These bonds, offered by issuers outside China and sold on the Chinese market in yuan, come with a partial guarantee to Egypt by the African Development Bank, which helps finance green initiatives and projects.
Last May, the African Development Bank Group announced the approval of a $345 million partial credit guarantee for Egypt “to increase access to the Panda Bond market to finance projects green and social”. The bank said in a statement that this partial guarantee “will enable Egypt to raise the equivalent of $500 million in the Chinese yuan-denominated Panda bond market.” The proceeds of the bond will be used for clean transport, renewable energy, energy efficiency, sustainable water and sanitation management projects, as well as for the financing of micro, small and medium projects. and basic health service initiatives, according to the bank.
Diversification of funding sources
Financial market expert, Hanan Ramses, said in exclusive statements to Sky News Arabia Economy, “Due to the dollar crisis, and given that Egypt needs resources to finance its internal projects , it resorted to issuing Panda bonds denominated in Chinese Yuan, with the help of (Guarantee) The African Development Bank, which guarantees part of these bonds, estimated at 500 million dollars.
Egypt’s Minister for International Cooperation, Dr. Rania Al-Mashat, said in a statement that Egypt’s new agreement with the African Development Bank brings an additional dimension to the strategic partnership that focuses on promoting the transition towards renewable energies and the financing of sustainable infrastructure projects. The Minister noted that the issuance of international bonds in a new, untapped market with the support of the African Development Bank “helps to diversify sources of funding and builds on previous efforts, including green bonds that have been launched in 2020”.
The financial market expert points out that the bonds which should be issued at the beginning of the next fiscal year, through which the Egyptian government seeks to achieve two main objectives:
Financing of related internal projects. More Egyptian-Chinese rapprochement in the coming period, thanks to cooperation in yuan.
Reconciliation with the eastern camp
And Ramses added: “There is growing cooperation between Cairo and Beijing, and Egypt is seeking to strengthen its relations with the eastern camp, which helps it finance its monetary needs, in addition to its strong involvement in the aspiration to the BRICS currency, which is a complementary currency to the currencies of the member states of this grouping. Egypt previously joined the New Development Bank created by the BRICS alliance.
Egypt is one of the countries that has expressed its desire to join the BRICS alliance, which includes Russia, India, China, Brazil and South Africa. South Africa’s ambassador to the group, Anil Soklal, had said in previous statements that the bloc’s next meeting would discuss the inclusion of new members, after 13 countries “officially” submitted membership applications. , and six countries informally. Last February, he reported that Saudi Arabia and Iran were among the countries that had formally applied for membership. Other countries have expressed interest in joining, such as: Argentina, United Arab Emirates, Algeria, Egypt, Bahrain and Indonesia, in addition to two East African countries and one from West Africa.
compliance with external obligations
And the financial market expert indicates, in her interview with the site “Sky News Arabia”, that the importance of the issuance of “Panda” bonds by Egypt is that it has not stopped paying its bonds, so the Development Bank supports it in issuing these bonds.
For the first time, last February, Egypt sold $1.5 billion worth of sovereign sukuk over three years. It more than quadrupled its coverage rate after its launch attracted $6.1 billion in orders.
Ramses explains, in the same context, that “the recourse to borrowing generally comes up against local demands concerning the need to resort to other measures to finance the deficit and make up for the dollar deficit which the country suffers from, far from the debt instruments, but because of Egypt’s urgent need, it resorts to these measures in addition to other measures such as the government’s offer program as well as trading in currencies other than the dollar and try to activate many sectors such as tourism and export.
And she adds: “The yield from the issuance of these bonds gives the impression that Egypt is able to meet its obligations, because it is a sovereign and state-guaranteed obligation of the first degree. These bonds help provide quick cash returns that help bridge the financing gap, especially since Egypt has many debt service obligations.
dollar gap
Egypt suffers from a deficit of dollars, as President Abdel Fattah El-Sisi declared last February, estimated at around 30 billion dollars, and therefore requires no less than 100 billion dollars of investments over five years.
For his part, the researcher in economics, Dr. Mohamed Shady, indicates in exclusive statements to the site “Sky News Arabia Economy” that “the Egyptian government offers Panda bonds to investors in the Chinese market, to take advantage of the advantages provided by this market, and in light of economic indicators and conditions associated with Beijing.” .
He explains this by saying: “The Chinese market has appropriate favorable opportunities, and inflation rates are clearly slowing, in addition to the relative stability of interest rates in recent periods, and the efforts of the Chinese government (after suspending zero Covid policy) to promote the currently weak economic activity… all of which are factors that provide significant opportunities that can be exploited by issuing Panda Bonds in this market.
According to Shady, the issuance of these bonds somehow helps to support the inflow of foreign currency for the implementation of existing projects in Egypt, especially given the ease of purchasing products in Chinese local currency, as well as the ease of converting the yuan into dollars given the relative stability of the price.
The Egyptian government is adopting a plan to diversify financing sources and tools, in addition to attracting new investors and reducing the cost of financing development investments.
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