Egypt Mulls Highest Borrowing Cost in 16 Years for Bond Sale

CAIRO (Capital Markets in Africa) – Egypt is tapping investors in a sale of dollar-denominated bonds, offering to pay them the highest coupon since 2001 and its first venture into international capital markets since a currency devaluation in November.

 Africa’s third-biggest economy is offering three maturities of debt, with an initial yield target between 7.625 percent and 7.875 percent on 10-year bonds, according to a person familiar with the matter who isn’t permitted to speak publicly and asked not to be identified. It last sold similar-maturity debt in 2015, paying 5.875 percent. The coupon on a 2001 sale was 8.75 percent, according to data compiled by Bloomberg.

 “They shouldn’t have any problems getting the deal done,” said Anthony Simond, a London-based money manager at Aberdeen Asset Management Plc who is buying the debt. “They’re giving investors a healthy yield increase in order to entice them to participate.”

Bouncing Back
The deal marks the nation’s first since floating its currency in November, effectively slashing its value in half, in a bid to open up to foreign investment and jump-start an economy that has suffered from shrinking business activity for 15 months. The country also signed a $12 billion International Monetary Fund loan in November, the biggest ever for a Middle Eastern country, and plans to raise as much as $2.5 billion to help bridge a financing gap that the IMF estimates at $35 billion for the next three years.

Egypt’s $1.5 billion of Eurobonds that mature in June 2025 fell, sending the yield up two basis points to 7.19 percent as of 3:50 p.m. in Cairo. That’s the highest level on a closing basis in almost three weeks. The spread investors demand to hold the nation’s debt over similar-maturity U.S. Treasuries was at 462 basis points, having hit a 14-month low of 444 basis points on Jan. 18.

 The IMF deal “makes a big difference,” Simond said. The lender “will make sure that the government maintains fiscal discipline and proceeds with its reform agenda.”

The nation is also seeking to sell 30-year notes with a yield target between 8.625 percent and 8.875 percent, and five-year bonds at 6.375 percent to 6.625 percent, according to the person familiar with the matter. BNP Paribas, Citigroup, JPMorgan Chase & Co. and Natixis are acting as book-runners for the transaction.