Sarwa Capital to close 2nd phase of securitisation NUCA bonds this month

Alyaa Stohy
9 Min Read

Sarwa Capital has a significant role in pioneering securitisation offerings over the past years, being the first and largest source of securitisation bonds, in addition to being the first source of securitisation bonds supported with real estate assets. The company intends to implement several new versions in the coming months.

Besides leading securitisation operations, the company is seeking over the next year to undergo a new experience in the successful issuance of Sukuk.

Managing Director of Sarwa Capital, Ayman El-Sawy, told Daily News Egypt in an interview that the company is nearing the conclusion of two securitisations. The first is the second phase of the securitisation of the New Urban Communities Authority (NUCA) worth EGP 4bn. The company is implementing the process in cooperation with Banque Misr. The phase, El-Sawy said, is expected to be closed before the end of this month.

The second securitisation is the debts portfolio to Palm Hills worth EGP 1bn, which is expected to be completed before the end of this month. The proceeds will be funnelled to complete the development of its real estate projects.

Sarwa Capital issued in March a securitisation bond portfolio for the securitisation of futures valued at EGP 760m for Palm Hills Development. With the implementation of both securitisation offerings, the company’s issuances reached 30 with a value exceeding EGP 20bn.

El-Sawy said his company had the initiative and leadership in the implementation of the first issuance of securitisation in 2005, after extensive discussions and studies. It resulted in the launch of a successful experiment in the securitisation process that had a major role in pushing companies to replicate it, and then Sarwa Capital implemented several successful issues for large companies, especially in the real estate sector. El-Sawy pointed out that he is pleased with the development of the current securitisation activity and the increase in its size and growth on an annual basis as well as the entry of new players, especially from real estate developers.

Moreover, he highlighted that launching successful experiments in modern finance products always takes a long time. On the other hand, their returns are always positive on the market in general, as the success of these experiments drives companies from various economic sectors to gradually change their perception and become convinced. Subsequently they resort to it in new financing operations; hence, he believes that the most important thing for companies to launch the new product is to study it well and come up with a successful experience to follow.

“The Sukuk issuance, like any new product, will naturally go through the same scenarios as the securitisation market,” he said. “The market is awaiting the first issuance now, so it is important to be successful in order to stimulate the market.” El-Sawy expects Egypt to see several issuances of Sukuk and attract the interest of both companies and investors. Yet, this will be gradual so the demand for Sukuk at the beginning may be limited and see an annual increase, but the volume of Sukuk issuance thereafter will be high.

Regarding Sukuk issuances, El-Sawy said that Sukuk issuance face the challenge of raising awareness of Sukuk. The lack of awareness also includes companies or institutions eligible for Sukuk issuance or by dealers. Furthermore, he explained that companies go to banks for funding as it is easier. This, in turn, makes it difficult to convince them to turn to a new funding mechanism that may come with difficult procedures for them and uncertain results. The companies, he said, will then wait to see the successful experiments.

Additionally, he emphasised that the idea of providing financing by Sukuk differs from the financing of banks in untraditional ways, and the degrees of pricing and risks to attract subscriptions to the Sukuk. This is one of the reasons for interest in the Sukuk by companies located in Egypt as a financing tool reliable in financing projects that bonds cannot finance, explaining that their compliance with Islamic Law can be a catalyst.

Plus, El-Sawy said that Sarwa Securitisation is moving forward to implement the Sukuk issuance process, but it may take more time to ensure the launch of a successful experiment to follow in this regard, especially if this is the first offering that will determine the experience of Sukuk.

The issuance of Sukuk requires careful studies and numerous discussions in several areas such as accounting treatments and legal procedures, considering the need to reduce the time period for the offering in order to render it attractive to different categories of investors, the Managing Director of Sarwa Capital shared.

Over and above, he indicated that besides the intention of issuing Sukuk, the company will also manage Sukuk offerings for other companies. El-Sawy believes that Sukuks are treated as a mix between stocks and financing instruments, and are expected to be a powerful incentive to attract new investors. Furthermore, he stressed the need for a Sukuk credit rating and a good account of the nature of the risks and projects appropriate for the issuance of Sukuk.

The projects that could be the most suitable and benefit from the Sukuk issuance are real estate projects, renewable energy projects, and all infrastructure projects, as well as education, and health care projects, he added. The decision to cut interest rates will stimulate financing operations and enhance the activity of the company both in issuing securitisation or Sukuk.

The Financial Regulatory Authority (FRA) has granted Sarwa Capital Holding a license to issue Sukuk through the Sarwa Sukuk Company in July.

Regarding the proposal to develop the financial instruments market, El-Sawy said that it is important to activate the debt instruments market and create an active secondary market for bond trading. He stressed the need to determine the costs of trading bonds and fixed income instruments in line with the average returns of these instruments. In addition, the cost must encourage investors, with the need to provide a mechanism for exiting, while working to raise awareness of the nature of fixed income instruments for all relevant parties from issuing companies, investors, to brokerage firms.

El-Sawy also sees the need to reduce the maximum fee for stock market and clearing services, while considering the possibility of exempting the trading of corporate bonds from the stamp duty of 1.5% from the value of the transaction. He added that companies’ bonds and shares on the Egyptian Exchange (EGX) must not be equal in treatment with regard to trading costs despite the difference in returns on the amounts invested in corporate bonds determined at the time of the purchase decision compared to the expected return on investment in the stock market.

El-Sawy praised the FRA’s approach to overcome all obstacles to activate the bond market and its endeavour to support this market and develop it to become an important source of funding for companies and projects and the growth of finance markets.

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