Egypt eyes settlement tie-up with Euroclear

Country in talks with Belgium’s Euroclear; to embark on bond roadshow through Asia this year

Egypt is in talks with Belgium-based Euroclear to settle its domestic debt transactions and will embark on a non-deal bond roadshow through Asia this year, part of a drive to attract more overseas investors and reduce borrowing costs.

“We are in continuous talks with Euroclear and we are trying to finalise this issue as soon as possible,” Finance Minister Mohammad Maait said in an interview. “This step is very useful for the country; it is expected to attract more international investors to the Egyptian debt market.”

Euroclear settles transactions in international and domestic securities in dozens of countries. Enlisting its services would make it easier for foreigners, who currently have to go through a local bank, to invest in Egyptian pound-denominated debt.

Though the pound has remained relatively stable, demand for Egyptian domestic debt has fallen this year as volatility sweeps through emerging markets. More than $6 billion (Dh22 billion) flowed out of local treasury bonds and bills in the three months from the end of April.

Higher debt servicing costs

Faltering demand has spurred an increase in yields across the board, adding to Egypt’s debt servicing costs just as the country is seeking to curtail its deficit.

Egypt has cancelled all four Treasury bond auctions this month after investors demanded higher yields than it was willing to stomach.

It has sought to minimise its borrowing costs by relying more on international bond issuances than expensive domestic debt. As the emergingmarkets rout makes investors more cautious, the government is looking to expand its options and will test appetite in Asia.

Egypt has raised the possibility of issuing Samurai or Panda bonds in the past, but the tour to China, Malaysia, Singapore, Korea and possibly Japan will be its first tangible step.

“We have been told that there are big opportunities in Asian markets and many funds in it are willing to invest, so we will go and tell them the Egypt story and about our reform programme,” Maait said. “We are monitoring international markets and want to look into several potential markets.”

The Finance Ministry is in talks with banks to manage the roadshows, Maait said.

Egypt has sold more than $13 billion in foreign-currency denominated bonds since it lifted most currency controls, raised interest rates and cut subsidies in November 2016 to help secure a $12 billion loan from the International Monetary Fund. Its first eurodenominated bond, issued in April, was oversubscribed.

Government plans to issue more international bonds this fiscal year are being tested by the crisis sweeping emerging markets.