Egypt has become the first Middle East and North Africa country to issue so-called “Panda bonds” after selling $479 million worth of yuan-denominated bonds, marking another step in Egypt’s attempt to wean itself off costly dollar-denominated loans.
Egypt's deteriorating debt sustainability
Egypt, one of Africa's most heavily indebted countries, recently issued about $479 million worth of RMB bonds. The three-year bonds were reportedly issued at an interest rate of 3.5% and are part of the North African country's attempt to diversify its funding sources.
The bonds carry interest rates well below the rates Egypt typically pays in U.S. dollars, Business Insider reported. Reducing debt-servicing costs remains a priority for Egypt, which recently had its credit rating downgraded to Caa1, about seven notches above junk. Ratings agency Moody's cited Egypt's deteriorating debt sustainability as one of the reasons for the downgrade.
However, Business Insider quoted Egyptian Finance Minister Maait as saying that Egypt wants to control borrowing costs.
“We are working to diversify our funding sources through different capital markets and obtain guarantees from multiple institutions to reduce debt costs in a challenging high-interest rate environment,” Maite reportedly said.
Egypt’s De-Dollar Movement
RMB bonds, also known as "Panda bonds," are debt instruments issued by non-Chinese entities. The bonds can only be sold within China, and the issuer is not allowed to remit the funds out of the country. Poland and the Philippines are the only countries known to have issued such bonds.
By issuing so-called Panda bonds, Egypt becomes the first country in the Middle East and North Africa to do so. The move also fulfills Egypt's commitment to de-dollarize its economy. Meanwhile, in addition to Panda bonds, Egypt is reportedly planning to issue yen-denominated bonds or "Samurai" bonds.