CAIRO: Egypt’s Finance Ministry has given its approval for brokerage companies to directly buy government bonds, officials said, a step towards developing a secondary bond market for corporate and state debt.
Bonds are now bought mainly by banks, who rarely resell them. A secondary market would help in pricing debt and make bonds more attractive to buyers, thus making it easier for companies to raise funds, investment bankers said.
The creation of a bigger market should also help push down the cost of borrowing for both the government and corporations.
“There is a proposal, that the minister of finance has agreed upon in principle, for a system of primary dealers in the bond market where brokers qualified in this field would work, Minister of Investment Mahmoud Mohieldin told reporters.
The government has appointed one brokerage, Cairo-based Beltone Capital, to be the first to buy government bonds on the primary market for resale on the secondary market, said Mohammed Assaad, adviser to the Minister of Finance for Public Debt Management.
Beltone would begin buying the bonds within one or two months as a trial before other brokerage firms are brought in. It could nonetheless be a year and a half before a fully functioning secondary bond market is up and running, Assaad told a conference.
“We are trying to amend the bond program. We have been trying to do [this] for last two years, he added. “It’s not easy to implement.
Among problems confronting the market are how settlements are made, legal issues and the way bonds are taxed, he said.
Mohieldin, speaking to reporters on the sidelines of the conference, said Egypt was working with the World Bank and the International Finance Corporation to develop a legal framework for a secondary bond market.
It was also working with international companies to increase the number of debt rating agencies operating in Egypt, a move that would help local corporations issue bonds, he said.
As companies began issuing the bonds, the government through the stock exchange and the investment authority would help to market them.
“A number of regional banks and others are seeking to do issuances, and that is something we welcome, because if you finance projects in Egyptian pounds, you want to issue bonds in Egyptian pounds in the Egyptian market, Mohieldin said.
By creating a bigger market, it decreases the cost of borrowing and brings down the cost of capital through the economy, said Simon Kitchen of EFG-Hermes.
“Foreigners would like a more liquid market so they can get in a out quickly, he said. “Insurance and pension funds would like to buy long-term government bonds to match their long-term obligation.
