From Samurai to Panda Bonds: A Key Driver to Reshaping Egypt’s Financial Landscape
Updated 10/31/2023 8:00:00 AM
Asian bonds, such as Samurai and Panda bonds, have been issued in Egypt to finance various projects, including climate change adaptation and mitigation efforts, sustainable transportation, renewable energy, and others. Despite the challenges that may face Asian bonds, these bonds could have a significant impact on the Egyptian economy, facilitating the country's access to capital markets and reducing its borrowing costs.
Asian Bonds Issuance
Egypt has successfully issued a number of Asian bonds, including Africa's first sustainable Panda bond that was issued in October 2023, paving the way for other African countries to access China’s fast-growing debt capital markets. This comes as the Egyptian Ministry of Finance announced the issuance of sustainable Panda bonds on the Chinese financial market to finance projects worth about CNY 3.5 billion, equivalent to $500 million. In light of the current global economic challenges, these bonds have low pricing with a return of 3.5% annually for three years, which distinguishes them from the interest rates of international dollar bond issuances.
Meanwhile, Egypt plans to issue $500 million in Samurai bonds before the end of November 2023, Minister of Finance Mohamed Maait told Asharq Business on October 22nd.
Samurai bonds are Japanese yen-denominated bonds issued by international borrowers on the Tokyo Stock Exchange. In March 2022, Egypt issued Samurai bonds for the first time in its history at a value of $500 million, which were then equivalent to about JPY 60 billion.
Heba Salah, an economic expert and public policy analyst at the Cabinet’s Information and Decision Support Center (IDSC), tells Arab Finance: “The Egyptian government’s decision to issue Asian bonds aims at diversifying the investor base, funding sources, and stimulating investors beyond just Europeans and Americans, as such bonds would garner high demand, like what was witnessed during the first offering.”
Challenges of Asian Bonds Issuance
Egypt also faces challenges when issuing Asian bonds, and one of the main challenges is the country's economic hardships, which put it at risk of fueling unrest.
Omar Abdelrahman, Market Research and Business Development Specialist, tells Arab Finance: “The current economic situation in Egypt, including a shortage of foreign currency and the downgrades of credit ratings from international institutions, is considered one of the main difficulties facing the Egyptian government in issuing these bonds.”
“Therefore, the government must provide the necessary guarantees to investors in these Asian bonds that their investments are profitable and stable in a country like Egypt,” Abdelrahman adds.
Potential Economic Impact of Asian Bonds
The Egyptian economy gains from Asian bonds issuance. Abdelrahman stresses that "Asian bonds, such as panda and samurai bonds, will help Egypt achieve some economic growth and relief.”
“In light of the difficult circumstances facing the Egyptian economy due to the shortage of foreign currency, these Asian bonds are a good solution to diversify the sources of foreign currency for several reasons, the most prominent of which are the easier conditions for borrowing those bonds,” he explains.
Moreover, Asian bonds represent a low-risk source of finance as compared to borrowing. Hence, Abdelrahman highlights that “these bonds will help finance the government's current and future needs for major projects, as well as assist in paying off installments of existing debts.”
“Therefore, we can say that these bonds will be a lifeline for the Egyptian economy, given the difficult economic conditions currently surrounding the world’s economies," he says.
Asian bonds are also beneficial for Egypt’s green plans. Salah states that “they bolster Egypt’s transition to green economy through expanding green transportation projects as well as renewable energy and sustainable management of water and sanitation.”
These bonds align with the country’s plans to boost green investments to around 50% of the government’s total investments for the upcoming fiscal year, according to Salah.
Moreover, Asian bonds are expected to boost the Egyptian-Asian trade and investment. Salah notes that “Asian bonds, including Panda and Samurai, play a crucial role in boosting trade and investments between Egypt and countries like Japan and China,” adding that “the previous bond issuance would lure investors, which indicates their confidence in the Egyptian economy and its ability to achieve its objectives amidst the ongoing global economic repercussions.”
The issuance of Asian bonds in Egypt has had a positive impact on the country's economy by giving it access to capital markets and reducing its borrowing costs. However, there are also challenges facing the issuance of these bonds. Yet, Asian bonds present an opportunity for investment.
By Sarah Samir
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