance. Last weeks announcement of a $2bn target for a sovereign sukuk came shortly after the countrys central bank struggled to attract much interest in an auction of five year bonds. And it failed to sell any six year paper at all.
Whatever the driver for the move, the news was warmly received by financial professionals, Islamic and conventional alike. Thats not surprising. There were limited opportunities for the former to engage with Egypt during the 30 years of Hosni Mubaraks presidency which did not particularly encourage Shariah compliant products.
You could just about get an ijara (leasing) sukuk done as one company (and only one), Al-Tawfeek Leasing Co, showed in 2010. But you werent allowed to even call it a sukuk.
The overwhelming sentiment towards an Egyptian sovereign issue, however, is that a deal like this is something the emerging nation needs to work towards and earn, rather than being a quick fallback solution that can be thrown into the mix. On that basis, the second half of 2012 looks like the earliest realistic timeframe for a deal.
But any substantive talk of an Egypt dollar sukuk or even a conventional international bond, for that matter is unlikely until the government can articulate a sensible medium term financing strategy. Confidence in its ability to implement economic policies would be handy. Bothersome regulations that inhibit Islamic finance also need changing.
Presidential elections in June might provide some answers, and not before time. Ratings agencies certainly need convincing: S&P downgraded the sovereign on Friday.
A $3.2bn loan from the IMF, still to be signed, would be a big step towards this goal. Even then, the government would be well advised to put together a travelling team to roadshow and market the new Egypt. After all, if the conventional market is nervous of Egypts credit then it is hard to see why the Islamic market would be any different.