Ayman El-Sawy, Chief Financial Officer (CFO) of Sarwa Capital, was a pioneer in the launch of the first successful securitisation models in the Egyptian capital market, encouraging the entry of many new players into the market itself. Since that first launch, securitisation activity has vastly increased in terms of issuance number and size, along with the continuously growing number of bond issuers.
El-Sawy was among a prominent group of money market experts interested in the fixed income tools market. Eventually, it was this same group that established the Egyptian Association of Investors and Issuers of financing tools that had created an actual fore these fixed income tools.
During this time, El-Sawy decided to run for the Egyptian Securities Union elections, defending the need for a strong representation on fixed income tools and its importance as an investment and financing instrument within the stock market tools package, where the focus is on the problems of stock market investors.
In the beginning, what was your motive behind entering the elections for the first Egyptian securities union?
It has been customary in the Egyptian market that the stock market be the most active in terms of trading and offering, while there is another market for fixed income instruments such as bonds, sukuk, short-term financing securities, and securitisation bonds that need the same attention in order to have a secondary market for trading.
Sarwa took interest in fixed income tools since 2005 and initiated the establishment of an association of investors and issuers of fixed income tools that includes a group of main dealers in this field, including major banks such as the Commercial International Bank, Arab African International Bank, and Banque Misr, as well as MERIS Ratings and major investment banks such as Hermes Financial Group and Corplease, to introduce financing operations through fixed income tools and raise awareness of the nature of these tools. At that time, Sarwa adopted the issuance of the first securitisation bond and was a successful model to follow.
It served as a powerful marketing and promotion message to the parties of the market about the benefits and success of the securitisation system in providing liquidity to companies, and the success of securitisation. It was the best response to the criticism and doubts over the success of the process and fear of using the tool, especially for real estate developers.
Among the most prominent indications of the current attractiveness of securitisation is the New Urban Communities Authority contracting with Sarwa Capital and Banque Misr in issuing a second tranche worth EGP 4bn of securitisation bonds. In the first run, we saw the European Bank for Reconstruction and Development (EBRD) subscribing in companies’ bonds in Egyptian pounds for the first time.
By competing in the elections, I aim to adopt an active secondary market activation file for fixed income tools in cooperation with various entities associated with this market. I want to spread awareness of its importance by introducing investors and decision-makers to the fixed income tools market, showcasing the benefits of investing in it on the one hand and the benefits of resorting to it as a financing tool on the other. There must be someone who speaks in the name of fixed income tools and holding companies within the Board of Directors of the Securities Union, which must represent all parties to the market, and then consider maintaining the competitive advantage.
When did Sarwa issue the first securitisation bond? What is the volume of bonds it has issued to date?
Sarwa implemented the first issuance of securitisation bonds in 2005. After that, it continued to carry out many operations for real estate developers and financing companies and recently for the benefit of the New Urban Communities Authority, until the volume of securitisation operations implemented by the company reached about EGP 22bn. Those successful issues contributed to introducing new securitisation bonds companies to the market and the emergence of a clear demand by real estate developers and finance companies to issue securitisation bonds to transfer their financial rights to their clients and provide liquidity for their expansions.
What is your target plan for the fixed income instruments market in case you win the elections?
We are very late in activating a secondary market for fixed income instruments. In many countries, the size of the fixed income market is three times the size of the stock market, and we already have the ingredients that guarantee a huge trading market for fixed income instruments as the volume of the Egyptian market of securitisation bonds alone has reached EGP 47bn at the end of 2019, next to EGP 18bn of corporate bond issuances, which are huge values in need of an active trading market.
The Financial Regulatory Authority created the climate and the appropriate environment for fixed income tool issuances. But the success of this requires an active secondary market.
This is the main goal I seek to achieve through the Securities Union with the participation of different market parties.
What are the main obstacles to activating a secondary market for fixed income instruments?
The main problem that prevents the existence of an active market for fixed income instruments lies in the costs associated with trading, which represent a major obstacle to implementing any trades on non-governmental fixed income instruments. Corporate bonds in the transaction should not be equated with the shares of companies listed in the Egyptian Exchange (EGX), where trading in corporate bonds must be exempt from the stamp tax of 1.5% of the value of the process, in addition to the need to reduce the maximum limit for the services of the EGX and Misr Clearing worth EGP 5,000 per transaction to encourage the circulation of smaller transactions.
There are smaller issues that would also be facing the market, such as pricing and mechanisms for making bond prices available to investors, evaluating and pricing the bonds, and providing all information about the issues and their issuers in order to create a price mechanism for each bond separately.
What are the opportunities and ingredients for an active secondary market?
Beside what I mentioned about the high volume of securitisation and corporate bond issues, which will ensure high volumes of trading for the secondary market for fixed income instruments, the non-bank financing market has also recently begun to produce a new generation of new financial products such as bonds, securitisation bonds, and other products, which are expected to attract a new segment of investors to the Egyptian market.
The importance of an active market for trading fixed income instruments as a complement to the EGX lies in the diversification of financial instruments and the provision of several options for investors, where they with an increased ability to accept the high risks involved in investing in the stock market exists, and at the same time, there is a conservative investor who prefers to invest in the fixed income instruments market. The fall in EGX performance will make the fixed income tools market a safe haven and a good opportunity to attract liquidity.
How does low-interest rates boost the trend towards fixed-income instruments?
Non-bank financing companies, such as real estate financing, lease, consumer securitisation, and finance, are not the main beneficiaries of lower interest rates, but low-interest rates create an increase in the demand side of consumers and companies wishing to obtain financing. As for financing companies, they maintain a profit margin and move it according to the interest rates. With low-interest rates, they re-price their financing products so we find the demand on the part of companies and individuals increases significantly with the provision of those products at relatively low rates of return, and this is what actually happened where the demand for funding products of various kinds by companies and individuals rose with low-interest rates during the last period.
What are your expectations for the size of non-bank financing instruments during 2020?
There is high demand for investment in fixed income tools, and there is high financial liquidity within the market, and it is expected to increase the number of issuances and the diversity in the financial instruments issued, as well as the diversity in the nature of these tools issuers.
