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Egypt places ‘all-round success’ dual-trancher in latest addition to debt stack, further issuance expected – MENAT Weekly Comment

The Arab Republic of Egypt this week priced a USD 2bn dual-tranche bond, the latest addition to its debt stack, having inked a USD 2bn syndicated loan last month.

Market participants said that the heavily oversubscribed bond issuance is proof that positive investor sentiment – fueled by growing regional and multilateral support, a compelling reform programme and easing regional tensions – towards the previously troubled North African country is growing.

The Reg S/144A offering consisting of a USD 1.25bn 8.625% February 2030-maturing tranche and a USD 750m 9.45% February 2033-maturing tranche, both of which were priced at par on Tuesday (28 January). Combined books were in excess of USD 9.8bn, excluding joint lead manager interest, at the time of launch.

Pricing had tightened from initial guidance in the 9.25% and 10% areas respectively. The deal marked the sovereign’s return to the conventional US dollar bond market since September 2021, when it priced a USD 3bn triple-trancher.

The country later issued its debut USD 1.5bn 10.88% February 2026 sukuk in February 2023.

The latest deal elicited a largely positive response from the buyside.

According to Fady Gendy, portfolio manager at Arqaam Capital, Egypt’s return to the market after a four-year hiatus was an “all-round success”.

The latest transaction had been well-signalled by the finance ministry, which according to Gendy, allowed investors to be sufficiently prepared and the issuer to proceed without a roadshow – a “rarity in the emerging markets high yield space”.

The issuance being capped at USD 2bn when there are still three hard currency bonds from the sovereign maturing in 2025 was positive for technicals, limiting any supply overhang concerns, Gendy added.

Those bonds in question are EUR 750m 4.75% notes due AprilUSD 1.5bn 5.88% notes due June and USD 750m 5.25% notes due October.

“Maturities [of the new deal] were in the sweet spot for both parties: long enough to allow Egypt to work towards its goal of extending average debt maturities, but not too long for investors who would be biased for the front-end and belly, especially the local investor base,” Gendy said.

Fellow buysiders agreed on the deal’s success.

“We are positive on Egypt in the near-term based on Gulf and multilateral support,” said Faisal Ali, senior portfolio manager at Azimut. “The bonds offer attractive carry and should find support at these levels.” He noted that the bonds had since traded up in the secondary market.

James Swanston, senior emerging markets economist at Capital Economics agreed that the latest issuance would make Egypt’s public debt schedule more sustainable and less vulnerable to interest rate swings.

In FY23/24, Egypt’s interest payments were equal to 9.8% of GDP and 45% of total spending, Swanston highlighted. “If they can start to reduce that with lower interest payments, it will free up room to increase expenditure elsewhere.”

The combination of the transaction being well-signaled and an investor-friendly deal size and maturity allowed the sovereign to print close to or even through most fair value estimates, Gendy said.

Those estimates were varied, however. One Dubai-based buysider noted a new issue premium (NIP) of around 20bps-25bps on the five-year tranche and around 10bps-15bps on the eight-year tranche. A Dubai-based analyst concurred that there was some money left on the table for investors.

Others were less conservative. According to one sell-side analyst, fair value was around 8.75% for the 8.625% 2030s and 9.625% for the 9.45% 2033s.

Arqaam’s Gendy added that the eight-year deal priced with a negative NIP of 25bps.

On the up

The transaction is a sign that investor sentiment is aligning with the improving macroeconomic picture, the Dubai-based analyst said.

Market participants across the spectrum have told Debtwire in recent months that sentiment towards Egypt has improved drastically, as the country demonstrates a “credible narrative that people are buying into”.

That macroeconomic development has been bolstered by a policy shift, an influx of regional and international investment, and more recently, the ceasefire between the State of Israel and Hamas and the normalisation of activity through the Suez Canal.

That has been demonstrated in the rally of its sovereign bonds and tightening of its CDS (credit default swap) spreads.

As of Thursday, the country’s five-year CDS stood around 509bps. At the start of this month, it was around 573bps. At the start of 2024, it was around 1,130bps.

Despite its debt ratio having risen in recent years, Egypt continues to run a large primary surplus, which has carried favour in terms of its public financing outlook.

In fact, Capital Economics’ Swanston notes that it is one of the largest in the emerging markets space, having been around 6% of GDP on a 12-month sum basis in FY23/24. Though, according to Capital Economics’ estimates, the debt-to-GDP ratio increased to 97% in FY23/24 due to higher interest rates and moves in the pound. Swanston said that is expected to decline from here on.

Just weeks ago, the International Monetary Fund (IMF) announced that it reached a staff-level agreement with Egypt on the fourth review under the extended fund facility, which subject to executive board approval, gives the country access to USD 1.2bn.

Policy moves including devaluing the pound, allowing the currency to float, keeping fiscal policy tight and cutting back on subsidies have been instrumental in gaining the confidence of both the IMF and international investors. Foreign inflows to local T-bills are yet another sign of improved investor sentiment, Azimut’s Ali added.

However, there is still room for improvement on the long-term structural reforms. According to Swanston, the Gulf inflows signal the importance around the privatisation drive. This method of raising funds for the Egyptian government in the coming years is what the IMF will be keeping a close eye on, he continued.

The outlook is not completely clear, market participants caution.

According to Sahar El Damati, board member of the Egypt Kuwait Holding Company and former vice chairman of Banque Misr, the country still faces a number of economic and financial risks. Though inflation declined to around 24% in December 2024, it remains well above the average target of 7% (+/- 2%) for 4Q26.

“The government is actively working to reduce imports and boost exports through incentives to strengthen foreign currency reserves,” El Damati said. The country holds approximately USD 47bn of net international reserves, which El Damati estimates could increase to USD 58bn by the end of next year, though that target remains subject to revision based on economic conditions.

Debt stack to grow

There is still room and appetite for further debt issuance from Egypt this fiscal year, which ends on 30 June, market participants say.

In the third quarter last year, Egypt signaled that it was considering Eurobond sales worth around USD 3bn.

Arqaam’s Gendy expects the sovereign to return to the market this fiscal year, issuing a sukuk between USD 1bn-1.5bn in size, following its debut in the Shariah-compliant market in 2023.

The Dubai-based analyst concurred, noting that further transactions could be possible assuming Egypt is able to rollover its multilateral and bilateral debt obligations.

Last month, Egypt closed a USD 2bn three-year dual-tranche syndicated loan, comprised of both conventional and Shariah-compliant elements. That deal was over two-and-a-half times oversubscribed, sources previously told Debtwire, noting that there had been strong lender interest in the facility.

El Damati highlighted that the country is also looking at alternative funding sources beyond the capital markets and the IMF, including financing from international banks such as the European Bank for Reconstruction and Development, Africa Export-Import Bank (Afreximbank) and other African financial institutions.

“While the IMF provides credibility and signals that Egypt is implementing necessary economic reforms, other funding sources are available,” she noted.

Egypt is rated B- by S&P Global Ratings, Caa1 by Moody’s and B by Fitch.