On the Road Again: Egypt Markets First Eurobonds Since 2015

  • Roadshow begins in U.A.E. for as much as $2.5 billion of bonds
  • Egypt shares Moody’s B3/Fitch B rating with Ghana and Pakistan

Egypt is pushing ahead with plans to tap overseas bond markets, bolstered by a $12 billion loan from the International Monetary Fund -- the lender’s largest in the region.

A marketing roadshow for Eurobonds worth as much as $2.5 billion begins in Abu Dhabi and Dubai on Tuesday, and will take in New York, Boston, Los Angeles before wrapping up in London on Jan. 23. Egypt plans to offer 5-year and 10-year maturities, and may consider a 30-year tranche.

Below is a brief guide to the sale.

Why now?

A shortage of hard currency derailed economic growth since Egypt last sold $1.5 billion of 10-year international bonds in June 2015 at 5.875 percent, though a recent borrowing spree from the IMF, the World Bank, Saudi Arabia and others has boosted coffers.

Even with its renewed funding, the central bank won’t lend to the government as liberally as it used to, and will keep reserves as “a cushion for possible economic shocks,” according to Noaman Khalid, an economist at Cairo-based CI Asset Management. That’s forced the government to borrow at an unsustainable rate of about 20 percent in local debt markets, he said.

How much does Egypt want to raise?

Egypt may issue as much as $6 billion of international bonds this year, Finance Minister Amr El-Garhy told Bloomberg in November. The current sale was scheduled for November, but was delayed due to market volatility following Donald Trump’s election victory.

What is the government doing?

Between September and November last year, authorities introduced value-added taxation and raised the price of subsidized fuel. The central bank lifted the key interest rate by 300 basis points to 14.75 percent in November, and floated the pound.

The government now plans to phase out electricity and fuel subsidies gradually, but officials haven’t released a schedule for the cuts. The parliament is also discussing a new investment law to facilitate doing business in the country, while the finance ministry is preparing regulations to ease tax dispute reconciliation and is considering amending the income tax law to add more incentives.

Key economic indicators:

  • Debt: The ratio of local debt to gross domestic product reached 92.8 percent on June 30, according to initial Ministry of Finance data. Foreign debt reached $55.8 billion, equivalent to 18 percent of GDP -- the figures don’t include debt accumulated since then, including the first tranche of the IMF loan.
  • Growth: The forecast for the current fiscal year which began on July 1 was revised down to 4 percent from 5 percent. It was 4.3 percent in the last fiscal year and 4.4 percent a year earlier.
  • Budget deficit: 12.2 percent of GDP last fiscal year. It is forecast to narrow to about 10 percent this year, according to the government.
  • Currency: The pound has lost about half of its value since it was floated on Nov. 3, and now trades at about 18.6 per dollar.
  • Prices: Core inflation reached 25.86 percent in December, the highest level in almost 12 years.

How does Egypt compare?

Egypt is rated B3 by Moody’s Investors Service, its sixth non-investment grade, alongside countries including Ghana and Pakistan. Fitch Ratings has a B rating for all three countries, the company’s fifth non-investment grade.

  • Egypt’s most recent international 10-year dollar bond yielded 7.082 percent as of 2:33 p.m. on Monday in Cairo.
  • Ghana sold $750 million of 6-year international bonds in September at 9.25 percent. The yield has since fallen to about 7.5 percent. The yield on its 11-year dollar bond maturing in January 2026 is about 8.1 percent.
  • Pakistan sold $1 billion of 5-year dollar-denominated Islamic bonds (sukuk) in October at 5.5 percent. The debt yielded 4.846 percent on Monday. The yield on its 10-year dollar bond maturing September 2025 is about 6.4 percent.
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