The Central Bank of Egypt (CBE) issued dollar-denominated Eurobonds worth $2 billion last Wednesday to cover part of the current fiscal year’s financial gap, which it plans to bridge by issuing Euro-denominated bonds.
The issue included three tranches, $500 million of four-year bonds with a 4.55 per cent yield, $1 billion of 12-year bonds with a 7.05 per cent yield, and $500 million of 40-year bonds with an 8.15 per cent yield. The latter is the longest international bond ever issued in the Middle East and North Africa (MENA) region, according to the Ministry of Finance.
Subscription orders exceeded $14.5 billion within a few hours of the issuance announcement, reflecting the confidence of the international community in Egypt’s economic reforms, the ministry said. It added that the oversubscription had helped to reduce the yields to be paid on the bonds by 0.45 per cent lower than the original price.
Initial price guidance was at five per cent yield for the four-year bonds, 7.5 per cent yield for the 12-year bonds, and 8.6 per cent yield for the 40-year bonds. The strongest demand for the bonds, according to the ministry, came from Asian and Middle Eastern investors.
The issue has helped to extend the maturity of the government’s debt portfolio and reduced the cost of debt-servicing, said Khaled Abdel-Rahman, assistant to the minister of finance for financial markets.
He said that those were the main goals of the ministry’s debt-management strategy that it has been adopting since March. The need for such a strategy is owing to escalating foreign-debt levels that reached $108.7 billion in June, 18 per cent higher than a year earlier.
The CBE’s decisions to lower interest rates by a total of 4.5 per cent since the beginning of 2019 have helped attract regional and international investors to the Eurobond issue instead of depositing the money in the Egyptian banks to benefit from high yields of 16.75 per cent at the beginning of the calendar year, commentators said.
However, they added that a main challenge for the economy remained attracting more domestic investors in order to redirect investments to main economic sectors such as industry and agriculture, in addition to increasing exports from their current level of $20-$22 billion.
The Finance Ministry said it planned to reduce the debt load to 80 per cent of GDP by June 2022, from 92 per cent in June this year, and to double the average maturity of bonds to around four years by June 2020.
In an interview with the US financial service Bloomberg last month, Finance Minister Mohamed Maait said the government would raise the share of longer-dated debt to 40 per cent of annual domestic issuance by the end of the current fiscal year from five per cent in 2017-2018.
The ministry also said in a press statement that it had successfully returned to the international debt markets for the third time this year to benefit from the positive outlook of the global market. Egypt has sold $8 billion of dollar and Euro-denominated bonds in 2019.
Egypt first tapped the international bond markets in 2001 when it issued $1.5 billion in two tranches, one of which matured in 2006 and the other in 2011.
*A version of this article appears in print in the 21 November, 2019 edition of Al-Ahram Weekly.