At the end of September 2020, the government of Egypt recorded a first, not only in Africa but also in the Middle East (the two regions that the country bridges) as it successfully tapped the international debt capital market to issue a USD-denominated sovereign Green Bond.
According to a statement from the Egyptian Ministry of Finance, orders worth five times the $750 million raised, turned up for the five-year note and allowed the government to issue at a lower yield of 5.25% (vs. initial target of 5.75%).
Notably, the bond forms part of Egypt’s strategy to lock-in new financing sources and broaden the country’s investor base, steps that could in turn help lower its borrowing costs. Specifically, the $750 million raised, plus that from future planned green issuance, will contribute directly to the financing of $1.95 billion of public investment projects tagged as green by the government.
Also, the Green-note issuance follows the country’s historic $5.0bn Eurobond issued in May 2020, that helped Egypt finance its Covid-19 response.
In all, we believe the success of Egypt’s green bond will open further opportunity for other African countries to explore innovative issuances such as this. However, we note that the success of Egypt’s issuance can be tied to the government’s clear intention to improve environmental outcomes as well as the country’s good economic policy record and IMF-anchored reforms over the past few years.
Already, the Nigerian government have issued a green bond in the domestic market and current reforms going on within the country further strengthens the investment case for an international green bond.
United Capital Research