Egypt Lays Out What Bond Investors Craving Yield Can Expect

(Bloomberg) -- Egypt wants to get its local debt settled by Euroclear Bank SA in less than a year and introduce its first floating-rate bonds by mid-2021, part of a push to cut borrowing costs and stoke rebounding demand for its notes.

A deal with Belgium-based Euroclear will mean a “safe gateway” to the market for “big-ticket investors such as central banks and increase demand and liquidity by expanding our investor base,” Finance Minister Mohamed Maait said in an interview. Foreigners currently have to go through local lenders to invest in Egyptian debt.

After Euroclear negotiations began in 2018 and an earlier target passed, “the legal requirements now are roughly done,” according to Maait, who spoke at his Cairo office. The date for completion: “Inshallah, between September to November 2021.”

Foreigners have pumped billions of dollars into Egypt’s debt market since late 2016, when authorities devalued the currency as the opening salvo of a sweeping economic program backed by a $12 billion loan from the International Monetary Fund. With high interest rates and a stable pound, the North Africa nation became a darling for emerging-market investors.

Flows reversed when the pandemic hit, with foreigners removing $20 billion from Egypt’s market in spring 2020, sending the total plummeting to $9 billion, Maait said.

“We dealt with the situation,” he said. “When they wanted to leave, they left.”

A rebound that started in June has seen those investments climb to $24 billion in November, according to the minister, spurred by high real yields and a fresh agreement with the IMF.

Another draw might be the listing of Egyptian notes on JPMorgan Chase & Co.’s Government Bond Index for Emerging Markets, which attracts investments from passive funds that track the gauge. Authorities began talks on inclusion about 18 months ago and the work on Egypt’s side has been completed, according to Maait.

“We are ready but due to Covid-19, JPMorgan has put a hold on any new inclusions,” he said. “So we are waiting to hear from them.”

Authorities are also planning to entice a new class of investors by issuing Egypt’s first floating-rate bonds. Discussions are underway on which of several benchmarks, including the central bank’s corridor rate, the notes could be linked to, Maait said.

Egypt is also planning the country’s debut sovereign Islamic bonds, or sukuk, in 2021.

“If parliament approves the sukuk draft law before February, we could issue our first sukuk before June,” according to Maait. Egypt could also tap the international bond market in the first half of 2021, if needed, he said.

The government reached a $5.2 billion stand-by arrangement with the IMF in mid-year, bolstering investor confidence. Maait said Egypt hasn’t yet looked at approaching the Washington-based lender for a non-financial agreement when the current deal expires in June.

“All options are on the table and every possible scenario will be discussed to make sure it’s the best for our economy,” Maait said. “We need to leave some time until we finish the current one successfully.”

Maait also said:

• Egypt will get 20% of its Covid-19 vaccine needs from the Gavi Alliance at a reasonable, “reduced” price
• Another 30% will come from AstraZeneca Plc, with authorities approaching other companies to fill all its requirements before the end of 2021
• If the situation returns gradually to normal, economic growth could reach 4% by the end of the fiscal year in June
• Estimates for next fiscal year, 2021-2022, range from 5.5% to 6.5%.

©2020 Bloomberg L.P.