Egypt Bond Continues Qatar Deposit Switch – IFR
Egypt continues to convert deposits received from Qatar into fixed-term notes, after the sovereign privately placed a $1 billion bond in early July, its second such deal in just over a month.
The new $1 billion three-year bond was issued on July 1 at par to yield 3.5 percent via HSBC and QNB Capital. It follows a $2.7 billion, 18-month senior unsecured deal which priced at a yield of 4.25 percent in late May, part of a $5.5 billion lifeline from Qatar that is expected to be converted into securities.
Both were issued from a $12 billion EMTN programme set up earlier this year.
The latest transaction was completed just days before the removal of Mohamed Morsi as president.
“(The deal) was planned before any of the demonstrations,” said a source familiar with the transaction. “Thankfully it closed before those events.”
The source said the Caa1/CCC+/B- rated country’s plan to sell more bonds under the programme remains in place, despite a change in leadership in both Egypt and Qatar.
“There was a plan to issue more,” the source said. “But obviously there are new complications now and there has been a change in the Qatari leadership as well. There will definitely be a period of uncertainty.”
If other deals are to go ahead, Egypt would need to issue a supplementary prospectus highlighting the new risk factors in the wake of Mursi’s removal, he said.
“Our assumption is that the new emir in Qatar will continue to support Egypt,” said Paul Gamble, head of MENA sovereigns at Fitch.
“What we could also see now is more from Saudi Arabia and the UAE in terms of monetary support (for Egypt), particularly the UAE. It is significant that the Egyptian central bank governor went to the UAE this week,” he said.
Egypt needs the inflows to keep afloat. The Qatari funds alone are not sufficient to alleviate the shortage of foreign exchange in the economy, he said.
The country’s foreign reserves hit a low of $13.4 billion in March, less than needed to cover three months of imports. Deposits and loans from Qatar and Libya have helped the country prop up its foreign exchange stockpile, which rose to $16.1 billion in May before sliding $1.12 billion to $14.9 billion in June, according to official figures.
Fitch downgraded Egypt last week by one notch to B- on concerns that Mursi’s removal would affect economic growth and trigger further political instability.
The country’s outstanding 5.75 percent 2020 bond, however, has staged a recovery since Mursi’s ouster.
The note had fallen from a price of 85.375 on June 17 to a low of 75.9 on July 3, just before Mursi was unseated. Since then, it has gained nearly 6 points to trade at 82.625, according to Tradeweb.
Similarly, a 6.875 percent 2040 note, which was trading at 76.9 on June 17, dropped to 68.9 but is now back to 76.
Source: Reuters
