Egypt will have to develop an effective derivatives market before international issuers can sell bonds denominated in Egyptian pounds.
This is the conclusion of David Clark, head of funding (non-euro) at the European Investment Bank, after the bank’s first synthetic Egyptian pound issue last month, which it sees as a stepping stone on the way to locally denominated debt.
The EIB sold a two-year E£300 million ($53 million) synthetic Egyptian pound bond that carries a coupon of 6.5%, which is payable in euros based on a formula linked to the euro/Egyptian pound rate.
The EIB hopes to follow its synthetic issue with bonds denominated in Egyptian pounds later this year. “The bank is actively researching the domestic Egyptian market and sees this as a precursor to issuance in the domestic market,” he says.
The EIB has been working closely with the Egyptian authorities in connection with the establishment of local-currency issuance. Many of the market’s regulations are not compatible with international investment. “Some significant developments have already been seen but one of the things holding up the market’s development is the absence of an effective derivatives market,” Clark says.