Egypt Studying International Bond Issue

Egypt’s finance ministry is studying the possibility of issuing its first international bond since 2010, two officials told Reuters, as investor confidence in the country gradually returns after the turmoil which followed the 2011 revolution.

A government official with knowledge of the matter said Egypt had discussed with banks the possibility of an international eurobond issue of between $750 million and $1 billion, “whenever the time and need is appropriate to cover the budget gap”.

A second official confirmed this, adding that the bond issue would mainly be aimed at Gulf Arab investors. The officials, who declined to be named because of the sensitivity of the issue, did not provide further details.

Because of its political and economic instability, Egypt has been frozen out of the international debt market since president Hosni Mubarak was ousted in early 2011. But confidence is slowly reviving on the back of billions of dollars of aid provided to Cairo by allied Gulf states.

The yield on Egypt’s $1 billion sovereign bond maturing in 2020 tumbled to 4.73 per cent this week, its lowest level since December 2010, from a peak of 11.07 per cent in June 2013. Five-year credit default swaps, used to insure against the risk of an Egyptian sovereign debt default, are at their lowest level since mid-2011.

Even with the Gulf aid, the government remains under heavy pressure to raise funds as it runs huge budget deficits. State spending is projected to exceed revenues by 290 billion Egyptian pounds ($40 billion) in the year to June 30, 2015, according to an official budget draft.

While many Western investors remain wary of Egypt, Gulf governments are encouraging their state-backed companies and financial institutions to invest there, so an Egyptian bond issue might attract substantial demand from them.