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Sunday, 13 November 2016

CBE secures USD 2 bn financing agreement after treasury privately places USD 4 bn in bonds

The central bank announced on Thursday it has “initiated a repurchase transaction with a consortium of international banks for a total amount of funding of USD 2bn with a maturity of 1 year.” The funding was provided against the USD-denominated sovereign bonds issued with maturities of December 2017, November 2024, and November 2028, held by the CBE, which are listed on the Irish Stock Exchange, the CBE says. The CBE says, explicitly, that the funds will bolster “the liquidity and size of the international reserves” and represent “a strong vote of confidence from the financial markets” in Egypt’s ability to implement its reform agenda.

You’ve never heard of those sovereign bonds the CBE is talking about? The Finance Ministry issued a statement on the same day explaining that it had issued USD 4 bn in international bonds in a private placement. The issue included a USD 1.36 bn bill carrying 4.62% interest maturing on December 2017, a further USD 1.32 bn carrying 6.75% interest and maturing on November 2024, and a USD1.32 bn bond with 7% interest maturing on November 2028. Finance Minister Amr El Garhy said the issuance is aimed at diversifying the sources of financing the budget deficit, especially as the cost of borrowing remains high, and boosting foreign reserves.

Issuance isn’t part of the eurobond offering, which appears to have slipped a bit given global volatility right now: The Ministry’s statement notes that the placement is not part of the planned eurobond issuance, which Reuters says is likely to be postponed, citing El Garhy’s comments on Al Arabiya. The finance minister said “we had plans to start [the roadshow] in the last week of this month, but some changes and volatility happened in the markets … We are watching closely in order to be sure if we can start in the last week of November or if we will have to — and this is possible — delay." El Garhy reportedly announced a probable date of the second week of January if the November issue does not take place, Al Borsa says. The Ministry also issued a separate statement reiterating its commitment to moving forward with issuing the eurobonds before year-end, but it is still assessing the impact on the US presidential elections’ results on financial markets. A source told Al Mal that the eurobond issuance has been delayed by one month.

Think of the bond as a “structured sovereign loan in a way, whereby the Ministry of Finance held a private placement solely for the CBE for USD 2 bn worth of bonds of varying maturities, which the latter used as a collateral to borrow an equivalent amount from international banks for one year,” says EFG Hermes economist Mohamed Abu Basha. This leaves USD 2 bn that would go straight to the CBE’s reserves piggy bank, Bloomberg says, citing Deputy Finance Minister Ahmed Kouchouk.

We’re going to go out on a limb here and say the bond is what closed the IMF facility for us on Friday. We’re finalizing the USD 2.7 bn currency swap with China, and the USD 4 bn in bonds puts us at above the USD 5-6 bn in third-party funding the IMF had required for the extended fund facility. This also signals that Saudi funds have dried up entirely, with Egypt actively and effectively being able to secure funding internationally, albeit at less favourable terms. The office of Iran’s charge d’affaires in Heliopolis might also be getting a tad busier now.

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