Egypt is set to borrow at least $1.5 billion before the end of this year, according to Finance Minister Mohamed Maait. This borrowing will predominantly occur through the utilization of Asian capital markets, with debt issuance guaranteed by development institutions.

Key aspects of the borrowing plan involve the issuance of $500 million in Egypt’s debut panda bonds and a second sale of Samurai debt of the same amount. Minister Maait made these announcements during an interview with Bloomberg News at the annual meetings of the International Monetary Fund and the World Bank in Marrakech.

This development comes as Egypt faces challenges in accessing global capital markets, primarily due to difficulties in passing the International Monetary Fund’s delayed reviews of its $3 billion rescue program. A substantial portion of Egypt’s dollar bonds currently grapples with distressed status, and just recently, Moody’s Investors Service downgraded the country’s sovereign rating to one of the lowest speculative grade levels.

To support these borrowing initiatives, Minister Maait disclosed that Egypt has secured guarantees amounting to $545 million for panda securities from the Asia Infrastructure Investment Bank and the African Development Bank. These panda securities are yuan-denominated notes issued in China’s offshore market. Additionally, Egypt is preparing for a $500 million Samurai bond issuance, yen-denominated debt sold in Japan, guaranteed by Africa Finance Corp. There is also a $500 million loan in the pipeline, supported by a Kuwaiti insurance company, Dhaman.

Minister Maait explained the rationale behind these efforts, stating, “We are working on diversifying our financing sources through different capital markets as well as securing guarantees from several institutions to reduce the cost of the debt during this challenging high interest-rate environment.”

Egypt’s financing requirements remain substantial, with Morgan Stanley estimating a need for $24 billion in the fiscal year through June 2024. Egypt has faced disappointments in foreign direct investments, portfolio inflows, and asset sales. The nation’s economy is currently grappling with its worst crisis in years, marked by record-high inflation and repeated currency devaluations since early 2022.

The proposed debt financing is set to complement proceeds from the government’s asset sales, expected to materialize between October and November. Egypt previously announced the sale of $1.9 billion in assets to local firms and the Abu Dhabi wealth fund ADQ, though not all funds have been received. In September, a 30% stake in Egypt’s largest tobacco company was sold to a United Arab Emirates investor for $625 million.

Currently, Egypt is relying on short-term debt to manage the high cost of credit. Minister Maait intends to shift toward medium and long-term durations once inflation and interest rates decline.

The planned panda bond sale, denominated at 3.5 billion yuan, will offer three-year securities with a pricing range of 3.5% to 4.5%. Bookbuilding is tentatively scheduled for October 16. This deal marks the first time that the Asia Infrastructure Investment Bank (AIIB) and the African Development Bank (AfDB) have guaranteed panda bonds, signifying a significant development for Egypt’s financial landscape.

Minister Maait addressed concerns about Egypt’s high debt levels by emphasizing the nation’s prior success in managing the burden, reducing it from 103% of GDP four years earlier to 81% in 2019-2020. He also noted that without the challenges of the pandemic and the Russia-Ukraine war, the target was to lower the debt-to-GDP ratio below 75%.

Egypt has responded to increased local interest rates by improving tax collection and implementing other measures to handle the high-interest rate environment. The goal is to lower the debt-to-GDP ratio to 91.4% by end-June from 95.7% a year earlier. Minister Maait stressed the importance of managing debt repayments to stimulate economic growth.

This financial maneuver represents a crucial step for Egypt in securing funding while navigating challenging economic circumstances and working toward fiscal stability.

Photo: Al-Ahram

13th October, 2023
By Delino Gayweh
Serrari Financial Analyst