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What are the implications of the UAE's monopoly on issuing Egyptian sovereign bonds?

February 28, 2022 at 6:12 pm

A logo sits on display outside the main office for the Emirates NBD PJSC bank in Dubai, United Arab Emirates, on Tuesday, Sept. 4, 2018. [Christopher Pike/Bloomberg via Getty Images]

Emirati banks’ issuance of Egyptian sovereign bonds and the arrangement and provision of loans, raised several questions about the significance of this step, especially after three Emirati banks, among an alliance that included 6 banks, dominated the offering of the first Islamic bonds to Egypt.

A few days ago, Egypt chose six banks to manage the sale of its first offering of sovereign bonds amounting to $2 billion, during the second quarter of this year, according to the American Bloomberg News, which quoted unnamed sources. These banks are HSBC, Citigroup, Abu Dhabi Islamic Bank, Credit Agricole, Emirates NBD Bank and First Abu Dhabi Bank.

Last August, the head of the coup authority, Abdel Fattah El-Sisi, approved the sovereign bond law, after the Egyptian Parliament passed it in the middle of last year, amid fears of mortgaging Egypt’s assets, increasing debt burdens and opening a new door of borrowing that would increase the loan portfolio. The foreign debt amounted to about $137.5 billion at the end of last September.

The Egyptian government says that these sovereign bonds are Sharia-compliant bonds that will be offered in the local and international debt markets and are part of a broader strategy to reduce government debt, shift toward long-term borrowing, extend the average lifespan of external debt and diversify the debt portfolio.

The monopoly of the UAE banks in financing Egypt

Egypt issued the first “green” bonds in the Middle East and North Africa at a value of $750 in September 2020, with a return of 5.25 per cent allegedly for financing green and environmentally friendly projects amounting to $1.9 billion in order to attract more investors who are interested in environmental and financial returns.

This was not the first time that certain Emirati banks took the lead on issuing international bonds and arranging large loans for the Egyptian government. In October 2021, Emirates NBD Capital Limited and First Abu Dhabi Bank chose to obtain a joint loan of $2 billion for a period of three years, with environmentally-friendly and Islamic financing criteria.

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At the beginning of this year, Egypt obtained the approval of Emirati and Kuwaiti banks to provide a syndicated loan to the Egyptian government with a total value of $3 billion, according to Anadolu Agency. Among the most prominent banks participating in the syndicated loan are Emirates NBD, First Abu Dhabi Bank, Abu Dhabi Islamic Bank, Al-Ahli Bank of Kuwait, the Arab Banking Corporation, the National Bank of Kuwait and Warba Bank of Kuwait.

Returning the favour, commissions and corruption

In his estimation, Professor of International Finance, Alaa Al-Sayed, says, “The UAE is a major strategic partner for the Egyptian regime, and it has spent tens of billions to install the pillars of this regime for about a decade. It is natural for the Egyptian regime to return all this support to the UAE in the form of loyalty to its policies, implementation of its agenda, obedience of its instructions and fulfilment of its desires.”

He added to Arabi 21. “This was evident in the UAE and its companies’ control over sectors considered within the Egyptian national security system, such as the telecommunications sector, the health sector and army gas stations, in addition to the banking sector.” He noted that “the operations of management, consulting, attracting foreign loans, and marketing sovereign bonds of countries are among the huge banking operations that generate large profits and commissions for banks.”

The economic and strategic expert explained that “Dealing with the funds, transferring them, deducting commissions and transferring them to the accounts of some figures abroad are sensitive and highly confidential issues, and their implementation by non-Egyptian banks is safer for the political, economic and banking leaders who benefit from corruption in the form of embezzlement of a part of all loans. Foreign countries, like Egypt, are like all under-developed countries, in which the rules of disclosure and transparency are absent.

New Emirati hegemony

On his part, former Professor of Economics at Al-Azhar University, Ahmed Zikrallah, says that what is happening “reflects the Egyptian economy’s urgent need of foreign exchange, due to the repercussions of the effects of the covid pandemic, and the resulting large losses. This is in addition to the large deficit in the trade balance and the state budget, in addition to the amount of debt servicing is getting worse, so there is a big dollar gap.”

As for Egypt’s resort to Emirati banks, he explained to Arabi21 that “there are many reasons that we would suggest, including diversification of loan sources and permanent support from the Emiratis to the Egyptian economy, in exchange for special privileges in many sectors in Egypt, as well as giving priority to UAE banks to benefit from the returns of these banking and financial services.”

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The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.