Egypt's international bonds soared and its currency forwards strengthened on Monday, extending a sharp rally after it signed a $24 billion investment deal with the United Arab Emirates centred on a real estate development on the Mediterranean coast.

Through the deal announced on Friday, Abu Dhabi sovereign investment fund ADQ will pay $24 billion for the development rights on the pristine Ras El Hekma peninsula on Egypt's north coast, as well as converting $11 billion of deposits already in Egypt for "prime projects" across the country.

Analysts and investors say the deal has lessened Egypt's immediate economic problems, which are rooted in a chronic shortage of foreign currency, but that prospects for structural reforms and longer-term economic health remained in doubt.

"The inflows will help plug Egypt's external funding gap in the near term, pave the way for a more orderly currency devaluation and catalyse IMF funding," said Patrick Curran at research group Tellimer.

"The longer term impact is more mixed as it further solidifies Egypt's model of growth driven by megaprojects, and a material portion of the funding will likely flow out of the country over time via imported inputs."

Investors said a first test would be how much of a devaluation might follow the deal, and whether Egypt moved to a flexible or floating exchange rate - a step it had previously pledged but not implemented.

A second test would be whether the government moved ahead with other asset sales, and how much room they gave the private sector to operate in an economy where the state and the military retain a tight grip.

Egypt's sovereign dollar bonds jumped nearly 5 cents on Monday, broadly matching gains they had clocked up on Friday with many of the country's dollar-denominated issues at their strongest level in around two years.

Longer-dated bonds traded at around 72-75 cents, and latest gains lifted pretty much all its bonds above 70 cents, which is the threshold below which debt is widely considered distressed.

The spread of Egypt's international hard-currency bonds over safe-haven U.S. Treasuries - indicating the risk premium demanded by investors - tightened to 640 basis points - their lowest reading since November 2021, data from JPMorgan showed.


Data on currency forwards showed markets were trimming back expectations for the size of devaluation ahead. Twelve month non-deliverable forward FX rate strengthened to 52.9 to the dollar on Monday from 64.55 on Thursday.

On the black market in central Cairo, one dollar was buying about 40 Egyptian pounds on Monday, down from about 62 a week earlier.

The tightly managed pound has been fixed at 30.85 to the dollar over the past year, after losing about half its value against the dollar in a series of devaluations since early 2022.

Oxford Economics said the deal was a "game-changer" for Egypt in the short to medium term, revising down its forecast for the exchange rate at the end of the year to 45 pounds to the dollar from 55 pounds previously.

But it said the long-term outlook remained "worrisome" for Egypt, the Arab world's most populous nation, with a need for more fiscal discipline.

Egyptian Prime Minister Mostafa Madbouly said on Friday that Egypt expected to receive $15 billion from the deal within a week, and the remaining $20 billion within two months. The government remained committed to reaching a new agreement with the IMF expected to expand its existing $3 billion loan, he said.

"There are very, very, very few steps left until we conclude an agreement with the IMF," he said.

Egypt had suffered a raft of ratings downgrades in recent months. Moody's revised its outlook to "negative" from "stable" in January, citing increasing risks that the country's credit profile will continue to weaken amid difficult macroeconomic and exchange rate rebalancing.

Barclays said in a note that the deal should bring forward a top-up of the IMF programme and an adjustment to the currency.

The size of the front-loaded transfer pointed to "the UAE's unwavering commitment to Egypt's macro stability," it said.

(Reporting by Karin Strohecker and Patrick Werr, editing by Alun John and Toby Chopra)