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Sunday, 15 July 2018

Gov’t in talks with global lenders for long-term facilities

EXCLUSIVE- Maait says global macro headwinds and outlfows from Egyptian debt instruments push gov’t to seek long-term facilities: The Madbouly government is in talks with international finance institutions line up longer-term facilities that will help plug Egypt’s financing gap, Finance Minister Mohamed Maait told Enterprise over the weekend.

Who are we going to borrow from? Maait singled out the World Bank, the African Development Bank, the French Development Agency, and the Japan International Cooperation Agency, but stopped short of specifying how much Egypt was looking to borrow, noting the talks are ongoing. Maait is looking for tenors of up to 30 years with interest rates of 1-2%. Maait confirmed that long-term, lower cost facilities will be the main borrowing instruments for the government during the current fiscal year.

Unstable global macro environment behind the move: Maait intimated that the changing global macro climate had played a significant role in the decision. He said government borrowing costs were at risk of rising thanks to portfolio outflows from emerging market (the EM zombie apocalypse), EM contagion from Argentina, as well as the US Federal Reserve’s plan to continue raising interest rates. He also noted that higher oil prices remained a threat to meeting this year’s budget targets.

No eurobonds this year? As a result of higher interest rates in the US, “it would be inappropriate for us to issue foreign-denominated bonds,” Maait said. We will continue to observe the market and make a decision in the future. Government officials have previously stated that the Egypt would look to borrow USD 6-7 bn in international bond offerings in FY2018-19.

How bad are outflows from Egyptian debt instruments? USD 4-5 bn, say bankers: Egypt saw up to USD 5 bn in outflows from its debt market as a result of the broader emerging market selloff, several banking sources told Reuters. “This is part of a general concern among investors in emerging markets and not anything specific to Egypt. There is less demand than usual and portfolio managers are giving emerging markets lower limits,” a Cairo-based banker said. Yields on Egyptian treasuries cooled on Thursday, after 10-year treasuries peaked last week to 17.859%. “The high yields are a reflection of tighter liquidity dynamics, especially within emerging markets in which Egypt is a part,” CI Capital’s Hany Farahat tells Reuters.

But this was all expected, right? Enter the always-on-point Mohamed El-Erian, who told the Financial Times yesterday that “technical” investors in EM “would be a driving factor behind the performance of EM assets in [the] coming months. ‘This is a technically unbalanced asset class,’ he said. ‘The dedicated players are much smaller than the crossover players, and the capital allocated on the debt side is much more flighty than in other markets.’”

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