Eurobonds Roadshow

by Amira Salah-Ahmed | 27 January 2017

 

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Egypt's finance minister is in the spotlight this week as he gears up for an international roadshow to promote an upcoming Eurobond issuance. Over the past months, the cash-strapped government has implemented a package of reforms and measures that, while difficult, were deemed necessary to lure much-needed investments.

While this has not yet translated into an influx of foreign investments, general sentiment has indeed improved. However, to capitalize on the potential positive effects of the measures that were taken, the government needs to act quickly to grab the attention of the international investor community in order to spur economic recovery swiftly enough to counter the burden these measures have posed on citizens.

Recent moves by finance minister Amr El-Garhy indeed reflect an aggressive strategy by the government to attract investments by selling its debt in international markets. While the exact amount of the Eurobond issuance is yet to be announced, Garhy had said in November of last year that Egypt will seek up to $6 billion from Eurobond sales in 2017, according to Bloomberg.

The roadshow kicking off in Dubai this week, targeting an initial $2-2.5 billion, will be a good way to gauge the appetite of investors.

It's an unenviable challenge that the government currently faces, but with this challenge comes sizeable potential. Ministers now have to do all they can to present their case to the international community and prove that the heavy toll created by the recent reforms were temporary, thereby delivering on the promise that these measures were healthy for the economy in the long run.

In a recent report, Moody’s said it expects Egypt's economy to grow 4-4.5 percent in the coming fiscal year, nothing that this will be driven by "increasing public and private investment."

“We expect investment incentives from the recent devaluation of the Egyptian pound to outweigh the short-term challenges stemming from higher inflation and reduced purchasing power for domestic consumers,” said Moody’s.

In the past months, the government has taken strident steps toward an economic reform agenda mainly driven by a dire need to attract foreign investments to shore up its finances. Following an agreement with the International Monetary Fund for a $12 billion loan came a dramatic currency floatation and one set of subsidy cuts, with another expected to take place in the coming months.

Annual core inflation has risen to its highest level since 2005 to reach 25.86 percent while the Egyptian pound has lost more than half of its value over the past two months. This has made the everyday lives of citizens of all social segments more difficult.

But the government has moved forward stridently, driven by a consensus among investors and analysts alike that these measures have been long overdue given the economic conditions of the past five years.

It is now vital for the government to pitch this picture perfectly to investors and offer attractive yields to the bonds it is selling in the international market. The need to secure billions of dollars in funding may translate well into attractive financial instruments for investors, a dynamic that will hopefully be a win-win for both sides. 

In a similar vein, the Cabinet has approved a draft investment law that President Abdel Fattah Al-Sisi has said will be fundamental in addressing investors' needs and safeguarding their rights. The law must be swiftly finalized, must have broad consensus so that it does not meet the same fate as previous versions and its executive regulations must see a quick enough turn around so that it does not present further lags in improving the general business climate.

The onus of these tasks falls squarely on the shoulders of the government, and it must work heartily in the coming weeks to make it happen.