IMF-Backed Egypt Sells $3 Billion Bonds Amid Falling Costs

(Bloomberg) -- Egypt sold $3 billion on international bond markets Wednesday, taking advantage of lower borrowing costs after its economic policies earned the International Monetary Fund’s endorsement.

The most populous Arab nation issued more of the debt first sold in January, but at lower costs, according to a person familiar with the deal, across maturities in 2022, 2027 and 2047. The securities attracted $11 billion of bids, Finance Minister Amr El-Garhy said in an interview Thursday on Bloomberg TV.

Six years after the uprising that ousted President Hosni Mubarak, officials are struggling to rebuild an economy where inflation tops 30 percent and key industries such as tourism and manufacturing have been hit by terrorism and a lack of foreign investment. The government has implemented a series of economic fixes, including interest hikes, a currency devaluation and fuel subsidy cuts.

"We like the reform story a lot," Anthony Simond, who helps manage $11 billion of emerging market debt at London-based Aberdeen Asset Management Plc, said before the deal closed on Wednesday. "They are implementing an impressive fiscal consolidation, which, coupled with the huge inflows of foreign capital since the devaluation, means that their balance of payments position is now much more sustainable."

But some of those measures, such as raising interest rates, have drawn criticism from money managers such as Mark Mobius, executive chairman of Templeton Emerging Market Group, because they hinder private sector growth. Non-oil business activity has contracted for 19 months, according to an index compiled by Emirates NBD.

Even so, the sale comes at an opportune time. Increased appetite for riskier assets has driven the cost of capital down for developing-country issuers and the premium investors demand to hold emerging over U.S. sovereign debt is near its lowest in more than two years.

Egypt sold $750 million of five-year debt yielding 5.45 percent, compared with a yield of 6.125 percent when the notes were first sold, according to the guidance. A tranche of $1 billion 10-year bonds yielded 6.65 percent, compared with 7.5 percent on the original notes, while $1.25 billion of 30-year debt yielded 7.95 percent versus 8.5 percent back in January. That takes the nation’s total international issuance this year to $7 billion, the most in any year on Bloomberg records dating back to 2001.

In a post-sale television appearance, El-Garhy said the government may return to international debt markets in the second quarter of 2018. He also touted government efforts to spur economic growth, promising more measures to cut red tape that has long handcuffed foreign investment. The nation ranked 122 out of 190 countries in the World Bank’s most recent Ease of Doing Business Report.

Strong investor demand for 10-year and 30-year bonds "reflects a vote of confidence in the economic reform program Egypt is adopting now," El Garhy said.

--With assistance from Brian Smith

To contact the reporters on this story: Ahmed A. Namatalla in Cairo at anamatalla@bloomberg.net, Lyubov Pronina in Brussels at lpronina@bloomberg.net.

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Chris Vellacott