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Egypt proved many sceptical yen bond market participants wrong when it sold its debut ¥60bn (US$496m at the time of pricing) Samurai bond in March, proving that African sovereigns can find traction in the Japanese market.
To get its privately placed deal done, the B2/B/B+ sovereign offered investors an innovative credit enhancement scheme. Egypt’s notes are 100% guaranteed by Japanese private bank Sumitomo Mitsui Banking Corp, with state-owned export credit agency Nippon Export and Investment Insurance providing insurance to SMBC for its payments under its guarantee obligation. The scheme was the first of its kind in the Samurai market.
In the past, Japan Bank for International Cooperation has served as the credit enhancement provider for emerging market sovereigns and government agencies seeking to sell Samurai bonds. However, JBIC-guaranteed deals have decreased in recent years, and a guarantee has not been provided since Malaysia sold a 10-year bond in 2019.
But Nexi has been keen to support projects that are in line with a sustainability initiative it established in 2020. The initiative will by 2025 support ¥1trn in projects that promote sustainable goals.
The combination of Nexi and SMBC protection helped Egypt sell its five-year bond with a 0.85% coupon, attracting demand from more than 40 Japanese investors, ranging from Tokyo-based accounts, such as central cooperatives, life insurers and asset management firms, to regional buyers, such as banks and cooperatives. Sole lead SMBC Nikko said the size was capped at US$500m-equivalent.
The deal was a notable win for Egypt, which was able to use the private placement to access the capital markets at a significantly cheaper cost than it would have achieved in other currencies. The sovereign had been in need of new funding options, especially as funding costs in US dollars were rising with rate hikes, and the country, which is a big importer of wheat, was hit hard by inflation driven by Russia’s invasion of Ukraine.
Nexi said the proceeds from the bond sale would be used to help fund Egypt’s scheme to convert vehicles from petrol to dual-fuel and its Covid vaccination programme.
This unprecedented deal will likely help to open the yen market as a new funding source for other emerging market sovereigns. Nexi said it would continue to help solve social issues through its initiative, and SMBC Nikko stands ready to help.
"We will not let this be a one-off," said Hiroyuki Kinoshita, head of international DCM at the bank, adding that the growth potential of Africa makes it attractive to start doing business there. "There are many issuers in Africa and emerging countries we must support."
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