Egypt'sreturn to the international debt markets for the first time in five years was warmly received by investors this week, with the $1.5 billion eurobonds offering last Thursday stirring robust demand among foreign investors whose bids totalled $4.5 billion.
The eurobonds, issued to cover a part of the gap between Egypt's foreign sources of income and its needs, bear a maturity of 10 years and carry a yield of six per cent, tighter than initial pricing guidance of 6.25 per cent and due to the high demand.
Egypt shied away from the global bond markets after the 25 January Revolution that toppled former president Hosni Mubarak, as political instability made any sovereign issue risky. However, last year saw the introduction of many economic reforms, leading to a revival in foreign currency earners, including tourism and foreign direct investment.
The first nine months of the current fiscal year witnessed a 61 per cent increase in tourism revenues, and foreign direct investment rose to $5.7 billion compared to $3.1 billion during the same period last year.
The rating agencies have upgraded their ratings and outlook for the Egyptian economy since December 2014, the latest coming with S&P's upgrade in mid-May. The improved ratings have lowered the yields paid on bonds, as they have deemed the country less risky for investors.
According to Reuters, last week's bond issue has been trading higher than its offering price amid strong demand from investors, whose initial demand was unsatisfied. Generous pricing also made the bonds desirable.
Most of the bond issue was taken up by western investors, with those from the United States cornering 45 per cent of the paper. UK investors took 35 per cent, European accounts cornered 11 per cent, while Middle East investors managed to get just seven per cent of the issue. The remaining two per cent went to other areas, according to a banker talking to Reuters.
Ambitious growth plans, widening deficits, and a desire to create a yield curve may prompt Cairo to tap the debt markets again this year, foreign investors told Reuters. Minister of Finance Hany Kadri Dimian told reporters in late April that he hoped the country would issue a sukuk bond at the beginning of the 2015/2016 fiscal year, which starts on July 1.
The National Bank of Egypt is also planning to issue a dollar-denominated bond by the end of June.
© Al Ahram Weekly 2015
