Egypt’s 35,000 USD bond sale shows currency risk weakening Demand

Newsletter

06 Apr 2023

Egypt’s 35,000 USD bond sale shows currency risk weakening Demand. Egypt placed just 0.04% of 3 billion EGP worth of local currency bonds on Monday, Bloomberg reports. The government accepted only one offer to buy 1.1 million EGP worth of the three-year bonds at 21.7% rate, after investors demanded yields of up to 28%. Demand for EGP-denominated debt has been severely impacted as investors wager on further depreciation of the currency. Twelve-month non-deliverable forwards this week have the EGP hitting 41 to the USD for the first time, according to Bloomberg. (Bloomberg)

According to Goldman Sachs, Egypt enters a “vicious circle” of depreciation and inflation
That could impact the country’s capacity to service its external debt, damaging investor confidence. It would also pressure growth as a lack of imports and higher prices trigger demand destruction in the domestic economy. Addressing Egypt’s external imbalances means tackling the structural trade deficit which, at 10% of GDP, is one of the largest among major emerging markets,” Goldman writes. (Al Mal)
To do so, the bank thinks the country needs to move to a more flexible exchange rate
Ramp up exports, lower state spending by slowing down the implementation of national mega-projects, and follow through on its program of asset sales in state-owned companies. Total exports including hydrocarbons came in at just 10% of GDP in the five years up to covid, well below the 37% rate in Goldman’s emerging markets sample. The trade deficit is due to low exports, not excessive imports. (Al Mal)
Russia’s invasion of Ukraine saw investors flee risky emerging markets including, 20 billion USD in portfolio money left the country
Marking the “sharpest and most sustained reversal of capital flows in Egypt’s history.” Since then, the country’s USD bonds have continued to underperform. Wide spreads on Egyptian bonds suggest investors continue to view our debt as risky. The lenders who have traditionally jumped to our aid in times of crisis are now putting greater emphasis on the need for economic reform, Goldman notes. The IMF has ponied up relatively little money, and much larger pledges from the GCC have been “slow in materializing.” (Bloomberg)
Investors have started submitting offers for the state’s newly-established hotels company
The SFE is filtering the offers before sending them to Prime Minister Moustafa Madbouly and the relevant authorities to make a final choice. The sale will be carried out through a capital increase rather than by existing shareholders selling out. A capital increase will help the company secure new funds to deploy as part of a growth and turnaround plan, while a sale of existing shares would benefit the selling parties, not the new company. (Al Arabiya)
Purchasing managers’ indices (PMI) tracking non-oil private sector activity in March in Saudi Arabia, Qatar and Egypt released last Tuesday
Tell different stories of demand, market conditions, and business sentiment across the Middle East. While Saudi Arabia’s PMI rose amid a boost in exports, Qatar saw fast growth in output as purchasing prices continued to ease. On a more bleak note, Egypt’s PMI showed the 28th consecutive month of contraction in private sector activity. (Al Mal)
Two global firms eye building nuclear reactors in Egypt
An American company and a Russia-based firm are intending to submit their offers to relevant authorities in Egypt for the establishment of nuclear reactors for peaceful uses, with electricity production capacity of up to 300 megawatts. Both firms are currently negotiating with Egypt’s Nuclear Power Plants Authority (NPPA) to take an official step for the construction of small modular reactors, with lenders to handle the financing process on concessional terms. (Asharq Business)
Egypt-based Acasia Angels is co-investing EUR 485,000 EUR in eco-friendly Athens-based startup Swaplanet
The angel investment group participated in the company’s pre-seed round alongside investors including Genesis Ventures, Zeno Capital, and Hellenic Business Angels Network. Established in 2021, the startup is a retail apparel swap platform that encourages parents to recycle and reuse clothes for babies and children. (WAYA)
B Investments’ net income grew eightfold year-on-year to 846 million EGP in 2022
The private equity firm’s revenues jumped more than ninefold to 1.5 billion EGP, driven by a 1.4 billion EGP capital gain from its Giza Systems exit. The EGX-listed firm divested its 44.7% in Giza Systems in October at a company valuation of 128 million USD. The company sold its 6.4% stake in Total Energies Egypt for 27.6 million USD in February. The transaction yielded an additional 2.2 million USD for B Investments when Adnoc acquired a 50% stake in Total Energies in February, adding that the combined net proceeds of the exits have amounted to c. 1.6 billion EGP. More than half of the proceeds will be allocated to cash and stock dividends, and the remainder to fresh investments. (EGX)
The Madbouly government has inked a 120 million USD agreement with a consortium led by Renergy Egypt to design, build, own, and operate its new waste-to-energy factory in Abu Rawash city.
The plant will convert some 1.2k tons of municipal solid waste per day to 30 MWh of electricity. The consortium will handle the entire project for a 25-year period before transferring ownership to Giza governorate. The project is expected to receive a golden license. The new single approval licenses cover everything from establishing the project, land allocation and building licensing, through to operation and management. (Hapi Journal)