By Hend El-Behary
The Ministry of Finance has received offers equating to EGP 2.5 billion for the first Floating-Rate Note (FRN) ever issued in Egypt. The move comes in the context of the ministry’s strategy to diversify public debt instruments, according the ministry’s press release.
FRN are bonds with a variable interest rate. The adjustments to the interest rate are usually made every six months and tied to a certain money-market index. FRNs can protect investors from a rise in interest rates but also carry lower yields than fixed notes of the same maturity.
The issuance of FRNs was met with great success, as they were leveraged two point five times, which encourages the government to issue more notes with variable interest and at different intervals to meet investors demands.
“The Ministry of Finance is trying to spread notes…in order to diversify between various debt tools and to manage assets and liabilities,” stated the press release.
Floating rate notes raised EGP one billion, which opens the door for the issuance of Islamic bond, Sukuk. Moreover, the ministry is planning to issue different kinds of notes with a variety of maturity intervals to activate public debt instruments.
However, this plan is contingent on the price being monitored regularly, to lighten the burden of the state’s general budget. According to Reuters, the government is attempting to encourage investment in FRNs especially since treasury yields have fallen sharply since June 2012.