Citi Sells 1st Egypt-Tied Notes Since 2010 After IMF Loan

  • ‘Investors view Egypt as an upside story,’ says Citigroup
  • Bank plans to issue 578 million Egyptian pounds of notes

Here’s another sign investors are growing more bullish on Egypt, which has interest rates of about 15 percent and a fresh loan from the International Monetary Fund under its belt: Citigroup Inc. is selling the first structured notes tied to the nation’s sovereign debt in six years.

The New-York based bank plans to issue 305 million Egyptian pounds ($17.26 million) of one-year securities tied to the Arab Republic of Egypt on Nov. 25, according to data compiled by Bloomberg. The zero-coupon notes will be sold at about 85 percent of face value. It plans to sell a further 273 million Egyptian pounds of one-year notes on Dec. 2. Egypt’s central bank adopted a free-floating currency earlier this month and raised its benchmark rate to 14.75 percent to contain inflation.

Click here for a story on how Egypt’s free float has paid off

After five years of political turmoil which saw two presidents ousted, Egypt secured a $12 billion IMF loan earlier this month. Equities have surged since the nation scrapped controls of its pound on Nov. 3, prompting the currency to fall almost 50 percent within a week but also eliminating the devaluation risk that previously kept foreign money managers away. Finance Minister Amr El-Garhy said this week that he will seek to raise as much as $6 billion from international bond sales through 2017.

“Investors view Egypt as an upside story,” said Elbek Muslimov, head of emerging market credit trading for central and eastern Europe, Middle East & Africa at Citigroup in London. “We have seen the re-emergence of demand for fixed income in Egypt. Pre-devaluation the currency was in disequilibrium making investors cautious.”

By devaluing Egypt joins Kazakhstan and Nigeria, in providing investors more comfort to invest with a lower risk of their capital being wiped out from currency swings. Sri Lanka also saw an influx of money into equities and structured notes after getting the green light for an IMF loan in April.

“This might be a turning point for Egypt,” said Bilal Khan, senior economist for Middle East, North Africa and Pakistan at Standard Chartered Plc in Karachi. “Currency depreciation, subsidy cuts and rationalization of energy prices as well as approval from the IMF have come together for investors to look at Egyptian bonds with renewed enthusiasm.”

Since Egypt floated the pound, London-based investor GAM UK Ltd. has also returned to the most populous Arab nation after an eight-year hiatus. London-based money manager Denise Prime bought Treasury bills on the secondary market for a $5.4 billion fund that invests in local-currency debt across the developing world.

While the outlook is brighter now than in previous years, risks remain that could derail Egypt’s recovery, according to Emre Akcakmak, portfolio advisor at East Capital who started investing in the country before the currency was floated.

"There are always risks during times of courageous economic decisions and the road to recovery is almost always bumpy," he said. "Things may well move in a completely wrong direction depending on various internal or external factors. However, Egypt seems to be doing the right things so far so let us not forget that a good start is half the battle."

(A previous version of this story corrected the investment amount in seventh paragraph.)
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