International bonds balance rose to $7.5bn end-December: Egypt’s FinMin

Egypt’s balance of bonds offered in international markets rose to $7.5bn by the end of December 2016, according to a recent report issued by the Ministry of Finance.

According to the report, the ministry issued three bonds on 10 November worth $4bn in the London stock exchange.

The first tranche of bonds amounted to $1.360bn with a yield of 4.62 percent, to be repaid on 10 December 2017. The second tranche is worth $1.32bn with a yield of 6.75 percent to be repaid on 10 November 2024. The third tranche is worth $1.32bn with a yield of 7 percent to be repaid on 10 November 2028, according to the report.

There are four other bond offerings in international markets. One is worth $1bn and was issued in April 2010 with a yield of 5.75 percent and will be repaid on 29 April 2020. Another offering amounts to $500m which was issued on 29 April 2010 with a yield of 6.875 percent and will be repaid on 29 April 2040.

The ministry also offered bonds worth $500m on 1 June 2012 with a yield of 5 percent to be repaid on 1 June 2017 and issued another $1.5bn on 11 June 2015 with a yield of 5.875 percent to be repaid on 11 June 2025.

The Egyptian government had stopped issuing international bonds in June 2012, but decided in January 2015 to take up the initiative again.

The government plans to offer dollar-denominated bonds worth $2.5bn to $3bn over the next few weeks.

Minister of Finance Amr El-Garhy said that the promotional tours for those bonds will begin on 16 or 17 January.

On Wednesday, a delegation from the Central Bank of Egypt (CBE), headed by governor Tarek Amer, left for London on a five-day visit to promote investment in Egypt and discuss the chances of dollar-denominated bonds in succeeding.

The delegation included CBE deputy governor Lobna Helal, and assistant sub-governor of the CBE’s Markets Department Rami Aboul Naga. They met with senior officials of investment banks, financial institutions, and global funds during the visit.

The report also shows that the size of the outstanding balances of treasury bonds in local currency amounts to about 738.35billion pounds that should have been paid by the government by late December 2016.

The ministry explained that there are two types of bonds in Egyptian pounds. The first type is a three- to ten-year coupon yield bond that amounts to about EGP 694.44billion pounds, with an average yield of 13.046 percent.

These bonds were issued from 12 February 2008 until 6 September 2016, with a yield that ranges between 9.15 percent and 17.20 percent.

The second type of bonds is an 18-month zero coupon, worth up to about 43.9billion pounds with an average yield rate of 12.593percent.

These bonds were issued between 28 January 2014 and 4 October 2016, with an average yield of 10.885 percent and 16.514 percent.

The ministry pointed out in its report that the repayment of coupon yield bonds occurs between 17 January 2017 and 5 July 2026, and the repayment of zero coupons starts on 10 January 2017 until 3 April 2018.

Banks operating in the Egyptian market are the biggest investors in bonds and treasury bills, which the government offers on a regular basis to cover the state budget deficit.

Those bonds and bills are offered through 15 banks that are considered primary dealers in the primary market. These banks resell a portion of bonds and bills in the secondary market to investors, local, and foreign institutions.

The list of banks participating in the system includes the National Bank of Egypt (NBE), Banque Misr, Banque du Caire, Commercial International Bank (CIB), Citibank, HSBC-Egypt, Misr Iran Development Bank, Qatar National Bank (QNB), Crédit Agricole-Egypt, Moroccan Attijariwafa Bank (formerly Barclays), Bank of Alexandria Intesa Sanpaolo, Arab African International Bank, Export Development Bank, the Suez Canal Bank, and the Arab Bank-Egypt.

A World Bank report issued on Wednesday criticised the Egyptian government for relying on banks to finance the state budget deficit.

The bank confirmed in a statement that although the Egyptian banking sector indicators are intact, relying on banks to finance the growing deficit in the government budget and the lack of foreign currency negatively affects the growth of lending activity of banks.

A number of bank leaders said that banks are not happy with investing their money in fixed income instruments, led by government debt instruments, but they are compelled to do so because they are guaranteed investment instruments under the lack of employment opportunities in the market.

The leaders confirmed to Daily News Egypt that banks deal with the financial opportunities available to them. If there were financial opportunities that granted a better return than the return on investment in debt instruments, they surely will be better for banks.

It is better for banks to finance entrepreneurs and to open letters of credit to get commissions, benefits, and achieve larger profits, according to bank leaders.

Source: Daily News Egypt