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Wednesday, 12 June 2019

Government plans to issue zero-coupon bonds in July

EXCLUSIVE- Gov’t set to issue next month its first zero-coupon bonds since 2013: The government is planning to issue in July its first local zero-coupon bonds since 2013, two government officials told Enterprise. Multiple zero-coupon bond issuances are planned for the coming fiscal year, the sources told us, adding that the government will likely sell them with maturities ranging between 18 months and three years. The sources said that the plans come on the back of strong investor demand.

Zero-coupon bond crash course: Zero-coupon bonds are debt instruments that do not pay interest, but are bought and sold at a heavy discount. Because the trading price is much lower than the bond’s face value, investors make returns when the bond is redeemed at maturity. Bonds with a longer maturity period are purchased at a lower price than short-term bonds, although most zero-coupon bonds carry tenors of at least 10 years.

Background: The idea to resurrect zero-coupon bonds was floated back in December, when Egypt began prioritizing long-term debt and diversifying its sources of funding as part of its new strategy to reduce its debt-to-GDP ratio to 80% by 2022. The government is keen to lower its reliance on short-term debt in FY2019-2020, which accounts for 55% of the country’s total debt load, the officials told us yesterday. The government expects debt service payments to rise to EGP 569.1 bn in FY2019-2020 compared to EGP 541 bn in the current fiscal year.

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