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Egypt Regulations: Corporate Bond Norms Eased

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The Egyptian government has simplified regulations for issuing corporate bonds, in a fresh bid to develop the capital market and to diversify the sources of finance for companies and for infrastructure projects. The move reflects concern about the impact on growth of the reluctance or, in some cases, inability of banks to increase their lending to the corporate and project finance markets.
The investment minister, Mahmoud Mohieldin, said on January 4th that, after consultation with the Egyptian Financial Supervisory Authority (EFSA), he had issued a decree amending some of the rules covering bond issuance laid out in the capital market law (Law 95 of 1992). According to the previous system, bond issuers were required to include in their prospectus a forecast for their financial statements for the period up to the bond's maturity. The government seems to have concluded that this requirement had hindered a number of aspiring issuers, as they were unable to make realistic medium-term projections of their financial position. The new criteria are based on those that apply for initial public share offerings, with the additional requirement that the issuer must have a credit rating from a reputable agency.
The bond market is currently dominated by government securities, with about E£130bn (US$23.6bn) worth of outstanding treasury bonds and bills as of end-November, according to the Ministry of Finance. The ministry has recently announced its intention to try to promote more trading in these securities by issuing them in larger amounts with fewer maturities. It is hoped that this will help to provide an effective benchmark for corporate issuers.
Banks have become more risk-averse in light of the global financial crisis, and have shown a strong preference for investing in government paper, rather than increasing their lending to corporate clients. Egyptian banks must also observe strict limits on their exposure to single clients.
Mr Mohieldin's decision came shortly after the EFSA had approved plans by the Egyptian Company for Mobile Services (ECMS), the operator of the Mobinil mobile-phone network, to issue a E£1.5bn bond. One of the reasons that the company has chosen this mode of raising finance is thought to be the difficulty it faces in borrowing from Egyptian banks, owing to their high level of exposure to Orascom Telecom, one of the principal shareholders in ECMS. (Orascom has been involved in a prolonged tussle over the sale of its stake in ECMS to France Telecom, which has still not been resolved.) The five-year bonds will have a fixed annual coupon of 12.25%, and ECMS has said that it will seek to place the bulk of the issue with non-bank financial institutions, both inside and outside Egypt. EFG-Hermes, Egypt's largest investment bank, is underwriting the issue.

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