Egypt Lines Up $1.5 Billion in Funding With Capital Markets Deals

(Bloomberg) — Egypt expects to borrow at least $1.5 billion before the end of this year, Finance Minister Mohamed Maait said, largely by looking to tap Asian capital markets as part of debt issuance guaranteed by development institutions.

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The plans include $500 million in what would be Egypt’s debut panda bonds and its second sale of Samurai debt worth the same amount, Maait told Bloomberg News in an interview in Marrakech, where he’s attending the annual meetings of the International Monetary Fund and the World Bank.

Egypt has been all but locked out of global capital markets, as it struggles to pass the IMF’s delayed reviews of its $3 billion rescue program. Many of Egypt’s dollar bonds are in distressed territory, and this month its sovereign rating was downgraded by Moody’s Investors Service to one of the lowest rungs of speculative grade.

Speaking on Thursday, Maait said Egypt has received guarantees for up to $545 million of the panda securities — yuan notes from offshore issuers in China’s local market — from the Asia Infrastructure Investment Bank and the African Development Bank.

Egypt is also preparing to issue $500 million of Samurai bonds — or yen-denominated debt sold in Japan by overseas borrowers — through a private placement, according to Maait. Another deal in the pipeline is for a $500 million loan from a couple of banks, with a Kuwaiti insurance company, Dhaman, playing a lead role in guaranteeing the facility.

Funding Variety

“We are working on diversifying our financing sources through different capital markets as well as securing guarantees from several institutions to reduce the cost of the debt during this challenging high interest-rate environment,” Maait said.

The finance minister said Egypt expects the IMF’s two delayed reviews to start by the end of 2023.

The nation’s financing needs remain high at $24 billion in the fiscal year through June 2024, according to Morgan Stanley, and the amounts it’s getting from foreign direct investments, portfolio inflows and asset sales have been disappointing. Inflation is at a record high after three rounds of devaluations since early 2022, with the economy now caught up in its worst crisis in years.

Maait said the potential debt financing would be in addition to the proceeds from the government’s asset sales, which it expects to receive between October and November.

The government announced in July it was selling $1.9 billion of assets to local firms and Abu Dhabi wealth fund ADQ, although it has yet to receive all the funds. Then in September, it sold 30% of Egypt’s largest tobacco company to a United Arab Emirates investor for $625 million.

Egypt expects to conclude the $500 million loan deal this month, according to a presentation provided by the Finance Ministry. Its panda and Samurai bond issuance is planned for October and November, according to Maait.

At the moment, Egypt is relying on short-term debt to absorb the high cost of credit, according to Maait. Once inflation and interest rates decline, it plans to shift more toward medium and long-term durations, he said.

The planned 3.5 billion-yuan panda sale is set to offer three-year securities, with a pricing range of 3.5% to 4.5%, according to people familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. Bookbuilding is tentatively scheduled for Oct. 16

Maait said the deal marks the first time that the AIIB and the AfDB would guarantee panda bonds and the first time AIIB back’s Egypt’s issuance.

Egypt has raised the possibility of issuing panda bonds several times in the past.

Asked if he’s worried about Egypt’s high debt levels, Maait said that previously “we managed to handle” the burden, bringing it to 81% of gross domestic product in 2019-2020 from 103% four years earlier.

“If the pandemic and then the Russia-Ukraine war had not happened, we were targeting lowering it to below 75%,” he said.

Though the recent pound devaluations inflated the debt burden by around 13 percentage points of GDP, Egypt is coping by mobilizing additional domestic resources and looking to bring the primary budget surplus to 2.5% of GDP this fiscal year, from 1.6% in the prior period.

Facing an increase in local interest rates, the government has responded by trying to improve tax collection, alongside other measures. “With this strategy, we can absorb and continue handling the high interest-rate environment,” he said.

The goal is to lower the ratio of debt to GDP to 91.4% by end-June from 95.7% a year earlier, a target based on the pound’s rate of 30.9 per dollar.

“So the idea here is how to manage the debt repayments” and to find a way for “how to use that debt to grow the economy,” he said.

(Updates with expected start of IMF’s delayed reviews in seventh paragraph.)

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