Egypt plans $7 bln Sukuk, Eurobonds to reduce cost of borrowing
Egypt on Tuesday said it’s planning to raise up to $7 billion through the issuance of its debut Islamic bonds Sukuk this fiscal year, Mohamed Hegazy, head of the Finance Ministry’s debt management unit said.
“We could tap the international bond market in this fiscal year if needed with dollar-denominated bonds and/or euro-denominated bonds issuance with the same size as last year,” Hegazy said.
The ministry issued its first two-year Treasury bonds Monday and will debut 15-year debt next week, signaling a return to its plans, Hegazy said.
Floating bonds are also in the pipeline, but the timing “depends on market conditions.”
The targets are mainly Islamic banks and funds in Egypt and the Gulf, which he said: “keep asking us about Islamic products.”
“Sukuk will help us diversify our investor base as well as reduce the borrowing cost given that yields on Sukuk are less than bonds,” Hegazy said.
The aim of one of the Middle East’s most indebted countries, the goal is to ease the cost of borrowing by extending maturities and diversifying funding sources and entice a new class of investors by issuing its first Sukuk.
Now it has International Monetary Fund (IMF) backing, and offers one of the world’s biggest carry-trade returns this year, Egypt saw its first inflows in June after three months of capital flight.
“Attractive yields and reaching an agreement with the IMF helped us attract foreign inflows in this difficult time,” Hegazy said in an interview.
Egypt’s local-currency bonds gained 6.8 percent this year; the average return across emerging markets was flat.
Outside investors have pumped billions of dollars into Egypt’s debt market since a 2016 currency devaluation, part of a sweeping economic program. After a record Eurobond sale in May, Egypt’s considering issuing up to $7 billion this fiscal year.
Before the virus struck, the government made headway in ending its reliance on short-term borrowing. In February, it met its target of tripling the size of Treasury bond sales and raising the share of longer-dated debt to 40% of annual domestic issuance, double the level in the fiscal year that ended June 2018.
Momentum reversed with a virus-induced selloff as the share of bonds fell back to 20% now, Hegazy said.
Egypt’s inflation-adjusted yields among the highest in emerging markets
Egypt is in an advanced stage of issuing a $500 million green bond and awaiting final approvals to sell Shariah-compliant debt, Hegazy said.
– With Bloomberg report