Egypt clerics ‘fault’ Islamic bonds law

Deficit to hit 197.5b pounds Barwa Bank

CAIRO, April 15, (RTRS): A law that will allow Egypt’s Islamist-led state to issue Islamic bonds contravenes the sharia in numerous ways, according to a panel of senior Muslim clerics whose objections are likely to hold up ratification of the legislation.

President Mohamed Morsi of the Muslim Brotherhood referred the law to the Senior Scholars Authority of Al-Azhar, a thousand-year seat of Islamic learning, after it was driven through parliament by his Islamist allies last month.

Egypt has never before issued Islamic bonds, or sukuk, which adhere to Muslim principles that deem the payment of interest as impermissible. The government, which is struggling with an unaffordable budget deficit, hopes passage of the law will allow it to raise billions of dollars in the Islamic bond market.

But it has triggered tension between the ruling Islamists and Al-Azhar. Its scholars complained when the Brotherhood-led parliament approved the legislation and referred it to Morsi without first consulting them, as required by the constitution.

The clerics are demanding the amendment of nine of 31 articles in the law, according to details of their objections published in local newspapers on Monday. An Al-Azhar official contacted by Reuters confirmed the details.

The clerics are seeking amendments that include putting a 25-year limit on the maturity of Islamic bonds, justifying this by saying that in Islamic law the period of investments must be “suitable for the lives of their owners”.

They also objected to language that could allow state assets to be used as collateral for the bonds, said sukuk must not be issued to finance Islamic endowments, or ‘awqaf’, in Arabic, and demanded a role for the Senior Scholars Authority in deciding who sits on the official body that will oversee sukuk issuances.

The clerics last week said they approved the law, but on condition the amendments were made.

The Islamist-tinged constitution fast tracked into law in December does not say whether the Senior Scholars Authority’s view is binding on the executive. Morsi must now decide whether to refer the law back to parliament for further amendments.

Sharia

The constitution says that the Senior Scholars Authority must be consulted on all matters pertaining to sharia - vague language which critics say will open the door to future legal and political confrontation.

Egypt’s budget deficit will rise to 197.5 billion Egyptian pounds ($28.7 billion) in the fiscal year starting on July 1 from a revised 184.9 billion pounds in 2012/13, a budget document sent to parliament on Monday showed.

The government document submitted to parliament’s finance committee and seen by Reuters showed that this year’s deficit had swollen by nearly one-third from the originally budgeted 135 billion pounds, highlighting the scale of fiscal slippage.

The draft was sent to lawmakers as ministers were holding inconclusive talks with an IMF team on a $4.8 billion loan. Diplomats said no deal was likely during the IMF mission’s visit because the government was balking at cutting fuel subsi-

Continued from Page 40 Qatar’s Doha Bank announced in January that it would seek to increase its capital by 50 percent. Its 1.55 billion riyal rights issue was nearly twice covered by investors in March.

Troop said regional expansion was also a prospect being considered by his bank.

“The need to expand overseas is something to bear in mind. That will be with the right assets and the right price. At this stage it would be fair to say we’d be looking at Gulf and MENA (Middle East and North Africa).”

Barwa intends to begin the process of securing a credit rating later this year, before the bank might issue a sukuk (Islamic bond), Troop said.

“We wanted the ratings agency to look at the H1 numbers and the incremental capital we’re hoping to raise. We’re confident that we will generate the rating we think we merit.”

The lender posted a profit of 345 million riyals for 2012, a 41 percent increase from the previous year.

It has been especially active in the fixed income sector, serving as co-lead arranger on Turkey’s $1.5 billion sovereign sukuk deal last September. It was a mandated joint lead manager on Qatar’s bumper $4 billion Islamic bond sale last July.

Troop said the bank was in discussions with potential Islamic debt issuers. “We are in conversations. We have a reasonably strong pipeline at this time. There are still significant and deep pools of Islamic liquidity that seek an appropriate investment.”