Egypt needs more corporate bond issuance

03 March 2015

EFSA chairman says new projects could tap bond market

  • Corporate bonds needed to ensure balanced market place
  • Market has been crowded out by government
  • Improved market regulation may encourage issuances

There needs to be an increased number of corporate bond issuance in Egypt to ensure a balanced market place, says Sherif Samy, chairman of the Egyptian Financial Supervisory Authority (EFSA).

“We need to encourage more corporate bonds, we don’t have enough,” he tells MEED on 1 March.

One of the reasons for low volumes of issuance is that the market has been crowded out by the government.

Egypt’s government has a high budget deficit that it funds by regularly issuing bonds, which has satisfied market appetite and reduced demand for corporate issuance.

He hopes that with recent efforts by the EFSA to improve market regulation, coupled with the anticipated economic growth in Egypt, the bond market might start to grow.

There are several new projects in the pipeline covering sectors such as oil and gas, conventional and renewable power and transport.

Some of these projects could be funded through the fixed income market, he says.

“You might see projects resorting to issuing bonds or securitising their receivables,” Samy says.

There are also plans in progress to encourage the issuance of sukuk or Islamic bonds by corporate companies.

This is in despite of some negativity surrounding the use of sukuk in Egypt.

The sukuk law was introduced during the regime of the Muslim Brotherhood-backed president Mohamed Mursi.

Samy says there is still some “stigma” attached to the term sukuk, with some seeing it as a politically motivated instrument designed to support the growing influence of Islamist groups in Egypt.

The original sukuk law is now being reviewed and changed in parts.

It is being included within an amendment to the capital market law that should be approved this year by the Egyptian parliament.

The equities market is looking set for growth in 2015, Samy says. “We will see more IPOs this year than the previous four years.”

New regulations introduced last year aim to make it easier for companies to list on the exchange by cutting down some of the bureaucracy surrounding the approval processes.

One piece of legislation allows companies with a limited or no track record of earnings to list. These are often referred to as greenfield intitial public offerings (IPOs).

The legislation also allows companies that may not yet be making profit to sell their shares on the exchange.

“The message is to open the door to credible projects that do not fulfil traditional listing rules,” Samy says.

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