Still hoping for an Italian sovereign Sukuk issuance

According to a recent press release of the Ministry of Finance, the value of Italian public real estate assets — some one million cadastral units with a surface of 325 million square meters — is in the region of EUR283 billion (US$331.78 billion). In terms of the type of assets, the large majority, approximately 77% with a value of some EUR217 billion (US$254.4 billion), are directly used by the public administration itself.

This significant portfolio of assets and its value could be important for the two populist parties which got the majority of votes at the last general elections held on the 4th March 2018 and are now attempting to form a new government. In fact, according to the media, the political and economic program they are working on allegedly includes measures which would require additional financial resources in the region of EUR70-100 billion (US$82.07-117.24 billion). One way to find these additional resources could be leveraging on the public real estate portfolio. Of course, the disposal of such a portfolio would be the most preferable option as it would not trigger an increase of public debt, which is already above EUR2 trillion (US$2.34 trillion) and 120% of the Italian GDP, and therefore subject to the constraints of the EU. However, such a disposal could occur only within a medium to long-term timeframe, after proper actions to maximize the value of the assets have been taken, while the new fiscal policy would need to be funded at the outset.

With this in mind and considering the recently increasing interest for euro-denominated Islamic bond issuance, the question arises as to whether the idea of an Italian sovereign Sukuk issuance, backed by part of the public real estate portfolio, could be somehow revitalized. Such an idea was discussed in private circles and with decisionmakers a couple of years ago but it did not materialize at that time for various reasons, including the fact that Italy has had, over the last years, quite an easy access to traditional ways of funding in a low rate environment as a result of the European Central Bank quantitative easing policy. This policy is, however, due to come to an end in the coming months and if the state budget needs actually increase as a result of the new government’s fiscal program, it could be interesting for Italy to explore alternatives means of financing, for example, utilizing a small part of the real estate portfolio, which is now being used by the public administration, for a Sukuk Ijarah issuance, similar to what has already been done by other European countries.

Of course, the feasibility of such a project will depend very much on the attitude that the new decision-makers will take with regards to Islamic finance as a whole. But it must be considered that Turin, one of the Italian cities which is already governed by one of the two parties, has been home to a number of initiatives dedicated to Islamic finance in recent years.

This article was first published in Islamic Finance news Volume 15 Issue 22 dated the 29th May 2018.