Egypt issues Chinese yuan-denominated panda bonds for the first time, getting lower rate than dollar-based debt

• Egypt issued yuan-denominated panda bonds for the first time amid a scramble to pay foreign debts.
• Three-year bonds worth 3.5 billion yuan, or about $479 million, were issued with a 3.5% interest rate.

Egypt has issued Chinese yuan-denominated bonds for the first time amid a scramble by the debt-crippled country pay back its foreign loans.

Three-year bonds worth 3.5 billion yuan, or about $479 million, were issued with a 3.5% interest rate, which Egyptian officials said was lower than dollar-denominated bonds would have carried.

"We are working on diversifying our financing sources through different capital markets as well as securing guarantees from several institutions to reduce the cost of the debt during this challenging high interest-rate environment," Mohamed Maait, Egypt's finance minister, told Bloomberg last week as he previewed borrowing plans through the end of the year.

Panda bonds are yuan-denominated notes issued in Chinese markets by non-Chinese entities. They are a way for global companies, governments, and international institutions to tap the Chinese market for capital — something that the Egyptian government is in dire need of.

Egypt is now the first country in the Middle East and North Africa region to issue panda bonds, marking another shift towards de-dollarization as more countries try to decrease reliance on the greenback for trade, currency reserves, and foreign debt.

To be sure, the cash-strapped country is also facing steepening repayments on foreign loans after a long borrowing spree that has left it largely shunned by global capital markets and seeking IMF help, with many of its US dollar bonds in distressed territory.

According to data from Egypt's central bank cited by Reuters, there is $11.76 billion in medium- and long-term debt due in the second half of 2023. That includes a $500 million Eurobond maturing in November, $14.60 billion due in the first half of 2024.

The fourfold increase in foreign debt over the past eight years, now at 43% of GDP, has had investors fleeing Egyptian markets, feeding into the country's financial distress. It's a reason why Egypt has been trying to source financing through unconventional means.

Last month, Egypt arranged a currency exchange deal with the United Arab Emirates worth $1.3 billion. Egypt is also considering a second round issue of samurai bonds, the Japanese equivalent of panda bonds, finance minister Maait told Bloomberg.