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Sunday, 31 May 2020

Egypt closes record USD 5 bn eurobond issuance with strong appetite from global investors

Egypt closes record USD 5 bn eurobond issuance with strong appetite from global investors: Egypt sold USD 5 bn in eurobonds in its largest-ever international issuance, the Finance Ministry said in a statement. The issuance, which went to market on Thursday, 21 May, was 4.4x oversubscribed, having attracted bids for around USD 22 bn worth of bonds, “confirming the confidence of international markets in the performance of the Egyptian economy,” the ministry said.

About the issuance: The three-tranche issuance was split into USD 1.25 bn in four-year bonds at a yield of 5.75%, USD 1.75 bn in 12-year bonds at 7.625%, and USD 2 bn in 30-year bonds at 8.875%. Proceeds will be set aside to cover the state’s financing needs in FY 2020-2021, which are forecast to come at EGP 988 bn (c. USD 62.3 bn), as well as ramp up spending needed to combat the covid-19 outbreak.

There was global appetite for the issuance, with investors from Asia, Africa, North America, Europe, and the Middle East buying in. Nearly 60 of the 400 investors showing interest were newcomers to Egyptian eurobond sales. This helped guide final yields on the three tranches 50 bps lower than levels at which the bonds were marketed earlier in the day.

The ministry is on the lookout for cheaper ways to service debt. It said earlier this month it will limit the number of bids it accepts in EGP-denominated bond sales until the end of FY2019-2020 to both reduce borrowing costs while continuing to diversify funding sources to keep up with its debt control targets. Egypt sold USD 2 bn in eurobonds during its last international issuance in November.

The issuance is the latest move by the government to find new sources of funding to cover revenue shortfalls caused by the covid-19 pandemic. Egypt earlier this month secured a USD 2.8 bn rapid financing instrument from the IMF, and is reportedly hoping to acquire an additional USD 5 bn from the fund in the form of a stand-by arrangement. “Authorities are moving preemptively to raise additional buffers amid an uncertain global environment,” Bloomberg quoted EFG head of macroeconomic research Mohamed Abu Basha as saying.

Advisors: BNP Paribas, Citigroup, HSBC, JPMorgan and Standard Chartered were tapped to arrange the sale, Reuters noted. Zaki Hashem & Partners provided legal counsel on Egyptian laws to the arrangers, while Linklaters advised on English and US law, according to an emailed statement (pdf).

The flood of stimulus in advanced economies is driving appetite for EM debt: Bonds issued by African governments were some of the best performers in emerging markets in May as the wave of stimulus unleashed in the developed world sends investors in search of yield, Bloomberg said in a commentary piece following Egypt’s eurobond sale. The shift in sentiment could help defuse a potential debt crisis for EM countries caused by capital flight in March.

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