Eygpt has reportedly become the first Middle East North Africa (MENA) region country to issue so-called “panda bonds” after it issued Chinese yuan denominated bonds worth $479 million. Issuing panda bonds marks another step in Egypt’s attempts to move away from costly dollar denominated loans.
Egypt’s Worsening Debt Affordability
Egypt, one of Africa’s heavily indebted countries, recently issued Chinese currency denominated bonds worth an estimated $479 million or 3.5 billion yuan. The three-year bonds, which were reportedly issued with an interest rate of 3.5%, are part of the North African country’s attempts at diversifying the country’s funding sources.
According to a Business Insider report, the rate of interest on these bonds is much lower than what Egypt would ordinarily pay were they denominated in dollars. Lowering the cost of servicing its debts remains a priority for Egypt, which recently had its credit rating status lowered to Caa1, some seven levels into junk status. Egypt’s worsening debt affordability was cited by rating agency Moody’s as one of the reasons why the country’s credit status was cut.
However, Mohamed Maait, Egypt’s finance minister, is quoted in the Business Insider report expressing his country’s desire to rein in on borrowing costs.
“We are working on diversifying our financing sources through different capital markets as well as securing guarantees from several institutions to reduce the cost of the debt during this challenging high interest-rate environment,” Maait reportedly said.
Egypt’s De-Dollarization Drive
The yuan bonds, also known as “panda bonds,” are debt instruments issued by non-Chinese entities. The bonds can only be sold in China, while issuers are not permitted to repatriate such funds. Poland and the Philippines are known to be the only countries to have issued such bonds.
By issuing the so-called panda bonds, Egypt has become the first country from the MENA region to do so. The move also makes good on Egypt’s pledge to de-dollarize its economy. Meanwhile, in addition to the panda bonds, Egypt is also reportedly planning to issue Japanese yen denominated bonds or “samurai” bonds.
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