markets

With $4 Billion Bond Sale Done, Egypt Readies Euro Offer

Updated on
  • Sale ‘ideally’ to take place in April, finance minister says
  • Egypt’s international bond sales help lower borrowing costs

Egypt will begin approaching investment banks in a few days for a planned sale of euro-denominated bonds after successfully raising $4 billion from international debt markets to finance the budget deficit and bolster foreign reserves, Finance Minister Amr El-Garhy said.

The sale of 1 billion to 1.5 billion euros in notes will “ideally” take place in April, and Egypt wants European banks to manage it, the minister said in a phone interview. On Tuesday, the government received about $12 billion in offers for its dollar-denominated bonds, in what the minister described as a “vote of confidence” in the Egyptian economy.

The strategy of becoming a regular issuer on international markets will enable Egypt “to borrow easily and at relatively better pricing,” said Mohamed Abu Basha, an economist at investment bank EFG-Hermes in Cairo.

While the global market turmoil last week also hit the assets of developing nations, investors are still tempted by higher-yielding emerging debt in a world that remains awash with central bank stimulus. For the Egyptian government, however, borrowing costs on international markets remain much lower than local-currency debt.

Tuesday’s issuance completely covers Egypt’s financing gap for the fiscal year ending June 30, Deputy Finance Minister Ahmed Kouchouk said. It brings to $11 billion the total amount of international bonds Egypt has sold since floating the currency and securing a $12 billion International Monetary Fund loan in November 2016.

Cheaper Finance

Egypt taps international markets to lower the cost of bridging its $21 billion budget gap

Source: Bloomberg data for most recent bond sales

The terms for the latest issuance were less favorable than last year’s due to the increase in global interest rates, El-Garhy said.

“We could’ve secured cheaper pricing since our risk position has improved since the last time we tapped the market, but the rise in yields on U.S. Treasuries has affected us,” El-Garhy said.

Egypt’s foreign-currency reserves have been steadily increasing since 2016, climbing to a record $38.2 billion January.

Tuesday’s issuance was broken down into three parts: $1.25 billion in five-year notes with a yield of 5.58 percent, $1.25 billion in 10-year notes with a 6.59 percent yield; and $1.5 billion in 30-year notes with a yield of 7.9 percent, the Finance Ministry said in an emailed statement.

— With assistance by Tarek El-Tablawy, and Alexander Nicholson

(Updates with economist comment in third paragraph, deputy minister in fifth.)
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