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Wednesday, 28 August 2019

Egypt revisits possibility of issuing EGP-denominated bonds on the back of currency appreciation

EXCLUSIVE- EGP-denominated int’l bond issuance could be back on the table: The Finance Ministry is revisiting previously shelved plans to take an EGP-denominated bond issuance to the international market, two government sources tell Enterprise. According to our sources, the ministry has yet to determine the exact size and timing of the potential issuance, but will likely aim to pull the trigger early next year, depending on market conditions and investor appetite. Investors would purchase the bonds in USD, while the government would pay the principal and interest in EGP.

Background: A Bloomberg report back in October claimed that an EGP-denominated bond issuance on the international markets was in the cards, and said the transactions would be cleared through Belgium-based settlement company Euroclear instead of local banks. Our sources in the government later said that the Madbouly Cabinet was not planning on moving ahead with the issuance for two fiscal years.

It’s all about the EGP appreciation and post-Zombie Apocalypse recovery: The plan had initially been put on hold during the EM sell-off of April-December 2018. The decision to revisit the issuance comes following the EGP’s resilience to global headwinds, and its appreciation over the last several months, our sources tell us. The EGP has risen significantly against the USD this year on the back of increased inflows from portfolio investors, a reduced imports bill, and increased tourism receipts — and potential intervention from the Central Bank of Egypt. However, analysts we spoke with earlier this year anticipate the EGP to reverse some of its gains later in the year, with most expecting the EGP / USD rate to return to the 17.50-18 range before the year is out. HC Securities also told us that monetary easing by the CBE would “spark profit-taking by investors.”

In related news: The Central Bank of Egypt repaid USD 3 bn in foreign currency debt during 1Q FY2019/2020, including USD 946.6 mn of debt service payments, according to Al Mal. The growth of Egypt’s external debt pile accelerated in 3Q FY2018/2019, rising 10% to USD 106.2 bn during the quarter, CBE data showed yesterday.

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