Tunisian government may issue Islamic bonds

With Tunisia’s fiscal deficit expected to rise in 2017, the government has been stepping up its activity on international debt markets.

In August 2016 the authorities issued a $500m, five-year sovereign bond backed by a 100% guarantee from the US government, enabling them to obtain a coupon rate of just 1.4%. This followed US-backed loan guarantees in 2012 and 2014. At the beginning of April 2017 Tunisia’s government announced that it had approved the issuance of up to $500m more US-guaranteed bonds in 2017.

Eurobond

Tunisia is also planning to enhance its domestic sovereign issuances through euro-denominated bonds. In February 2017 it once again tapped into the international bond market, issuing an €850m, seven-year eurobond with a yield of 5.7% per annum. The bond – which had been delayed from a planned January launch due to the August US-backed issuance – helped lift foreign exchange reserves to TD13.7bn (€5.8bn) as of February 20, covering 116 days of imports.

The issue marked the second time that the state has sold debt on international markets without foreign support since the revolution in 2011, following a $1bn debt issue with a coupon of 5.8% in January 2015. Demand for the debt was high, with the instrument more than four times oversubscribed.

Sukuk

All such issuances to date have taken the form of conventional bonds. However, this may be set to change given plans to enter Islamic debt markets, something that the Tunisian government has been working on for several years.

In 2013 the Parliament approved a law on sukuk (Islamic bonds) which allowed for the state to issue such instruments, and at the time the government said that it intended to issue sovereign Islamic loans before the end of the year.

In February 2014 the authorities reiterated their intention to borrow TD700m (€300.2m) on Islamic debt markets in April or May of that year. That launch did not go ahead, and in early 2015 Chedly Ayari, governor of Tunisia’s central bank, said that the legislation would need to be modified to allow for an international issue.

In October 2015 Slim Chaker, the minister of finance at the time, said that the government would issue a TD1bn (€428.8m) sukuk in 2016.

A new government came into power in August 2016, and as of April 2017 no such issue had taken place. Furthermore, some of the relevant applicatory decrees for the legislation enabling government sukuk issues are still not in place, casting doubt on the prospects for an issue.

Lilia Kamoun, senior analyst at brokerage Tunisie Valeurs, said that a sukuk issue could be advantageous. “The government needs to diversify its sources of financing, as current international financial support is partly dependent on reforms that are taking time to be implemented,” she told OBG. “A sukuk issue could bring money into the country from Gulf investors,” she added. Some large Gulf investment funds are only permitted to invest in sharia-compliant products.

In October 2016 Ayari said that the authorities still planned to raise around TD1bn (€428.8m) worth of sharia-compliant debt, and that he hoped Tunisia would start to tap Islamic markets in 2017. In January 2017 then-minister of finance, Lamia Zribi, told international media that the government is planning a $500m sukuk issuance by the end of the year.

Corporate Sukuk Potential

There is also potential for the emergence of a Tunisian market in corporate sukuk, which are also authorised under the 2013 legislation. In November 2016 Ayari suggested that Islamic debt instruments, in addition to raising funds for the government, could be used by Tunisian banks, which he said were in growing need of additional medium- and long-term financing.