Egypt expects its debt to become ‘euroclearable’ in October -minister

Central Bank of Egypt's headquarter is seen in downtown Cairo, Egypt September 18, 2018. (Reuters)
Updated 14 April 2019
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Egypt expects its debt to become ‘euroclearable’ in October -minister

  • Egypt hopes to announce a new sovereign debt issue by the end of September, minister says

CAIRO: Egypt has signed an agreement with Euroclear, Europe’s biggest settlement house for securities, to allow holders of its sovereign debt to clear transactions outside the country beginning in six months’ time, its finance minister said.
Mohamed Maait also told Reuters that Egypt hopes to announce a new sovereign debt issue by the end of September and hopes it will be eligible for clearing via Belgium-based Euroclear.
“Hopefully by October this year, we will be starting to launch the first part of our debt, (making it) euroclearable,” Maait said in a phone interview late on Saturday.
The government is considering issuing “green bonds, samurai, panda, sukuk and infrastructure bonds,” he said.
Maait was speaking from Washington, where treasury officials from around the world have gathered for the spring meetings of the World Bank and International Monetary Fund.
Euroclear is due to officially announce its memorandum of understanding (MoU) with Egypt on Monday, a source familiar with the matter said.
Euroclearability is seen as one of the last stages of capital market development and can sharply lower borrowing costs for emerging market economies, says PwC.
The deal will help “create the right market conditions for local currency sovereign debt issuance,” according to a draft Euroclear press release, seen by Reuters and due to be published on Monday.
“The intention is for the market to eventually become Euroclearable, creating a cross-border link to enable international investment in Egyptian domestic debt instruments,” the release said.
Settling debt via Euroclear requires high levels of transparency as well as specifics on the size and structure of the debt to be issued, among other aspects under Euroclear rules.
In February Egypt sold $4 billion in dollar-denominated eurobonds and this month it issued 2 billion euros ($2.3 billion) in euro-denominated bonds.
Maait also said in the interview that Egypt plans to sell stakes in at least another five or six state-owned enterprises (SOEs) by the end of June 2020.
It plans to use the proceeds from stake sales to help boost public finances as part of a three-year economic reform program agreed with the IMF in late 2016. Egypt received a $12 billion loan from the IMF.
The government sold 4.5 percent of Eastern Company, Egypt’s monopoly cigarette maker, in March, its first sale of state-owned shares on the stock exchange in 10 years.
The sale had been planned for last year, but was delayed after prices of emerging market assets plunged across the globe.
“We are on track. We may say something before June 2019, but definitely, God willing, we will say more with the new financial year,” Maait said on the SOEs. Egypt’s financial year begins in July.
He declined to say which company would be offered next because “it hurts us when we announce early.”
Maait said Egypt has put a mechanism in place for hedging against fluctuating oil prices, a move aimed at helping avoid shocks to the budget.
“Egypt is ready and Egypt is using the hedging mechanism whenever Egypt needs to use it,” he said.
A plan for hedging against wheat prices that was under discussion with banks in October “didn’t materialize,” but remains “on the table” and is being explored, he said.
Euroclear’s global head of capital markets and fund services, Stephan Pouyat, told Reuters that Euroclear’s agreement with Egypt would be expanded in future.
“We are not just going to do the government bonds. We will start by that, because that’s what international investors need,” Pouyat said.
He said Euroclear wants to “make it clear (to investors) that (Egypt) has a successful, long yield curve to create the benchmark that is necessary for the corporate sector ... and that is going to facilitate significantly any sort of hedging.”
($1 = 0.8849 euros)


Argentina ranchers turn to China amid credit drought

Exports of beef from Argentina to the world’s second-largest economy have multiplied, as farmers tap Chinese demand for meat to help pay their bills as access to credit has dried up. (Reuters)
Updated 3 min 49 sec ago
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Argentina ranchers turn to China amid credit drought

  • Exports of beef from Argentina to the world’s second-largest economy have multiplied, with shipments in the first five months of the year to Chinese ports representing 72 percent of Argentina’s total 180,000 tons of beef exports, according to CICCRA
  • Tight monetary policy and high interest rates squeeze farming sector

BUENOS AIRES: Argentina’s world-famous ranchers are culling their breeding cows at the highest rate in 30 years and tapping Chinese demand for meat to help pay their bills as access to credit has dried up for farmers in South American’s No. 2 economy.
The trend underscores how Argentina’s tight monetary policy and high interest rates hovering around 60 percent are squeezing the sector, which relies on up-front investment to maintain valuable cow herds and rearing calves over several years to maturity.
“The farmers, with no real source of financing, are now looking for liquidity through these cow sales,” said Carlos Achetoni, president of the industry association Argentine Agrarian Federation (FAA).
Argentina’s meat industry chamber CICCRA said in the first half of 2019 females represented 50.1 percent of slaughtered animals, the highest level in the past three decades and well above the maximum sustainable rate considered to be around 43 percent.
This trend could cut the herd by up to 400,000 head of cattle by 2020 from a total of around 53 million in March.
“It’s a survival decision,” said Miguel Schiaritti, president of CICCRA, who said ranchers were having to think short-term and get rid of their assets because they could not borrow at current rates.
“For ranchers the cow is the machine to produce calves. It’s as if someone who manufactures bolts sold the machine which makes the bolts to finance themselves and pay their expenses.”
Farmers said that Chinese demand was a silver lining, ensuring that these sales were at least proving lucrative.
Exports of beef from Argentina to the world’s second-largest economy have multiplied, with shipments in the first five months of the year to Chinese ports representing 72 percent of Argentina’s total 180,000 tons of beef exports, according to CICCRA.
China mainly demands cheaper cuts of beef from female cows — which better suit local cuisine more focused on shared dishes than prime cuts of steak — which has boosted the price of the category by 88 percent versus a year ago to an average of 43 pesos ($1.01) per live kilo in Argentina’s main livestock markets.
Farmers sell the cows to local slaughterhouses, which in turn ship the meat to global buyers including in China.
Carlos Iannizzotto, president of Argentina’s association of rural producers CONINAGRO, said unusual “sky-high” prices from China helped, though the core issue was still farmers’ finances.

FASTFACT

China acounted for 72 percent of Argentine beef exports in the first five months of the year.

“China exports mean at least producers don’t have to give the cows away, they can get a good price. That’s a blessing,” added Schiaritti.
Officials at industry bodies added a recent, landmark deal between the South American Mercosur trade bloc and the EU — that included a larger quota for meat exports — would do little for now to resolve the crisis facing Argentine ranchers.
The bloc made up of Argentina, Brazil, Uruguay and Paraguay, struck a free-trade agreement in June after two decades of talks, providing for the entry into the EU of an annual quota of 99,000 tons of beef at a 7.5 percent tariff.
“The agreement is just pain relief really,” said Schiaritti, whose CICCRA chamber has said that because of the limited volume — shared between the four countries — the export boost from the deal would not be that major.
FAA President Achetoni added that ito benefit from the deal, ranchers first needed authorities at home to solve the issue of access to credit, otherwise farmers would continue to be squeezed and the cattle herd would decline.
Argentina’s high benchmark interest rate, set by daily central bank auctions, has helped to bolster the local peso currency after it tumbled last year, but choked off access to credit, especially for small businesses and farmers.
“Before we can even really talk about getting into international markets, we need to resolve the issues of taxation and access to finance (at home),” Achetoni said.