EGYPT seems to be on the point of choosing one or more investment banks to arrange its debut international bond issue after months of delays and uncertainty, bankers say.
The size of the issue, which has attracted the interest of dozens of banks, is expected to be $250-300 million with a maturity of five years.
Egyptian Economy Minister Youssef Boutros Ghali said on 19 October that the government had approved the issue. Investment bankers have been pitching the idea to Egypt since at least July 1996, although the government does not actually need the money because it has foreign-currency reserves of $20,000 million.
The motive for the issue is to set a benchmark for Egyptian companies which need to raise funds abroad. Boutros-Ghali, an advocate of economic liberalisation with a high international profile, was promoted to his current post in July. Foreign bankers believe he has played a key role in convincing other parts of the government of the benefits of a bond issue.
The bond has attracted a lot of attention, with as many as 27 institutions reported to be bidding for the mandate. US banks in particular have been assiduously cultivating the government, with two giving free or low-cost advice on getting a sovereign credit rating and a third advising on a rating for the state-owned National Bank of Egypt.
‘It’s somewhat prestigious to do the first deal for a sovereign and Egypt is the flavour of the month,’ says a US banker. Other bankers say that ministers have indicated that they would like the bank or banks that win the mandate to provide additional services, such as advice on restructuring state companies for privatisation. If two bids are close, their willingness to provide these extras may be the deciding factor.
An improving image abroad should enable Egypt to get tight pricing for its debut issue. One banker says the government is hoping to equal the pricing of 73 basis points over US Treasuries that Oman got for its debut $225 million, five-year Eurobond at the start of the year. Egypt is rated at below investment grade by Moody’s Investors Service, but has investment- grade ratings from Standard & Poors and IBCA. Moody’s is considering upgrading Egypt’s rating by one notch to Ba1, which is still a speculative grade. ‘The Egyptians are not happy with Moody’s and they want full investment- grade pricing,’ says a European banker.
Government officials have spoken of an Egyptian pound issue on the international markets in tandem with the dollar bond. It is not clear whether this is still going ahead, and bankers say it may be hard to tempt investors to buy local-currency bonds because the Egyptian pound is not fully convertible, which means that trades in pound-denominated bonds cannot go through Euroclear and would have to be settled in Cairo.