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Thursday, 28 October 2021

Egypt needs to fix withholding tax calculation to get Euroclearable status

A tax calculation issue could be the reason behind slow progress on Euroclearable debt: An issue in how Egypt calculates the withholding tax on government securities is what’s been delaying making the country’s debt Euroclearable, Euroclear head of global capital markets Sudip Chatterjee said yesterday during Saudi’s ongoing FII conference, according to Reuters. The pro rata temporis calculation tax authorities here use, which ties the tax to the duration of a security rather than a certain date, isn’t in line with what’s used internationally, Chatterjee added, noting that legislative changes were passed recently to change this.

As near as we can figure… While Chatterjee didn’t specify the changes, the House of Representatives greenlit a bill earlier this year that will exempt from fees and taxes any capital gains made from trading government treasuries that were sold on international debt markets.

Another hurdle is that “there is a lot of fear” from local primary brokers, who are anxious about how a new method of calculation would impact pricing. “It is very typical that you stumble upon a stumbling block like this,” Chatterjee noted. But “it will be done” as Euroclear is ironing out the issue with the government, he added.

Egypt signed an agreement with Euroclear in late 2019. A Euroclear link will make EGP bonds more accessible to foreigners, who can currently only access the market through a handful of domestic banks. Progress on the agreement moved slowly, with the government having to meet a number of requirements set out by the clearinghouse, including setting up a central securities depository in addition to logistical and administrative issues. The government was originally expecting to have wrapped up the process between September and November but according to statements made by Finance Minister Mohamed Maait last month, our debt may not become Euroclearable until 2022.

Chatterjee’s comments came as Saudi also seeks to make its debt “Euroclearable”: Saudi Arabia’s Securities Depository Center Company (Edaa) signed an agreement with the Belgium-based clearinghouse to pave the way for its local debt to be cleared in Europe, Euroclear said in a statement. The agreement will set up “a fully Euroclearable link enabling international investors access to the local sukuk and bond markets,” the statement said. The link is expected to launch next March. It will initially allow Saudi sovereign and quasi-sovereign debt to be cleared by the Belgium-based clearinghouse, with other asset classes planned for a later stage.

OTHER DEBT NEWS- Heliopolis Housing and Development is planning to issue an EGP 360 mn transfer of rights to fund its project to develop the Heliopolis neighborhood and set up a residential compound in the area, CEO Tamer Nasser said, according to Al Borsa. The company is currently choosing between three unnamed local banks to issue the transfer of rights, and is expecting to begin the project by the second quarter of next year.

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