Egypt’s biggest Islamic loan, signed yesterday by Al Nouran Sugar, is adding to evidence borrowers are turning to Shariah-compliant funding in a country that ousted its Islamist government less than a year ago.
The company signed a 1.5 billion Egyptian-pound ($215 million) loan to build a factory, according to Al Nouran’s Chief Executive Officer Ashraf Mahmoud. That topped Egyptian Steel’s 1.1 billion-pound facility, which was the North African country’s biggest Islamic loan when it was agreed six months ago, according to data compiled by Bloomberg.
Islamist President Mohamed Mursi was overthrown in an uprising in July, derailing plans for a debut sovereign sukuk sale from the most populous Arab state and stalling the development of its Shariah-compliant financial regime. Borrowers are using Islamic funding options to tap an industry growing at 17 percent a year and set to be valued at $2.7 trillion by 2017, according to PricewaterhouseCoopers.
“The perception of Egypt is changing with political risk coming down,” Montasser Khelifi, senior manager for global markets at Dubai-based Quantum Investment Bank Ltd., said by phone yesterday. “For Egyptian borrowers, it allows them to tap into Gulf Cooperation Council funds since there are some institutions here that only deal in Islamic financing.”
Banque Misr, along with the local units of Lebanon’s Bank Audi and Abu Dhabi Islamic Bank (ADIB) were the lead arrangers for Al Nouran’s 8.5 year deal. The loan was priced at 4.25 percent more than the Egyptian “mid-corridor” rate, which is half way between the overnight deposit and lending rates and currently stands at 8.75 percent, Mahmoud said. Egyptian government bonds due April 2022 are yielding about 15 percent, according to data compiled by Bloomberg.
The company also agreed a $30 million mezzanine facility, or debt that’s convertible to equity in case of default, from the Islamic Corporation for Development of the Private Sector, a unit of Jeddah, Saudi Arabia-based Islamic Development Bank, according to Mahmoud.
“We saw that ICD is a AAA rated institution with a firm commitment to invest in Egypt,” Mahmoud said by phone yesterday. “They were the first on board and we had no problem with Islamic financing so it made sense to accommodate them.”
Egypt’s share of the estimated $1.7 trillion in current global Islamic banking assets remains negligible. There are three fully Shariah-compliant banks in Egypt with combined assets of about 80 billion pounds, according to data compiled by Bloomberg, or less than 5 percent of the country’s total banking assets. The country announced a plan to issue Sukuk during the one-year presidency of Mohamed Mursi, before the military seized power.
Thirteen Egypt-based banks took part in Al Nouran’s financing for the plant, which will be built in the Sharkiya province of the Nile Delta and produce 500,000 tons of sugar annually. ICD and Kuwait-based Arab Fund for Economic and Social Development also bought $25 million equity stakes each, Mahmoud said.
“We may be seeing a landmark deal that opens the door for other corporates to consider this kind of financing,” Khelifi said.