Egypt expects its debts to become “euroclear” in October: ministers
Cairo (Reuters) – Egypt has signed an agreement with Euroclear, Europe’s largest securities clearing house, that allows holders of its government bonds to transact outside the country for as little as six months, its finance minister said.
Mohamed Maait also told Reuters that Egypt is hoping to announce a new government bond by the end of September and is hoping it will be eligible for clearing through Belgium-based Euroclear.
“Hopefully by October this year we will start putting the first part of our debt on the market to make it euroclear,” Maait said in a telephone interview late on Saturday.
The government is considering issuing “green bonds, samurai, panda, sukuk and infrastructure bonds,” he said.
Maait spoke from Washington, where finance officials from around the world gathered for the World Bank and International Monetary Fund spring meetings.
Euroclear is due to officially announce its Memorandum of Understanding (MoU) with Egypt on Monday, a source familiar with the matter said.
Euroclearability is considered to be one of the last phases in capital market development and can significantly reduce borrowing costs for emerging markets, says PwC.
The deal will help “create the right market conditions for issuing government bonds in local currency,” according to a draft Euroclear press release that Reuters will see and release on Monday.
“The market will eventually become Euroclearable, creating a cross-border link that will enable international investment in Egyptian debt,” the press release said.
Settling debts via Euroclear requires, among other aspects, a high level of transparency as well as precise information on the size and structure of the debts to be issued, in accordance with the Euroclear rules.
In February, Egypt sold $ 4 billion worth of dollar denominated Eurobonds and this month it issued EUR 2 billion ($ 2.3 billion) in euro-denominated bonds.
Maait also said in the interview that Egypt plans to sell shares in at least five or six other state-owned companies (SOEs) by the end of June 2020.
The proceeds from the sale of shares are to be used to strengthen public finances as part of a three-year economic reform program agreed with the IMF at the end of 2016. Egypt received a loan of US $ 12 billion from the IMF.
The government sold 4.5 percent of Eastern Company, Egypt’s monopoly cigarette maker, in March, the first public sale of government shares in 10 years.
The sale was slated for last year but was delayed after prices for emerging market assets plummeted around the world.
“We are on our way. We may say something before June 2019, but in any case, God willing, we will say more with the new fiscal year,” Maait told the SOEs. Egypt’s fiscal year begins in July.
He did not want to say which company would be offered next, because “it hurts us if we announce it early”.
Maait said Egypt had put in place a mechanism to hedge against volatile oil prices, a move to help avoid budget shocks.
“Egypt is ready and Egypt uses the safeguard mechanism whenever Egypt needs to use it,” he said.
A plan to hedge against wheat prices, which was discussed with the banks in October, “did not materialize”, but remains “on the table” and is being examined, he said.
Euroclear’s Global Head of Capital Markets and Fund Services, Stephan Pouyat, told Reuters that Euroclear’s agreement with Egypt will be expanded in the future.
“We’re not just going to do the government bonds. We’ll start with that, because that’s what international investors need, ”said Pouyat.
He said Euroclear wants “to make it clear to investors that (Egypt) has a successful long yield curve to create the benchmark the corporate sector needs … which will make any type of hedging much easier. ”
($ 1 = 0.8849 euros)
Reporting by Yousef Saba; Editing by Patrick Werr and Susan Fenton