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DEAL: Egypt’s $4 billion triple-tranche eurobond

The issuance of Egypt's largest ever eurobond and the first triple-tranche instrument to come out of Africa will support the country's extensive economic reform progamme.

The $4 billion bond, also the largest ever public bond issuance on the continent, was issued in three tranches - $1.75 billion 6.125% notes due 2022, $1 billion 7.50% notes due 2027 and $1.25 billion 8.50% notes due 2047.

The government was initially targeting to raise $2 billion but orders from the US, the EU and a number of Gulf states were said to have reached in excess of $13 billion. The offering was initially scheduled to take place in November 2016 but was postponed because of market volatility caused, among other things, by the US presidential election.

The notes are part of a wider $10 billion global medium-term note programme, initially agreed upon in 2015, to support the country's economic turnaround.

According to reports, the yields associated with the three tranches were better than expected, showing renewed investor confidence in the Egyptian government. Bloomberg data has found that emerging market sovereign debt is presently priced at around 4.9%.


Both this eurobond and a previous placement in November were carried out to ensure the Central Bank has enough reserves

– Mahmoud Bassiouny, Matouk Bassiouny


"The terms of this issuance show that Egypt is becoming a more competitive jurisdiction to invest in," said Mahmoud Bassiouny, head of finance and projects at Matouk Bassiouny, and legal advisor to the issuer on Egyptian law.

The notes were issued in US dollars because Egypt needs to build up foreign currency reserves, said Camille Abousleiman, partner at Dechert who advised the government of Egypt on English and US law. The country's foreign reserves amounted to $36 billion before the 2011 crisis, and dropped to roughly half that amount four years later. They currently stand at $26 billion.

"This is an IMF requirement," he said. "One of the conditions of the IMF's programme for Egypt was for the country to increase availability of foreign currency and implement a reform program - among other benefits, this would attract foreign investment."

Bassiouny said that many of the government's debt obligations are denominated in US dollars and Egypt's main imports are paid in US dollars.

"Both this eurobond and a previous private placement in November that we also worked on were carried out to ensure the Central Bank [CBE] has enough reserves to be comfortable," he said.

This particular issuance, and the one in November are to be used to support an ambitious infrastructure reform plan required and partly financed by the IMF. The previous issuance was a $4 billion private placement carried out by the Ministry of Finance (MoF) in coordination with the CBE – the MoF issued bonds to the CBE, which then used them as collateral on a repo transaction.

The IMF's $12 billion loan, for which a second installment was released just days ago to help with Egypt's wide-scale reform programme, is conditional on the country easing capital controls, reducing its reliance on international subsidies and introducing flexible exchange rates. This latter point was partially achieved when Egypt launched a currency devaluation drive in November.

Egypt first returned to the international capital markets in 2015 with the issuance of a $1.5 billion bond after a five-year hiatus.

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