VZCZCXYZ0000
RR RUEHWEB
DE RUEHEG #0241/01 0551131
ZNR UUUUU ZZH
R 241131Z FEB 10
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 0372
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHEG/AMEMBASSY CAIRO
UNCLAS CAIRO 000241
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV EG
SUBJECT: BABY STEPS IN THE EGYPTIAN BOND MARKET
1. (SBU) Key Points --The GOE has introduced new financial regulations that allow state-owned enterprises to issue bonds
and private companies to more easily issue corporate bonds. --For the first time, the GOE fixed a schedule for releasing
treasury bonds. --These regulation changes are aimed at increasing access to finance for the GOE, state-owned
enterprises, and the private sector. --------------------------------------------- ----- Simplified Regulations for
Issuing Corporate Bonds --------------------------------------------- -----
2.(SBU) Minister of Investment Mahmoud Mohieldin announced in early January that he had amended regulations covering
corporate bond issuances. Private businesses no longer need to submit a forecast for the company's financial statements
for the period of the bond's maturity. We met with Mohamed Saleh, head of the Capital Markets Unit at the Ministry of
Investment on January 13th to discuss changes in financial regulations. He told us that no accountant would certify
forecasts of a company's financial statements for future years, which was required under the old regulations. He pointed
out that it is unrealistic to make medium and long-term assessments of any company's financials and said that these
regulations probably kept many companies from issuing bonds. These changes will make it much easier for private
corporations to issue bonds. Under the new regulations, companies need to have a credit rating from a reputable credit
rating agency. --------------------------------------------- - State-Owned Enterprises Allowed to Issue Bonds
--------------------------------------------- -
3.(SBU) In January, the GOE changed its laws to allow state-owned enterprises (SOEs) to issue their own bonds to raise
money. This will allow SOEs to raise money to fund large-scale infrastructure projects like sewage plants, roads, and
housing developments, according to Saleh. The Ministry of Investment oversees most state-owned enterprises.
---------------------------------------- Fixed Schedule for Treasury Bond Release
----------------------------------------
4.(SBU) At the beginning of January, the Ministry of Finance (MOF) set and publicly released a fixed schedule for the
issuance of treasury bonds to make them predictable, increase their liquidity, and create more demand for them,
according to Mohamed Assaad, Director of Debt Management at the MOF. Assaad told us that he thinks this will allow banks
and other investors to factor government bonds into their investment plans for the year, creating a more stable and
developed bond market. Assaad joked with us that before the MOF fixed its bond schedule, he would just decide what bonds
to issue on a whim. According to the schedule, the MOF will issue 3-year bonds in January, April, July, and October,
5-year bonds in March and September, 7-year bonds in February, and 10-year bonds in August.
5.(SBU) Assaad told us that he expects more stability in the bond market to allow the GOE to pay lower rates on treasury
bonds it issues to fund the rising GOE deficit. Assaad told us that the GOE is increasingly raising money through bonds
because they have a longer maturity than other financing options. Assaad said that the GOE expects to raise LE 15
billion ($2.77 billion) through the end of March, up from $10 billion during the same period last year. ------- Comment
-------
6.(SBU) The GOE is looking to the domestic bond market to offer long-term funding for the rising public deficit and the
large infrastructure projects that Mohieldin has been talking about publicly. By issuing more bonds to increase the
average maturity of Egypt's total debt, the GOE will be able to spread out its debt repayment. The GOE is probably
trying to make it easier for companies to raise funds by issuing bonds to make up for the decline in bank lending to the
private sector. SCOBEY