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Wednesday, 18 November 2020

CBE extends USD 3.8 bn repo agreement with int’l banks

CBE extends term of USD 3.8 bn repo transaction with int’l banks to six years: The central bank has agreed to extend the four-and-a-half-year repurchase (repo) agreement it signed with international banks in 2018 to six years, it said in a statement (pdf) yesterday. The banks — which include Citigroup, Credit Suisse, Deutsche Bank, First Abu Dhabi Bank, HSBC, and JP Morgan Securities — approached the CBE asking for the extension and offering better terms, CBE Deputy Governor Ramy Aboul Naga told Al Arabiya. The extension will lengthen the maturity of the bonds purchased by the banks by 18 months, allowing the central bank to repay in October 2024. The agreement demonstrates “a show of confidence by the international market in the continued success of the homegrown economic reform program,” the central bank said.

What exactly is a repo agreement? Repo financing is a form of borrowing which involves the sale of a debt security to a lender with a promise to buy it back at a later date, with other securities acting as collateral. Typically, repo refers to overnight and short-term borrowing, but repurchase agreements can also have longer terms.

Background: Previous repo agreements were aimed at securing financing for longer-term foreign debt repayments. The CBE had secured a USD 2 bn repo financing in November 2016 as part of funding required to secure the USD 12 bn IMF Extended Fund Facility. The agreement was then expanded in the same month of 2017 to USD 3.2 bn.

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