Cairo: Egypt is considering issuing local currency-denominated bonds on the international market in an effort to boost overseas inflows and reduce the cost of borrowing, four people familiar with the matter said.
While investors would purchase the bonds in dollars, the principal and interest would be payable in Egyptian pounds, which means the buyer bears the risk of any fluctuation in the exchange rate, said the people, declining to be named as the plans are still under discussion.
A pound-denominated international bond is one of a number of options the government is considering as it seeks to diversify its funding sources and reduce the mounting cost of debt servicing. The Finance Ministry didn’t immediately respond to requests for comment.
Demand for Egyptian domestic debt fell this year as volatility swept through emerging markets. About $7 billion (Dh25.7 billion) flowed out of local treasury bills in the five months from the end of March. With faltering demand spurring an increase in yields across the board, the country is seeking to minimize its borrowing costs by relying more on longer-term international bonds than expensive treasuries.
The government has sold more than $13 billion in foreign currency-denominated Eurobonds since it lifted most controls on the Egyptian pound, raised interest rates and cut subsidies in November 2016 to help secure a $12 billion loan from the International Monetary Fund. Despite repeated volatility in emerging markets, the pound has remained relatively stable against the dollar since the initial overhaul.
The government is in talks with several banks about the possibility of issuing the proposed local-currency bond with a lower yield than on debt issued at home because the transaction can be cleared through Belgium-based settlement company Euroclear, one of the people said. Domestic debt transactions are currently cleared through local banks, which can discourage some institutional investors.
The government is in talks with Euroclear to settle its domestic debt transactions too, but negotiations are likely to be protracted and the bond could be issued in the meantime, the people said.
In July 2007, Egypt issued a bond worth 6 billion Egyptian pounds ($335 million) on the international market, but the interest, principal and any other amounts were payable in dollars, according to its prospectus.
The size and timing of any issue hasn’t been decided and the government is still weighing the plan against other options including international bonds denominated in the Japanese yen, Chinese yuan or the euro, the people said.