EXCLUSIVE- FinMin looking to issue callable bonds amid expectations of interest rate cuts: The Finance Ministry has begun amending its plans for its upcoming bond issuances to include the sale of callable local bonds as a means of hedging against fluctuating interest rates, two government sources tell Enterprise. The ministry expects the Central Bank of Egypt (CBE) to resume its monetary easing cycle this year, and is looking to prevent having to pay higher than necessary yields, the sources said.

What exactly are callable bonds? They are simply bonds that allow the issuer (in this case, the government) to recall them if interest rates were to change, and re-issue them with new yields. “If they expect market interest rates to fall, [the issuer] may issue the bond as callable, allowing them to make an early redemption and secure other financings at a lowered rate. The bond’s offering will specify the terms of when [the issuer] may recall the note,” Investopedia explains.

Background: The Finance Ministry is planning to reduce Egypt’s debt-to-GDP ratio to 77.5% by the end of FY2021-2022, from 90.5% at the end of FY2018-2019. This is lower than the previous target the ministry announced in March, which aimed to lower debt to 80% of GDP by 2022. The ministry’s strategy includes diversifying its debt instruments, including returning to zero coupon bonds and moving ahead with its first green bonds issuance. An official told us in April that the ministry plans to issue this fiscal year EGP 7 bn of green bonds, USD 5 bn of eurobonds, and EGP 725 bn of local debt.