By Yousef Saba
CAIRO (Reuters) – Egypt has signed an agreement with Euroclear, Europe’s biggest settlement house for securities, to allow holders of its sovereign debt to clear transactions outside the country beginning in six months’ time, its finance minister said.
Mohamed Maait also told Reuters that Egypt hopes to announce a new sovereign debt issue by the end of September and hopes it will be eligible for clearing via Belgium-based Euroclear.
“Hopefully by October this year, we will be starting to launch the first part of our debt, (making it) euroclearable,” Maait said in a phone interview late on Saturday.
The government is considering issuing “green bonds, samurai, panda, sukuk and infrastructure bonds”, he said.
Maait was speaking from Washington, where treasury officials from around the world have gathered for the spring meetings of the World Bank and International Monetary Fund.
Euroclear is due to officially announce its memorandum of understanding (MoU) with Egypt on Monday, a source familiar with the matter said.
Euroclearability is seen as one of the last stages of capital market development and can sharply lower borrowing costs for emerging market economies, says PwC.
The deal will help “create the right market conditions for local currency sovereign debt issuance,” according to a draft Euroclear press release, seen by Reuters and due to be published on Monday.
“The intention is for the market to eventually become Euroclearable, creating a cross-border link to enable international investment in Egyptian domestic debt instruments,” the release said.
Settling debt via Euroclear requires high levels of transparency as well as specifics on the size and structure of the debt to be issued, among other aspects under Euroclear rules.
In February Egypt sold $4 billion in dollar-denominated eurobonds and this month it issued 2 billion euros ($2.3 billion) in euro-denominated bonds.
Maait also said in the interview that Egypt plans to sell stakes in at least another five or six state-owned enterprises (SOEs) by the end of June 2020.
It plans to use the proceeds from stake sales to help boost public finances as part of a three-year economic reform programme agreed with the IMF in late 2016. Egypt received a $12 billion loan from the IMF.
The government sold 4.5 percent of Eastern Company, Egypt’s monopoly cigarette maker, in March, its first sale of state-owned shares on the stock exchange in 10 years.
The sale had been planned for last year, but was delayed after prices of emerging market assets plunged across the globe.
“We are on track. We may say something before June 2019, but definitely, God willing, we will say more with the new financial year,” Maait said on the SOEs. Egypt’s financial year begins in July.
He declined to say which company would be offered next because “it hurts us when we announce early”.
Maait said Egypt has put a mechanism in place for hedging against fluctuating oil prices, a move aimed at helping avoid shocks to the budget.
“Egypt is ready and Egypt is using the hedging mechanism whenever Egypt needs to use it,” he said.
A plan for hedging against wheat prices that was under discussion with banks in October “didn’t materialise,” but remains “on the table” and is being explored, he said.
Euroclear’s global head of capital markets and fund services, Stephan Pouyat, told Reuters that Euroclear’s agreement with Egypt would be expanded in future.
“We are not just going to do the government bonds. We will start by that, because that’s what international investors need,” Pouyat said.
He said Euroclear wants to “make it clear (to investors) that (Egypt) has a successful, long yield curve to create the benchmark that is necessary for the corporate sector … and that is going to facilitate significantly any sort of hedging.”
(Reporting by Yousef Saba; Editing by Patrick Werr and Susan Fenton)