Egyptian bond sale proving widly popular
Egypt, Economics, 7/7/2001

Emerging market investors on Thursday flooded Merrill Lynch and Morgan Stanley with offers to buy two new sovereign bonds from Egypt in the Middle Eastern country's first foray into the international capital markets.

"We've had more than $2 billion in orders," said one market source close to the deal.

Egypt's offering -- five-year and 10-year global bonds -- was originally expected to total at least $500 million. But bankers said the size of the deal would probably be increased, given investors' fervid interest.

"We're always looking for diversification and there's not a lot of debt available from the Middle East,'' said one New York fund manager when asked why he was interested in buying Egyptian foreign debt. "And Egypt is maniacally stable. This is great for bonds, but not so great for economic development.''

Another source close to the deal said European investors, U.S. dedicated funds and crossover players were all interested in owning the bonds.

Moreover, the bonds appear likely to be included in J.P. Morgan's emerging market indices, which would force indexed investors to hold the bonds.

Egypt is rated triple-B-minus by Standard & Poor's with a negative outlook, meaning it is in danger of being downgraded into speculative grade territory. Moody's Investors Service rates the country's foreign currency government bonds at Ba1, one notch below investment grade status but with a stable outlook.

As Mexico is also split rated, similarly dated bonds issued by Latin America's second biggest economy were the clearest comparison in the market.

Mexico is rated BB-plus by S&P with a positive outlook and Baa3 by Moody's.

"People feel like the premium to Mexico being talked about is sufficient to compensate them for the risk associated with a negative outlook."

Indications were the five-year security would yield between 2.50 and 2.75 percentage points over comparable U.S. Treasuries, and the 10-year would yield 3.25 to 3.50 points over comparable U.S. Treasuries.

The bonds are expected to price on Friday.

Egyptian officials have said the aim of the issue was to lengthen government debt maturities and ease the budget deficit, with some of the proceeds available for projects, an Egyptian report said.

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