Moody’s assigns Egypt’s first sukuk program a (P)B3 rating amid risk concerns

Egypt’s first proposed sovereign $5 billion sukuk offering has been assigned a (P)B3 rating by Moody’s Investor Service, meaning it is considered speculative and subject to high credit risk.

The categorization from the credit rating agency reflects the government’s issuer rating, according to a statement.

The anticipated Trust Certificate Issuance Programme is issued by the Egyptian Financial Company for Sovereign Taskeek, which is fully owned by the Ministry of Finance.

Moody’s revealed that the trust certificates, or sukuk, issued under the program are to be obligations of the Egyptian government.

“Proceeds from the sukuk issuance will be used by the Company to purchase the usufruct rights to eligible real estate assets,” noted the agency.

In turn, the amounts received by the government from the sukuk issuance will be put into financing Egypt’s investment and development projects.

The agency also made clear that the sukuk ratings does not offer an opinion on the structure’s compliance with Shariah law.

Earlier this month, Moody’s lowered Egypt’s sovereign rating by one notch to B3 from B2, citing the country’s reduced external buffers and shock absorption capacity.

The agency changed its outlook for Egypt to stable from negative as the economy transitions toward a more export and private sector-led growth model under a flexible exchange rate regime.

Liquidity risks associated with a more difficult external debt service schedule over the next two years are partly mitigated by a new International Monetary Fund program that includes a state-owned asset sale strategy.

“These measures will ultimately take time to tangibly reduce Egypt’s external vulnerability risks,” according to a note from Moody’s.

Egypt has continued to face a foreign currency shortage despite the government allowing the Egyptian pound to depreciate sharply in recent months.

The country’s headline inflation surged to a higher-than-expected 25.8 percent in January, its fastest in more than five years, showed statistics agency CAPMAS.

“Notwithstanding the clear commitment to a fully flexible exchange rate, the government’s capacity to manage the implications for inflation and social stability is yet to be established,” stated Moody’s.

As for the economy’s credit profile, it “remains supported by the government’s track record of primary surpluses, solid trend growth and a large and dedicated domestic funding base to meet the government’s large funding needs at over 30 percent of Gross Domestic Product.”