The Ministry of Finance announced on Friday that Egypt sold international bonds worth $3 billion in the first offering of international dollar bonds during the 2021-22 fiscal year.

The issuance was three times oversubscribed despite continued uncertainty in global financial markets due to the Covid-19 pandemic. Offers worth $9 billion were received on dollar-denominated bonds, with maturities of six, 12, and 30 years.

Egypt sold $1.125 billion worth of six-year bonds at a yield of 5.8 per cent, $1.125 billion worth of 12-year bonds at a yield of 7.3 per cent, and $750 million worth of 30-year bonds at a yield of 8.75 per cent.

Hani Abul-Fotouh, head of corporate investment at MEDAF Investments, said the success in selling $3 billion of dollar-denominated bonds was a key indicator of Egypt’s credit rating in the international debt market and how attractive Egyptian bonds are to foreign investors.

He said that the yields were lower than the benchmark prices proposed by the Ministry of Finance and added that Egypt had benefited from the fixed current interest rates of the US Federal Reserve. 

Observers believe that Federal Reserve policymakers will start raising interest rates next year, which would make the foreign-currency denominated debts of emerging markets such as Egypt more expensive as yields must have a markup over US treasuries.

The yields at which the bonds were issued are very close to those offered by similar emerging markets, Radwa Al-Sweify, head of research at Pharos Holding, told Al-Ahram Weekly. 

She added that the timing had been good before the US increases interest rates, since this would raise the rates on bond issues. The government plans to issue $10 billion worth of bonds in the current fiscal year, she added.

The Ministry of Finance said that interest rates on Egyptian international bonds issued in May 2020 were higher, with the interest rate on four-year bonds being around 5.75 per cent, on 12-year bonds at 7.625 per cent, and on 30-year bonds at 8.875 per cent. 

According to Finance Minister Ahmed Maait, the demand for the bonds had helped to reduce interest rates across the three maturities. He said that the interest rates on the six and 12-year maturities were less than those paid by some countries with similar credit ratings, confirming the greater investor confidence in Egypt’s economic potential.

More than 300 investors from across the globe applied for the Egyptian international bonds, including from the US, Europe, Asia, the Middle East and Africa. This meant diversity in demand and enabled the Ministry of Finance to cut interest rates on the bonds by 32.5 basis points for the six and 12-year tranches and 12.5 basis points for the 30-year tranche, compared to the guidelines announced at the beginning of the offering.

Countries often issue bonds on the international markets to finance budget deficits and procure foreign currency. Egypt’s revenues from tourism, one of its main hard-currency earners, were impacted by the Covid-19 pandemic. 

Tourism revenues fell by about 70 per cent in 2020 to $4 billion, compared to $13 billion the year before. The country’s external-financing needs for the fiscal year ending in June range between $5 billion and $7 billion, according to investment bank EFG Hermes.

There have been 11 international bond issuances by the Ministry of Finance in recent years to a value of $29.5 billion in addition to a further four billion euros. The offerings have varied between dollar bonds, euro bonds, and green dollar bonds, the last being the first of their kind in the region in September 2020 and worth $750 million. 

The Ministry of Finance aims to diversify its reliance on such financial instruments and is expected to offer its first issuance of Islamic sukuk sovereign bonds in the current fiscal year after the relevant legislation passes. 

“The yield on these bonds is very suitable for Egypt’s current circumstances,” said Khalil Al-Bawab, CEO of Misr Capital, adding that he had no worries about the risk of increasing the size of the country’s external debt. 

According to Central Bank of Egypt (CBE) data, the country’s foreign debt had reached $134.8 billion by the end of March 2021, compared to $129.1 billion in December 2020. The Finance Ministry is implementing a debt-reduction strategy that aims to diversify debt instruments and shift the debt portfolio towards longer-term debt.

*A version of this article appears in print in the 30 September, 2021 edition of Al-Ahram Weekly.