IMF-Backed Egypt Offers $3 Billion in Bonds Amid Falling Costs

  • Country re-opens bonds sold in January at lower yields
  • Low supply of high-yielding debt fuels demand: Amundi

Egypt is selling $3 billion on international bond markets Wednesday, taking advantage of lower borrowing costs after its economic policies earned the International Monetary Fund’s endorsement.

The most populous Arab nation is offering more of the debt it issued in January, but at lower costs, according to person familiar with the deal, across maturities in 2022, 2027 and 2047.

Egyptian Finance Minister Amr El-Garhy discusses the nation’s $3 billion bond sale on Bloomberg TV.

Source: Bloomberg

Six years after the uprising that ousted President Hosni Mubarak, officials are struggling to rebuild an economy where inflation tops 30 percent and key industries such as tourism and manufacturing have been hit by terrorism, high borrowing costs and lack of foreign investment.

But the sale comes at an opportune time. Increased appetite for riskier assets has driven the cost of capital down for developing-country issuers and the premium investors demand to hold emerging over U.S. sovereign debt is near its lowest in more than two years.

The bond sale is "coming at an attractive level and we are constructive on Egypt following recent IMF agreement," said Sergei Strigo, the London-based head of emerging-market debt at Amundi Asset Management, which oversees more than $1 trillion. The Egyptian notes will attract investor demand because "there is also a limited supply of high yield sovereign bonds in the market."

Egypt succeeded earlier this month in passing the first IMF review of policies it adopted to fix its economy, unlocking $1.25 billion from the lender that granted it a Middle East-record $12 billion loan in November.

IMF support comes after the country implemented a series of economic fixes such as hiking its benchmark deposit rate by 500 basis points over the past six months in an effort to contain inflation. It also slashed the value of its currency in half to attract foreign capital while lowering fuel subsidies to shrink one of the Middle East’s highest budget deficits.

But some of those measures, such as raising interest rates, have drawn criticism from money managers such as Mark Mobius, executive chairman of Templeton Emerging Market Group, because they hinder private sector growth. Non-oil business activity has contracted for 19 months, according to an index compiled by Emirates NBD.

Egypt is offering investors $750 million of five-year debt yielding 5.45 percent, compared with a yield of 6.125 percent when the notes were first sold, according to the guidance. A tranche of $1 billion ten-year bonds will yield 6.65 percent, compared with 7.5 percent on the original notes, while $1.25 billion of 30-year debt will yield 7.95 percent versus 8.5 percent back in January. The deal is expected to price today.

"We like the reform story a lot," said Anthony Simond, who helps manage $11 billion of emerging market debt at London-based Aberdeen Asset Management Plc, and is bidding for Egyptian bonds at today’s sale. "They are implementing an impressive fiscal consolidation, which, coupled with the huge inflows of foreign capital since the devaluation, means that their balance of payments position is now much more sustainable."

    Before it's here, it's on the Bloomberg Terminal.