26-Jan-2017
Egypt Economics - Egypt’s reform story shines with impressive Eurobond issuance
A positive issuance on all fronts
Egypt’s first international debt issuance post the IMF agreement proved a major success on all fronts (pricing, size, tenure and coverage ratio), sending a strong vote of confidence for the country’s recently implemented structural reforms. The country is issuing USD4bn in bonds, double the initial targeted size, with pricing placed at levels lower than those at the initial marketing phase (see Fig. 1 for the issuance’s details). The 30-year issuance is the biggest surprise in terms of size and pricing, in our view. The order book reportedly reached USD14bn (i.e. a coverage ratio of 3.5x) marking one of the most subscribed to bonds in EM lately and boding well for trading of the paper as the high demand indicates the paper will be sought in the secondary market.
Spillover to the local FX market?
The bond issuance will boost foreign reserves significantly beyond the set target in the IMF agreement for end of FY2016/17 and provides visibility on plugging the gap for FY2017/18. The sizeable inflow raises speculation of the possibility of an injection of liquidity in the FX market by the Central Bank of Egypt (CBE). This comes after the IMF’s loan documents released last week indicated the CBE is allowed to hold occasional FX sales. Such liquidity injection may prove necessary especially as the sizeable portfolio inflows received in the first two months post the float – estimated at USD1.3bn – have been largely neutralised by flowing through the repatriation mechanism. We note that additional flows in the next couple of months are likely to reach USD2.75bn representing second loan tranches from the IMF, World Bank and African Development Bank further boosting chances for a liquidity injection.
The first issuance of many
Finance Minister Amr El Garhy said his government is planning to be a frequent issuer in order to build a yield curve and plug the country’s funding needs. Garhy said the government is planning another sale by end of the year or beginning of next and will also consider bond issuances denominated in Japanese Yen and Chinese Yuan. Such issuances are likely to be important given the set targets within the IMF agreement which states a funding gap of USD17bn in the next couple of years.
Mohamed Abu Basha
Egypt’s first international debt issuance post the IMF agreement proved a major success on all fronts (pricing, size, tenure and coverage ratio), sending a strong vote of confidence for the country’s recently implemented structural reforms. The country is issuing USD4bn in bonds, double the initial targeted size, with pricing placed at levels lower than those at the initial marketing phase (see Fig. 1 for the issuance’s details). The 30-year issuance is the biggest surprise in terms of size and pricing, in our view. The order book reportedly reached USD14bn (i.e. a coverage ratio of 3.5x) marking one of the most subscribed to bonds in EM lately and boding well for trading of the paper as the high demand indicates the paper will be sought in the secondary market.
Spillover to the local FX market?
The bond issuance will boost foreign reserves significantly beyond the set target in the IMF agreement for end of FY2016/17 and provides visibility on plugging the gap for FY2017/18. The sizeable inflow raises speculation of the possibility of an injection of liquidity in the FX market by the Central Bank of Egypt (CBE). This comes after the IMF’s loan documents released last week indicated the CBE is allowed to hold occasional FX sales. Such liquidity injection may prove necessary especially as the sizeable portfolio inflows received in the first two months post the float – estimated at USD1.3bn – have been largely neutralised by flowing through the repatriation mechanism. We note that additional flows in the next couple of months are likely to reach USD2.75bn representing second loan tranches from the IMF, World Bank and African Development Bank further boosting chances for a liquidity injection.
The first issuance of many
Finance Minister Amr El Garhy said his government is planning to be a frequent issuer in order to build a yield curve and plug the country’s funding needs. Garhy said the government is planning another sale by end of the year or beginning of next and will also consider bond issuances denominated in Japanese Yen and Chinese Yuan. Such issuances are likely to be important given the set targets within the IMF agreement which states a funding gap of USD17bn in the next couple of years.
Mohamed Abu Basha