Tuesday, 16 March 2021

Egypt is poised to ride 2021’s green bond wave

Egypt is poised to ride 2021’s green bond wave: 2020 was supposed to be the year of green bonds for Egypt. And in some ways it was. Egypt’s USD 750 mn sovereign bond issuance was one of three landmark green issuances in MENA in 2020, according to S&P Global. Other planned issuances, however, had stalled thanks to the uncertain times of the pandemic.

But that’s looking like it may change in 2021 amid rising investor appetite not only for Egypt’s debt, but also for green bonds and ESG investing, industry players tell Enterprise. More sovereign green bond issuances are on the cards for Egypt, although their size and timing are still under discussion. Meanwhile, CIB is aiming to close the first tranche of its USD 100 mn corporate green bond issuance — Egypt’s first — by 1H2021.

The government’s planning another issuance of sovereign green bonds in FY2021-22, head of the Finance Ministry’s public debt unit Mohamed Hegazy tells us. Discussions about the timing and size of offerings — and the projects they’d be directed towards — are still underway, he added.

Urgency in delivering USD 1.9 bn projects is driving push for more issuances: Ministries have a long list of projects they want included in the program, but the most pressing environmental and climate-focused projects will take priority, says Hegazy. These will likely include projects like the monorail, and others focused on clean transport, renewable energy and sanitation. Egypt’s list of economically sound, climate-friendly projects can be valued at USD 1.9 bn, according to Hegazy. A Green Finance Working Group was set up late last year to evaluate and select which projects would receive green bond funding.

The program is being spurred on by investor interest, says Hegazy. Last September, Egypt’s USD 750 mn maiden sovereign green bond issuance was almost 5x oversubscribed, attracting some USD 3.8 bn in bids for the bonds. The government had been expected to sell USD 500 mn of the bonds, which it subsequently listed on the London Stock Exchange. Egypt’s solid credit ratings are a pull for investors, sources add. “Investors are eager for long-term debt instruments with good credit quality and high yields, supporting Egypt’s sustainable economic development,” says Walid Labadi, the IFC’s Egypt Country Manager. “We believe green bonds address these demands.”

The global green debt market is predicted to skyrocket in 2021: Global green bonds, loans and sukuk will reach USD 400-450 bn, the Climate Bonds Initiative predicts. This follows 2020’s record green bond market growth, where issuance exceeded USD 269.5 bn, off the back of a strong rebound in 2H2020. Bloomberg expects sales to grow by a third this year, it reported last week in a live interview with asset manager Helena Lindahl. “Globally, we typically see green bonds attracting more investor interest than comparable plain vanilla bonds — a trend that doesn’t seem to be affected by covid,” says Labadi.

New sovereign issuance will pave the way for the private sector: Egypt’s sovereign green bond issuance was an important milestone and a great example for the private sector to follow, says Labadi. He believes its success has increased overall investor interest. The IFC — which worked with Egypt’s Financial Regulatory Authority to help develop guidelines for green bonds to be established as a new financial tool — is now working with CIB to enable Egypt’s first corporate green bond issuance, he adds.

CIB aims to close the first tranche of its corporate green bond issuance by 1H2021, Heba Abdellatif, CIB’s head of Financial Institutions, tells us. “It’s still a USD 100 mn program and our target is to close before the end of 1H2021. Everything’s moving forward, though the schedule’s been slightly shifted due to the pandemic,” she says. The bank was originally planning an initial green bond issuance of USD 65 mn in October 2020.

Investor interest remains high, fueled by Egypt’s economic resilience in the face of covid turbulence, says Abdellatif. “Investor appetite both for Egypt and for green finance is quite robust. You can see this when you look at the yields for the bonds being offered, which have tightened quite substantially in the past year.” The IFC — expected to be the main investor in CIB’s green bonds when the issuance happens — is keen for CIB to finalize the issuance process, and the bank’s also been approached by many other development finance institutions wanting to come on board, she says, without disclosing names.

Financing will be directed towards greater energy efficiency, including long-term mindset shifts. Increasing energy efficiency in buildings will be a big part of CIB’s green bond financing, says Abdellatif. “It’s not like the government program, where funds are channeled into megaprojects designed to contribute to the SDGs. We look at our existing clientele and help them make CAPEX spending changes that will positively impact climate protection.”

CIB is still Egypt’s only confirmed corporate green bond offering: Unconfirmed press reports indicated that Raya’s recycling unit BariQ was expected to take its green bonds to market in early 2021, but Enterprise’s attempts to reach them for comment were unsuccessful.

But possibly not for long: The IFC has seen more traction from other issuers following announcements about CIB’s green bonds and the successful government issuance, says Labadi. It hopes more issuances by both financial institutions and real estate sector companies are on the cards, and is committed to providing technical assistance to potential green bond issuers in these sectors, he adds. “We hope our work with CIB will help kickstart the market for more green financing in Egypt.”

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