The Ministry of Finance has reported it will issue an additional EGP one billion in Floating Rate Notes (FRNs) by the beginning of October. FRNs are bonds with a variable interest rate that changes every six months and is tied to a certain money-market index. According to experts, FRNs provide protection to investors against drops in interest rates, as in the case of other forms of fixed-interest rate notes. However, they yield lower returns. The issue of EGP one billion FRNs last week was an “unprecedented success,” according to the Ministry of Finance officials as the ministry received tenders for EGP 2.5 billion FRNs. The rationale behind FRNs is to diversify between various domestic debts tools as demanded by Egyptian banks, the Ministry of Finance reported in a press release last week. FRNs also lay the grounds for the issue of Islamic Sukuk, the regulatory legal framework for which has not yet been approved. The ministry further reported plans for issuing a variety of government notes and securities with different maturity intervals. The government is using the public debt instruments to address the budget deficit that reached 11 percent of GDP in 2011/2012 fiscal year. Al-Borsa News reported Sunday that the issue of FRNs led to a decline in interest rates on bonds and T-Bills to 15 percent, compared to 16 percent during the previous period.
