Egypt Moves to Open Local Debt Market to Foreign Investors

Egypt took another step toward further opening up its local debt to foreigners and reviving a market that’s been a favorite with investors.

Lawmakers approved a new central security depository this week, a major requirement for allowing Egypt’s bonds and bills to be settled by Belgium-based Euroclear Bank SA. That would make it easier for foreigners, who currently have to go through local lenders, to invest in the country’s debt.

Still, overseas investors have pumped billions of dollars into the North African nation’s debt market since its 2016 currency devaluation, the cornerstone of a sweeping economic program backed by a $12 billion loan from the International Monetary Fund.

Helped by the external demand, the pound handed investors a 12% return last year, among the world’s best-performing currencies.

But flows have reversed during the coronavirus pandemic, with the nation last month posting its first net inflows since February, of around $450 million. Egypt recently turned to Eurobond markets with a record sale and has also secured financial aid from the IMF.

Now the domestic market’s revival is returning into focus, with officials moving forward with Euroclear negotiations started in 2018. The institution settles transactions in international and domestic securities in dozens of countries.

Egypt’s move is “a milestone in its link with Euroclear,” Nevine Mansour, an adviser to the vice finance minister, told Bloomberg. The Belgium-based bank hailed “the significant progress Egypt has made in its goal of achieving Euroclearability,” according to emailed comments.

Easing access could unlock more demand in bonds that have returned 7.1% this year in dollar terms, the fourth-best performance among about 25 emerging markets tracked by Bloomberg. Adjusted for inflation, the average real rate on Egyptian-pound bonds is 8.4%, one of the highest in the world, according to Bloomberg Barclays indexes.

Egypt has also asked JPMorgan Chase & Co. to include its local bonds in emerging-market indexes that are a benchmark for investors. Adding the notes would attract investments from passive funds that track the gauge.

©2020 Bloomberg L.P.

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