The European Investment Bank is a step closer towards issuing bonds in Egyptian pound, Niveen Wahish reports The European Investment Bank (EIB), the triple A rated financing arm of the European Union, has over the past two years contemplated the possibility of issuing bonds in Egyptian pound (EGP). The bank will be doing so in order to have adequate funds to lend in local currency . While it has not actually undertaken the measure, EIB is one step closer. The bank has launched an international synthetic Egyptian pound bond. The LE300 million two-year synthetic bond, matures in March 2008 and carries with it a coupon of 6.5 per cent. The bond is dubbed "synthetic" because it stops short of becoming a conventional bond since the note is repayable in euros. This is based on a formula linked to the pound/euro exchange rate. The lead managers for the issue are Barclays Capital and Banca Profilo. Florence Trésarrieu of Barclays Capital says, "EGP is not a settlement currency via the major clearing systems. You can denominate the bond in EGPs but all payments [coupon and redemption amount at maturity] have to be made in euros." The 6.5 per cent coupon offers an interest that is lower than the 8.64 per cent two- year domestic rate. However, EIB's triple A rating indicates that this is a low risk transaction. According to one expert who preferred anonymity, "the lower rate is also a means of hedging against currency fluctuations." An EIB press release said that the issue represents a new benchmark in the EGP market since it is the longest outstanding synthetic EGP issue which responds to international investors' demand. "This puts the spotlight on the local bond market," commented the expert. For EIB the move is a stepping stone towards establishing its presence in Egypt's domestic capital markets. Bank officials say it is a continuation of the bank's policy of building its presence in selected developing capital markets, particularly those of the European Union's partner countries in the Mediterranean region benefiting from the EIB's Facility for Euro-Mediterranean Investment and Partnership (FEMIP). The FEMIP programme seeks to support EU development and cooperation policies in countries of the Mediterranean. "EIB has been actively researching and keen to access the domestic Egyptian market for some time," said Trésarrieu. Adding that "until now, the situation has not been right. EIB hopes this transaction will be a precursor to issuance in the domestic market." Trésarrieu said the EIB hopes to be issuing in conventional format in the near future. Under its 2005 funding programme EIB raised 50 billion euros in 15 different currencies. The Bank's three core currencies (euro, Sterling Pound and US dollar) accounted for 88 per cent of funding. The EIB has issued local currency bonds in Brazil, Turkey, the Czech Republic, Greece and Botswana. "Access to domestic capital markets will also add to the bank's range of lending instruments in these countries," commented Philippe de Fontaine Vive, EIB's vice-president with responsibility for finance and the FEMIP countries. According to Trésarrieu, this transaction is part of EIB's general funding programme. "EIB lends to a variety of projects, but this funding [the EGP bond] exercise is not related to a specific project." Demand for this bond is expected to be mostly from institutions, especially those looking to invest in fixed income bonds, but which also want to hedge themselves against currency fluctuations. With this bond, investors will be certain to receive their returns in hard currency. The primary focus of EIB's lending activities is projects which promote balanced regional development and economic and social cohesion in an enlarged EU. The majority of the bank's outstanding loans have so far been for infrastructure projects. It also looks to providing loans for the development of a knowledge-based, innovation-driven economy, as well as the development of trans-European networks. Loans are also provided for projects undertaken in the energy, telecommunications and transport sectors. From 2001 until the end of 2004, EIB funded projects worth around one billion euros in Egypt. These included support for small and medium enterprises and funding for investments in natural gas, underground lines, risk-capital for private enterprises, power, liquefied natural gas and waste water.
