Latest news with #RasAl-Hekma
Al-Ahram Weekly
21-06-2025
- Business
- Al-Ahram Weekly
Capitalising on land - Economy - Al-Ahram Weekly
Egypt is using land as collateral to meet its financing needs In a much-publicised move, 174 km² of land in Ras Shukeir overlooking the Red Sea was allocated to the Finance Ministry by a presidential decree last week. According to a Ministry of Finance statement, the allocation does not entail selling the land but rather developing it while using a portion as collateral for sovereign sukuk (Islamic Bond) issuance. This will provide financing to meet state budget needs on favourable terms. The land used as collateral will remain under the full ownership of the Egyptian state represented by the Ministry of Finance and certain government-affiliated economic entities, the statement said. The upsides of the scheme are multiple, experts say. Using a tangible asset as collateral enhances investor confidence and potentially secures better issuance terms, economist Mohamed Fouad told Al-Ahram Weekly. Moreover, it will stimulate real estate, tourism, and public services development in the location, generating long-term revenue streams. It aligns with the government's objective to reduce public debt, lower debt-servicing costs, and manage fiscal pressure. According to the ministry's statement, the initiative will replace existing budget-sector debt with joint investments and reduce debt burdens and servicing costs. Earlier this year, the minister of finance said external debt repayments in 2025 stood at $16 billion. Egypt's foreign debt stood at around $155 billion in December 2024. Mohamed Hafez, a consultant and geoeconomics researcher at Nottingham Trent University in the UK, said the decision would help Egypt diversify its debt instruments and minimise borrowing costs. The land in question is currently idle but holds significant development potential, which makes the decision a smart move to leverage a prime asset and unlock its value through joint ventures in sectors like tourism, industry, energy, and real estate. 'The proceeds could help reduce debt-servicing costs and fund infrastructure, though the benefits will ultimately depend on whether real development follows or it turns into another fiscal stopgap,' Hafez said. Finance Minister Ahmed Kouchouk said Egypt plans to issue $2 billion in sukuk in 2025 via multiple offerings. It has appointed banks to oversee the issuance, Reuters reported in April. The sum partly addresses the country's external financing gap, Fouad said, adding that Egypt's Gross Financing Needs (GFN) stand at 40 per cent of GDP, the highest globally. Egypt is looking to roll over the maturity of its debt to reduce fiscal strain due to the heavy GFN. This would not be the first time that land has been used to generate revenue to help repay debt. In February 2024, the government concluded the Ras Al-Hekma deal, whereby the Abu Dhabi Sovereign Fund ADQ pumped in $24 billion in investments to develop prime land on the North Coast. Some $11 billion of UAE deposits with the Central Bank of Egypt (CBE) were swapped for investments. Hafez explained that though the arrangements involve asset monetisation for fiscal relief by converting land value into upfront cash, the two deals differ significantly in scope, structure, and implications. The Ras Al-Hekma deal was an equity-for-land deal with an immediate bailout component, whereas the Ras Shukeir plan is a debt instrument that keeps the asset in Egyptian hands, he said. Fouad said using land to resolve the issue of debt was 'a pragmatic, strategic approach' to the issue. Using underutilised assets to finance public obligations reduces the reliance on higher-cost borrowing, he said, explaining that it transforms unutilised state land into productive, revenue-generating infrastructure. The sukuk issuance is also good for book-keeping as the yields paid to investors will not be written down as debt service, but rather operational costs. Nonetheless, he noted that Egypt must avoid becoming a quasi-rentier state that relies on such rent-based sources of finance rather than being a productive economy. On a similar note, Hafez said that given the rapid shifts in the global and regional economic and geopolitical dynamics, as well as rising unpredictability that has undermined development plans in many developing economies, the strategy would be effective in unlocking dormant capital, such as from vast state-owned lands, he said. 'The key point here, however, is not to adopt this strategy as a standalone or quick win, but as part of a broader, deep structural reform agenda, which the government is already implementing,' Hafez stressed. According to Fouad, owing to the plan's assetbacked structure and Sharia compliance, demand from Islamic investors in the Gulf and global markets is expected to be strong. 'The Red Sea region's development appeal enhances investor interest,' he said, pointing out that Egypt's prior sukuk issuance of $1.5 billion in 2023 demonstrated active appetite. The 2023 issuance offered an 11 per cent yield that was aligned with market rates and sovereign bond benchmarks at the time, Fouad explained. The sukuk market is estimated at $850 billion, with an average annual issuance of $160 billion. Likely buyers of sukuk bonds, according to Fouad, are Islamic institutions and sovereign wealth funds in the Gulf Cooperation Countries (GCC) interested in yield and Sharia-compliant exposure. Global fixed-income investors seeking diversification and strong collateralisation are also potential buyers, as well as domestic and regional banks and insurance firms looking for compliant instruments with structured returns. To make the most of this initiative, Fouad recommended maximising land utilisation by structuring the sukuk with clear, revenue-generating development plans such as tourism projects. He also suggested diversifying maturities and currency exposure to enhance resilience and fiscal flexibility. Hafez warned that given the rapidly evolving regional geopolitical environment and its potential to unsettle the financial markets, the government should be prepared for possible under-subscription or high yields and avoid relying solely on optimistic interest rate forecasts. Moreover, success depends not just on raising funds, but also on converting land into sustainable, well-managed cash flows, he said. 'The government speaks of using the proceeds for productive projects, but this will require disciplined execution to ensure sukuk-funded developments drive real economic growth and do not become white-elephant ventures,' he stressed. * A version of this article appears in print in the 19 June, 2025 edition of Al-Ahram Weekly Follow us on: Facebook Instagram Whatsapp Short link:
Al-Ahram Weekly
28-01-2025
- Business
- Al-Ahram Weekly
Towards better-managed foreign debt - Egypt - Al-Ahram Weekly
The Ministry of Finance is planning the gradual reduction and diversification of Egypt's foreign debt The overall value of the bonds Egypt plans to issue in the international markets during the coming six months will not exceed $4 billion, Minister of Finance Ahmed Kouchok told reporters on the fringe of the World Economic Forum meeting in the Swiss city of Davos last week. He noted that plans for international debt offerings are on the right track, stressing that the second half of 2024-25 would see several different offerings and marking Egypt's return to the international debt market. Most of these offerings will be dollar-denominated. Egypt's last sovereign bond offering was in 2021 when it gathered $6.75 billion through two separate Eurobonds issues. Eurobonds are bonds traded in the international market in any currency. Kouchock noted that his plans include the possibility of issuing Islamic bonds (sukuk). Egypt's first and only attempt to tap the sukuk market was in 2023 with a $1.5 billion issue. Unidentified local official sources told the Enterprise online news outlet last week that Egypt plans to issue $1 to $1.5 billion worth of Eurobonds or green bonds in international markets as soon as next month, followed by an issuance of sovereign sukuk bonds. Kouchok also told Asharq News during the Davos meetings that Egypt is pursuing agreements to swap debts for assets and investments with several investors and international institutions. He named the Ras Al-Hekma deal, which saw the Abu Dhabi Sovereign Fund ADQ pumping $24 billion in investments to develop the project, together with the UAE transferring $11 billion of its deposits at the Central Bank of Egypt (CBE) to investments in it, as a 'good example of a debt swap deal that is beneficial for both parties and that we hope to repeat.' The Ras Al-Hekma project is a real-estate development project on Egypt's North Coast. The receipts of the deal have helped Egypt to increase its foreign-currency reserves and reduce its foreign debt. These were not the only announcements related to the country's foreign debt made at Davos, as on Saturday a statement by the Finance Ministry denied that Egypt had acquired any new loans and asked the media to exercise due diligence in its reporting. The statement came on the back of media reports based on a press release issued by Emirates NDB, a UAE-based bank, on Friday stating that Egypt had acquired a $2 billion loan from a select group of Islamic and conventional investors. Emirates NBD and the Standard Chartered Bank had organised the deal in which Egypt had asked for a $1.5 billion loan. However, the offers had come in at 2.5 times the asked sum, so the Ministry of Finance had decided to raise the value of the loan to $2 billion, according to the press release. 'This is not a new loan,' Sherine Al-Sharkawy, assistant finance minister for economic affairs, told the prime time TV talk show Kelma Akheera on Saturday night. 'It is the loan that parliament approved in December and that the Ministry of Finance announced back then.' She noted that while the ministry had disclosed the loan in December, the Emirates bank had announced the deal almost a month after its being signed as 'completing the necessary documentation and translation of the deal into Arabic took time.' The press release noted that this syndicated facility aligns with Egypt's strategy to diversify sources of funding through access to international and regional syndicated loan markets. The proceeds of the facility, according to the press release, will primarily be utilised to finance the country's budgetary requirements and support it in safeguarding its strong economic path in the prevailing volatile global markets. It also said that the loan was agreed upon following the settlement of a previous $3 billion syndicated facility in November, which means Egypt is maintaining a decreasing debt trajectory. Kouchok said he aims to reduce the country's foreign debt by $2 billion annually to ensure borrowing remains below repayments. Egypt has repaid a total of $38.7 billion of debt dues in 2024, according to Prime Minister Mustafa Madbouli. According to CBE figures, the dues on the debt and its servicing this year come in at $22.4 billion. However, the minister of finance put the figure for external debt repayments in 2025 at $16 billion. He told Kelma Akheera two weeks ago that 80 per cent of this sum will be covered by local resources while the remaining will be obtained through loans. The latest available figure for Egypt's foreign debt was $152.9 billion, or 89 per cent of GDP, at the end of June 2024. This is $15 billion less than its level at the end of December 2023. The government is targeting a public debt-to-GDP ratio of around 85 per cent by the end of the current fiscal year, according to Kouchok. Kouchok should shortly reveal a comprehensive strategy to manage the public debt. Observers believe that the new strategy will maintain the previous finance minister's plan of increasing the average maturity of foreign debts by rolling over existing short-term debts with longer-term ones. According to the latest figures from the CBE, the value of the long-term foreign debt decreased to $126.8 billion at the end of June 2024, compared to $138.5 billion in December 2023. Short-term loans also declined from $29.48 billion at the end of 2023 to $26.24 in June 2024. Egypt is still struggling to increase its foreign-currency resources. In the first quarter of fiscal year 2024-25, a 61 per cent drop in Suez Canal receipts due to disruption in the Red Sea together with an 82 per cent hike in oil and natural gas imports on the back of the slowdown in local production led to a balance of payments deficit of $991.2 million. This is compared to a surplus of $228.8 million in the corresponding quarter of 2023-24. The country is about to receive a $1.2 billion tranche from its International Monetary Fund (IMF) loan, the fourth and largest so far. The EU disbursed €1 billion in loans to Egypt in December following the fulfillment of the policy conditions agreed with the EU under the ongoing Macro-Financial Assistance (MFA) programme. * A version of this article appears in print in the 30 January, 2025 edition of Al-Ahram Weekly Short link:
