Plans for a sovereign Sukuk issuance and a dedicated Sukuk law are worn-out topics in Kuwait, but with a new Sukuk bill submitted by the Opposition in January and with KWD1.32 billion (US$4.33 billion)-worth of debt maturing this year, both subjects have resurfaced. MARC ROUSSOT has the story.
Battered by high winds and torrential rain in November, Kuwait is still licking its wounds following heavy floods and damaged roads, which have even led to the resignation of the minister of public works and triggered the setting-up of a Parliamentary Commission of Inquiry to investigate the flaws that caused what the press calls the ‘rain crisis’.
When Osama Issa Al-Shaheen, a famous and controversial member of Kuwait’s National Assembly, submitted a Sukuk bill in January, the initiative did not grab the headlines as parliament had more immediate and critical issues to deal with.
Sitting in the Opposition, as part of the Islamic Constitutional Movement and linked to the Muslim Brotherhood, the Sukuk law, drafted by Osama together with a group of four other lawmakers, sets the rules for the issuance of Sukuk by the government, public bodies and state-owned enterprises, joint stock companies, banks, as well as international and regional financial institutions.
According to the bill, companies and banks would need initial approval from Kuwait’s Capital Markets Authority before tapping the Islamic debt capital market and the regulator would have to give its decision within 45 days from the date of application, otherwise the request would be deemed approved.
On the government side, the Ministry of Finance would have to establish a unit managing Sukuk issuance. The body would have to identify appropriate assets and structures, develop a risk management policy, review and manage cash flows for each issuance and support trading on the primary and secondary markets, among others.
Raising the dead
This initiative has led the government to revive its own draft Sukuk law, which has been mothballed and has been sitting on the National Assembly’s agenda for at least two years, Osama told IFN.
Both bills are now expected to be presented before the judicial committee of the parliament at the same time to be combined into one single proposal. However, Osama did not elaborate on the length of the legislative process.
It could be a matter of weeks or years. Amendments to the public debt law proposed in 2017 and comprising provisions on Sukuk issuance are still sitting in parliament, for instance. The reforms were aiming to raise respectively the maximum tenor and size of government issuances from 10 to 30 years and from KWD10 billion (US$32.79 billion) to KWD20 billion (US$65.58 billion).
“There are so many topics that are currently taking precedence. One of them is the state of roads in Kuwait as part of the ‘rain crisis’. So looking at Sukuk bills is not urgent for the National Assembly,” says Issam Al-Tawari, the founder and managing partner at Newbury Economic Consultancy.
Both bills could suddenly become a top priority for Jaber Al-Mubarak Al-Hamad Al-Sabah’s government as KWD1.32 billion-worth of sovereign debt is maturing this year and a Sukuk issuance could be an interesting tool for Kuwait which is seeking to meet its refinancing needs.
But with a budget in surplus thanks to the higher price of the barrel, the authorities are likely to face strong resistance from the public if it decides to issue bonds or Sukuk.
“People are asking why should we borrow if we have enough money in our coffers? Why should we pay the cost of funding when we have enough money? And with Sukuk, why should we put government assets in the hands of foreign investors?” explains Issam.
If passed, the Sukuk law will create a more robust and specific legal framework that could also be leveraged by the private sector, including corporates and financial institutions like Kuwait International Bank (KIB) which shared in February its plans to issue a debut US dollar Sukuk paper this year.
“The current legislation is very general and open for interpretation. Having a law dedicated to Sukuk would ease the life of the originator and encourage both the government and corporates to tap the Islamic capital market,” asserts Issam.
Yet, in the absence of such a new legal framework, KIB would still be able to raise funds by selling Islamic papers as Sukuk was accommodated back in 2006–07, with amendments to the law on bond issuances.
This article first appeared in IFN Volume 16 Issue 10 on the 13th of March 2019