The finance ministry finalized an international US dollar-issued bonds offer worth $3.7 billion in a five-year term, 10-year term and 40-year term, with a total worth of $750 million, $1.5 billion and $1.5 billion, respectively,
The offering was carried out on Monday over a one day period, Minister of Finance Mohamed Maait announced on Tuesday.
The heavy demand on the bonds pushed the ministry to decrease the indicative rates on the bonds to the lowest since the first Egyptian issuance of international bonds in the beginning of the 2000s. 4.2 percent on the five-year term bonds, 6.1 percent on the 10-year term bonds and 7.7 percent on the 40-year term bonds, according to Ahmed Kojok, the Deputy for Financial Policies for the finance minister.
The indicative rates at the beginning of the offer were 4.2 percent for the five-year term bonds, 6.2 percent for the 10-year term bonds and 7.8 percent for the 40-term year bonds, an informed source told Al Ahram Online.
The total demand of the Egyptian US dollar bonds exceeds $16 billion, especially after decreasing the indicative rates on all segments, according to the source.
Moreover, the ministry's target was to obtain $3 billion, yet the heavy demand raised this target to the $3.7 billion that was obtained during the offer, also according to the source.
According to Kojok, Monday’s offer interest rates on the Egyptian international issued bonds in November 2019 - prior to the pandemic - were higher, recording 4.5 percent on the four-year term bonds, 7 percent on the 12-year term bonds and 8.1 percent on the 40-year term bonds.
Furthermore, indicative rates on the previous international issued bonds, occurred in May 2020, reaching 5.7 percent on the four-year term bonds, 7.6 percent on the 12-year term bonds, and 8.8 percent on the 30-year term bonds, also according to Kojok.
He added that the offer attracted 400 investors, 40 of whom invested in bonds for the first time.
“This affirms the increasing trust of the international financial markets in resilience and the improvement of the Egyptian economy owing to Egypt’s sound and balanced economic and fiscal policies," Kojok explained.
The bonds’ proceeds will be used in financing the state’s FY2020/2021 budget needs and will provide the country with extra financial resources of foreign exchange, according to Maait.
They will also provide the required liquidity for dealing with the COVID-19 repercussions, financing the financial stimulus initiatives, meeting health sector’s needs and funding the social protection programmes, according to the minister.
He also said that the offer came despite the uncertainty and the extraordinary conditions the whole world is witnessing because of the pandemic, adding that the offer managed to attract a wide range base of investors from all over the world.
“Through this offer, Egypt has managed to return to the international financial markets for the second time," said Maait.
"It’s proceeds are expected to contribute in prolonging Egypt’s public debt portfolio period and reducing its cost average. That will lead to improve Egypt’s public debt sustainability and debt service indices, in addition to upgrading Egypt’s overall financial conditions,” Maait added.
Through a four-year strategy, Egypt targets decreasing public debt to GDP ratio of 87 percent in the current FY 2020/2021, 84 percent in FY 2022/2023 and 79 percent in FY 2023/2024.
It also targets decreasing external debt to GDP ratio to below 30 percent over the medium term.
On May 2020, Egypt sold $5 billion in international issued bonds in three segments with maturities of four, 12 and 30 years, in the country's first offer after the onset of the pandemic.
The May offer provided much needed liquidity of foreign exchange to cope with the repercussions of COVID, with Egypt selling $1.25 billion in four-year term bonds, $1.75 billion in 12-year term bonds and $2 billion in 30-year term bonds.
In October, Egypt launched its first governmental sovereign green bonds offer in the London Stock Exchange (LSE) with a total worth of $750 million in a five-years term, the first of its kind in the Middle East and North Africa (MENA).
Egypt’s green bonds managed to attract 16 new investors from Europe, the US, East Asia and the Middle East with 47 percent, 41 percent, 6 percent, 6 percent, respectively, in terms of asset managers, investment and insurance funds, pension funds and high-quality banks that keep their investments over longer terms, which limits prices fluctuation.
In November, Egypt’s cabinet approved the sovereign sukuk draft law that allows Egypt to issue sovereign sukuk, ushering the country into the Islamic finance world, which recorded a $2.7 trillion in transactions by the end of June.
By issuing sovereign sukuk, Egypt is expected to attract new segments of investors who will pour extra finances and liquidity into Egypt’s governmental financial market and will contribute to declining the cost of the state’s public budget deficit.