“The government and private sector are eyeing new methods of borrowing, including through green and sukuk Islamic bonds”
At a time when governments of both poor and rich countries as well as many corporates are suffering from the economic effects of the Covid-19 pandemic, more means to finance their spending needs are being sought through borrowing.
Green bonds, being bonds issued to finance climate-related or environmentally friendly projects, as well as sukuks, or Islamic Sharia-compliant bonds, are making the headlines in Egypt with the news of the over subscription of Egypt’s first-ever green bond issue being pointed to by the Ministry of Finance and the Talaat Moustafa Group’s sukuk issue, the first in Egypt, also having its debut on the local stock market last week.
The two new financing measures have come as other sources of traditional financing are being exhausted. Resorting to international financial organisations like the World Bank and the International Monetary Fund (IMF) has noticeably increased since the outbreak of the pandemic, with more than 70 countries, Egypt included, applying for rapid credit facilities to face coronavirus-induced economic challenges.
However, most of these facilities are linked to reform conditions that come at a social cost. And while issuing bonds locally or internationally is a means of raising funds that Egypt has been using for a while, the high yields it has had to pay investors in these instruments has also added much to the country’s fiscal burdens.
International investors have pumped billions of dollars into Egypt’s sovereign debt market since the devaluation of the Egyptian pound in 2016. The overall value of foreign holdings of Egyptian sovereign bills and bonds rose to $16.9 billion by the end of August from $14.1 billion a month earlier. Egypt pays the second-highest yield on sovereign bills and bonds among the world’s emerging markets.
The country has also been tapping the international debt markets through Eurobond issues, the latest of which was in May when it sold $5 billion worth of bonds, its largest-ever issue. Overall debt-servicing is now eating up more than 20 per cent of Egypt’s state revenues.
Accordingly, the government is working on a new funding strategy aimed at locking in new sources of financing and broadening its investor base, explaining its interest in the newly adopted green and sukuk bonds.
The $750 million green bond issue that will be used to finance environmentally friendly and renewable energy projects was five times oversubscribed. The sale had “put Egypt on the map of sustainable financing”, the Finance Ministry said, adding that interested buyers had included new investor bases from Europe, the US, East Asia, and the Middle East, as well as asset managers and pension, investment, and insurance funds.
The ministry said that such diversified, long-term, and high-quality investors would reduce the price volatility of the bonds.
The high demand is another manifestation of rising global interest in green investments. According to the US financial service Bloomberg, the value of assets covered by the US Morningstar Sustainability Index, which measures a company’s compliance with environmental and social regulations, have doubled to $250 billion in the past three years.—Agencies