Egypt’s bumper cash raise sets stage for investor comeback

International investors are dipping their toes back into Egyptian local debt after a much-needed rate hike, a pledge to float the currency and fresh backing from Gulf investors and the International Monetary Fund.Egypt’s local debt had been off limits to most international investors for years amid fears over currency devaluations, deeply negative rates and concerns about repatriating funds from a country gripped by severe dollar shortages.But long-sought reforms — and key cash infusions — spurred international investors to buy more than $800mn in government T-bills this week, a move that could pave the way for their return to government bonds."We are constructive short term, because they’ve delivered pretty much everything apart from a cabinet reshuffle,” said Polina Kurdyavko, head of emerging markets at BlueBay, whose firm bought Egyptian government T-bills, for the first time in roughly five years, at the Thursday auction.Over just two weeks, a $35bn United Arab Emirates investment deal and an enhanced $8bn loan from the IMF that followed a 600-basis point interest rate hike and foreign exchange shift, have placed the North African country’s local fixed income market back in the limelight.Late on Thursday, credit rating agency Moody’s revised its outlook on Egypt to positive from negative citing "significant official and bilateral support” and "policy steps taken in the past week,” while affirming a Caa1 rating that still considers the sovereign a very high credit risk."The UAE news kind of took everyone else by surprise and... turned sentiment in the positive, given the scale of the funding provided,” Kurdyavko said.T-bills, government debt that has a shorter maturity than bonds, can be first test for investors keen to get involved — but who want to make sure the reforms last.Joe Delvaux, portfolio manager at Amundi, Europe’s largest asset manager, said his firm was "certainly considering” going back into Egypt’s local fixed income markets."It certainly has been a very positive momentum for Egyptian policymakers, for the country, for the economy that all these things have come together,” he said.Wall Street bank JPMorgan also recommended buying one-year Egyptian T-bills."The Egypt carry trade is back in focus and this time should be different,” the bank’s Gbolahan Taiwo wrote in a note to clients.At the auction, the central bank sold 87.8bn Egyptian pounds ($1.78bn) of one-year T-Bills after receiving bids for nearly three times that amount. It sold another 14.2bn Egyptian pounds in a sixth-month auction.While the central bank does not publish data on foreign participation in the auction, figures supplied by a banker showed that international investors, taking part following long absences, snapped up $825.2mn.Recent events had revived "the near-term investment thesis in Egyptian risk assets,” Farouk Soussa at Goldman Sachs told clients in a note published on Thursday.Wednesday’s devaluation was Egypt’s fourth in two years. But policymakers’ previous pledges to allow a more flexible exchange rate faded as soon as pressure on the pound flared up.This time, analysts said the sheer size of the financing from official and private sector lenders could bolster the reforms.Egypt already received $10bn from the United Arab Emirates for the Ras al-Hikma property development deal and is converting another $5bn in existing deposits as part of the agreement. The IMF’s latest staff-level agreement on the combined first and second review is expected to be signed off before month-end by the fund’s executive board, triggering another cash windfall.The country’s geopolitical significance bolstered its case for support, especially in the wake of the Israeli war on Gaza."Egypt’s strategic importance has been reaffirmed for both regional partners such as the GCC sovereigns (especially the UAE and Saudi Arabia) and also Western nations, a clear factor in the recent commitments of support,” said James Wilson, EM sovereign strategist at ING.