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Monday, 14 December 2020

What to expect from the debt market in early ‘21

Five companies are planning seven securitized bond issuances worth a combined EGP 9.3 bn in the near future, Financial Regulatory Authority (FRA) boss Mohamed Omran said in a statement (pdf). The issuances have already been greenlit by the FRA’s board of directors, but it’s still unclear when exactly they’ll hit the market. The companies will be looking to securitize outstanding leasing, consumer finance, mortgage, and factoring receivables through existing special purpose vehicles (SPVs), Omran said.

The FRA also separately approved multi-tranche programs by two companies that plan to securitize EGP 12.5 bn-worth of receivables, according to Omran. The unnamed real estate companies plan to get the programs up and running to finance working capital, he added.

What we know so far: CI Capital-owned Corplease is planning to issue EGP 2.5 bn of the repackaged securities, we noted last month. The issuance, which is likely one of the seven Omran referred to yesterday, will set a new record as the largest private sector issuance in Egypt. State-owned Banque Misr’s investment arm Misr Capital is acting as lead manager on at least three other securitized offerings, which we expect to hear more about soon. Those include a planned EGP 1 bn sale by AT Lease, which we noted last month was pushed to 2021.

Securitized bonds are becoming an increasingly popular means of debt finance: Corplease, Sarwa, Palm Hills, and Raya are some of the private sector firms to sell asset-backed securities to investors this year. Sizes have ranged anywhere from Premium Card’s EGP 182 mn offering to Sarwa’s EGP 1.8 bn issuance in May. The New Urban Communities Authority was responsible for the largest issuance this year, selling EGP 10 bn of bonds to investors to fund new developments in the new capital and New El Alamein.

But Enterprise, what are securitized bonds? Check out our explainer here.

THANK THE CBE FOR THIS SPATE OF BORROWING- The 400 bps rate cuts enacted this year already helped push up corporate borrowing 18% y-o-y in the first five months of 2020, while personal loans increased by 30% over the same period, BNP Paribas said in a report picked up by the local press. The uptick in corporate lending comes after years of businesses keeping their capex borrowing plans on ice until interest rates came down to pre-float levels. Though Egypt’s poverty rate decreased in FY2019-2020 for the first time in two decades, the increase in personal loans could be a reflection of job losses and economic hardship caused by covid-19, with 74% of Egyptians reporting diminished incomes since covid-19 began, according to a July CAPMAS report.

Fawry eyes debt to charge growth

Fawry subsidiary Fawry Microfinance is looking to borrow at least EGP 300 mn from its existing shareholders to expand its microfinance portfolio and increase operations, Fawry CEO Ashraf Sabry told Enterprise. Negotiations are ongoing with 6.3% shareholder Banque Misr to provide a EGP 150 mn loan. The Egyptian American Enterprise Fund, which holds a 9.7% stake in the firm, had previously agreed to extend a USD 10 mn loan to the microfinance firm. The company is hoping to expand its microfinance portfolio to EGP 500 mn by the end of next year, up from EGP 204 mn in 9M2020.

Expanding the microfinance subsidiary is complementary to Fawry’s digital lending ecosystem as it enables merchants to pay their suppliers electronically, Sabry told us. “We have seen solid growth in 2020 and we see the potential of lending to small businesses to finance their working capital and purchases from suppliers,” he added. Fawry became Egypt’s first widely recognized unicorn, reaching a market cap of USD 1 bn in August, after its share price increased by more than 300% since it debuted on the EGX last year.

Hermes resumes its EGP 2 bn corporate bond program

Hermes Securities Brokerage sold a second EGP 500 mn tranche of unsecuritized bonds, resuming its EGP 2 bn two-year corporate bond program, according to an emailed statement (pdf). The issuance was 1.3x oversubscribed without local banks, with strong demand from “a broad array of domestic Egyptian corporates,” said EFG Hermes’ co-head of investment banking Mostafa Gad.

Background: The EFG Hermes subsidiary began the program with an EGP 400 mn issuance of one-year bonds in December 2019, ending a decade-long dry spell for corporate bond issuances. New FRA regulations introduced in 2018 now allow joint-stock and limited liability companies, banks, financial institutions, and SMEs to sell short-term debt instruments with maturities of less than two years to retail and institutional investors.

Advisers: EFG Hermes acted as financial adviser and main underwriter for the issuance, and acted as guarantor for the issuance along with Banque Misr’s Misr Capital. Zulficar & Partners acted as counsel, while KPMG Hazem Hassan acted as auditor.

MEANWHILE- SolarizEgypt is eyeing EGP 300 mn-worth of loans from local banks for its solar energy projects, Managing Director Yaseen Abdel-Ghaffar said, according to the local press.

CORRECTION- The version of this story published in our email edition incorrectly identified Corplease as being owned by CIB. It is owned by former CIB subsidiary CI Capital, which acquired Corplease from its former corporate parent in 2016.

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