Egypt sold $3bn on international bond markets on Wednesday, taking advantage of lower borrowing costs after its economic policies earned the International Monetary Fund’s endorsement.
The most populous Arab nation issued more of the debt first sold in January, but at lower costs, according to a person familiar with the deal, across maturities in 2022, 2027 and 2047. The securities attracted $11bn of bids, Finance Minister Amr El-Garhy said in an interview yesterday on Bloomberg TV.
Six years after the uprising that ousted president Hosni Mubarak, officials are struggling to rebuild an economy where inflation tops 30% and key industries such as tourism and manufacturing have been hit by terrorism and a lack of foreign investment. The government has implemented a series of economic fixes, including interest hikes, a currency devaluation and fuel subsidy cuts.
“We like the reform story a lot,” Anthony Simond, who helps manage $11bn of emerging market debt at London-based Aberdeen Asset Management, said before the deal closed on Wednesday. “They are implementing an impressive fiscal consolidation, which, coupled with the huge inflows of foreign capital since the devaluation, means that their balance of payments position is now much more sustainable.”
But some of those measures, such as raising interest rates, have drawn criticism from money managers such as Mark Mobius, executive chairman of Templeton Emerging Market Group, because they hinder private sector growth. Non-oil business activity has contracted for 19 months, according to an index compiled by Emirates NBD.
Even so, the sale comes at an opportune time. Increased appetite for riskier assets has driven the cost of capital down for developing-country issuers and the premium investors demand to hold emerging over US sovereign debt is near its lowest in more than two years.
Egypt sold $750mn of five-year debt yielding 5.45%, compared with a yield of 6.125% when the notes were first sold, according to the guidance. A tranche of $1bn 10-year bonds yielded 6.65%, compared with 7.5% on the original notes, while $1.25bn of 30-year debt yielded 7.95% versus 8.5% back in January. That takes the nation’s total international issuance this year to $7bn, the most in any year on Bloomberg records dating back to 2001.
In a post-sale television appearance, El-Garhy said the government may return to international debt markets in the second quarter of 2018. He also touted government efforts to spur economic growth, promising more measures to cut red tape that has long handcuffed foreign investment. The nation ranked 122 out of 190 countries in the World Bank’s most recent Ease of Doing Business Report.
Strong investor demand for 10-year and 30-year bonds “reflects a vote of confidence in the economic reform programme Egypt is adopting now,” El-Garhy said.