DUBAI/LONDON - Egypt started marketing a five-year U.S. dollar-denominated Green bond on Tuesday at a yield of around 5.75%, a document showed, in what would be the first sale of green bonds by a government in the Middle East and North Africa region.

The deal is expected to raise at least $500 million for Egypt and is expected to price later on Tuesday, a source familiar with the transaction said.

"It's not a huge size, but they are planting the flag of their commitment to sustainability," the source said.

He said the aim was to diversify Egypt's investor base as well as making people aware of the country's progress on the sustainability front.

"The investor presentation was attended by many who are speaking to Egypt for the first time, we were fielding calls for sustainability analysts and global investors," he added.

Proceeds from the debt sale, which will be completed later on Tuesday, will be used to finance or refinance green projects in sectors such as transportation, renewable energy and energy efficiency.

"The bonds offer value when compared to the existing secondary Egyptian curve," said Zeina Rizk, executive fixed income director at Arqaam Capital.

"I think they might tighten as they will attract sustainability-focused investors but given the recent weakness we have seen in the markets driven by a fear of a second wave, and some sort of market indigestion from the large number of new issues, market participants are more selective."

The investor presentation for the bond sets out a number of Egypt's commitments towards a sustainable strategy, and includes rationalising water consumption, protection of the coasts and investing in renewable energy.

Green bond issuance has soared in 2020, with Germany joining other European countries in issuing a debut Green bond earlier this year. 

A slew of European corporate borrowers have issued debt linked to sustainability goals, many of them for the first time, including fashion labels Chanel and Burberry. 

In the Middle East region, Saudi Electricity and Qatar National Bank issued Green bonds this month, and expectations are for more issuance in the region in the coming months.

Credit Agricole, Citi, HSBC and Deutsche Bank are managing Egypt's bond issue.

(Reporting by Abhinav Ramnarayan and Davide Barbuscia Editing by Gareth Jones and Ed Osmond) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))