Egypt's Biggest Lender Offers Hedge Against Local Bond Risk

  • Dollar call option for foreigners holding Egyptian Treasuries
  • National Bank of Egypt to offer the contracts for up to a year

Egypt’s biggest lender said it started offering contracts that allow foreign buyers of Egyptian debt to hedge their currency risk, a move that may further boost demand for local investments after the central bank weakened the pound.

The National Bank of Egypt will offer dollar call options for up to a year to investors buying Treasury bills denominated in Egyptian pounds, Amr Mostafa, group head of treasury and capital markets at the state-owned lender, said in a phone interview on Monday.

“It’s a total hedge,” Mostafa said. “The foreign currency call option guarantees the foreign exchange exit, including the price and the value of the principal plus the interest coupon.”

The introduction of the product follows the central bank’s decision to allow the pound to weaken by almost 13 percent in the official market. Rapid foreign-currency inflows into Egypt’s debt market would boost reserves, lower the government’s borrowing costs and ease a hard currency crunch that has hampered economic growth.

NBE aims to help restore foreign interest in Egypt’s debt market to pre-2011 levels, Mostafa said.

Foreign holdings of Egyptian T-bills fell to less than $50 million in 2015 from more than $10 billion almost five years ago, before the ouster of former President Hosni Mubarak, according to central bank data. Fears of a sudden devaluation of the pound as well as difficulties in repatriating funds are among the concerns cited by investors for avoiding local debt.

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