Egypt secures $2bn financing as agreement with IMF nears

Egypt secured $2bn in financing from international banks, a day before the International Monetary Fund’s board meets to consider a $12bn loan officials say will help restore investor confidence in the economy.
The central bank said the repurchase transaction with overseas banks has a maturity of one year, with the funding provided against newly issued dollar-denominated sovereign bonds. It’s the latest effort to bolster foreign reserves and ease a dollar shortage crippling the economy, following last week’s decision to float the Egyptian pound along with measures aimed at stabilising the government’s fiscal position.
The Finance Ministry said it issued $4bn in bonds on the Irish Stock Exchange that were bought by the Egyptian central bank to use partly as collateral for the repurchase agreement. That means the additional funding going toward Egypt’s reserves amounts to $2bn, Deputy Finance Minister Ahmed Kouchouk said.
Finance Minister Amr El-Garhy said on Al-Arabiya television that bonds were chosen over other financing options due to “elevated” interest rates in parts of the market. The government issued a $1.36bn bond maturing in December 2017 at 4.62%, a $1.32bn note maturing in 2024 at 6.75% and a $1.3bn bond maturing in 2028 at 7%, the ministry said.
Egyptian stocks jumped yesterday, extending gains for an eleventh day. The pound strengthened 2.3% to 16.7 per dollar, according to prices from the National Bank of Egypt. The official rate before the float was 8.88 per dollar.
The ministry said the issuance was separate from its plan to sell Eurobonds in the coming period, though El-Garhy said “fluctuations in markets” mean that may now be delayed. The roadshow for the $2bn to $2.5bn sale was set to start in the second half of November, El-Garhy said last month.
“We’re monitoring markets closely to see if we can do it the last week of November,” El-Garhy told Al Arabiya.
Egypt has seen foreign currency inflows dwindle since the 2011 Arab Spring uprising that ousted longtime ruler Honsi Mubarak, as political instability and militant activity scared away tourists and investors. Foreign holdings of Egyptian debt fell to about $55mn in July, according to central bank data. It was more than $10bn before 2011.
The government expects $8bn to $10bn in foreign inflows via T-bills, T-bonds and stocks in the next three to six months, El-Garhy said in a phone interview with Bloomberg.
“They are being creative in raising new inflows to support the process, and I expect more similar deals in the future,” said Hany Farahat, the Cairo-based senior economist at CI Capital. He said he expects the central bank to reach its reserve target of $25bn by year end, up from $19bn at the end of October.