Biggest bond ever

Telecom Egypt (TE) CEO Aly Salama spoke to Niveen Wahish about Egypt's biggest corporate bond issue

---

Telecom Egypt's LE2 billion bond issue is scheduled to close today oversubscribed.

Launched in late December, the tradable non-convertible bonds have a five-year maturity period. Described as Egypt's biggest corporate bond issue, the 20 million bonds were issued at LE100 per bond. The offering was split into two tranches, the first fixed at an interest rate of 10.95 per cent, and the second floating at 0.70 per cent above the Central Bank of Egypt's (CBE) discount rate.

Middle East Ratings and Investors Service (MERIS) -- Moody's Investors Service partner and affiliate in Egypt -- declared the company's yield to maturity higher than comparable treasury bonds with similar tenor . MERIS gave Telecom Egypt's bond issue a national scale credit rating of "AA" with a "stable" outlook.

Did savings certificates at 12 per cent interest -- higher than yours -- pose stiff competition for TE's bond issue?

Every savings scheme has its own clients. The certificates offered by banks are targeted to individuals, and are not suitable for institutions. The bonds are targeted to institutions. Bonds are bought for the advantages they offer, like the fact that they can be easily liquidated when sold in the stock market. It is not the same with certificate owners, who stand to lose should they consider refunding their money before the maturity period.

So were your clients all institutions?

No. We have individuals, but they bought in huge sums. The law stipulates that at least 150 individuals subscribe to the bonds. We have more than 300 individuals.

How do you expect the bonds to affect the stock market?

Positively. They will contribute to activating the market for fixed income instruments. The larger the number of bonds available, the more trading there will be.

What will the LE2 billion be used for?

We will be using the money to pay up costlier debt (debt at higher interest rate). Around LE400 million will be used for investments in the company's infrastructure, or to invest in buying shares. It is up to the board of directors to use the money as they wish.

Is the bond issue an indicator of when part of the company will be floated?

These are two totally separate issues.

What about privatising TE? Have market conditions improved enough to allow for flotation?

The market conditions are better now. But the decision to float part of the company is left to the owners and not the management.

There are various other bonds that have been issued or are about to be issued. Is there enough room on the market for all of them?

All the bonds that were issued were oversubscribed, which means the market is thirsty for such tools. Orascom Telecom bonds, for one, were 1.6 per cent over subscribed.

Have you considered issuing bonds in dollars?

The company's needs determine the type of bonds. A bond issue in dollars has an element of risk because we borrow in hard currency today and repay in five years. Nobody can tell where the dollar will be five years from now.

Why not borrow from banks?

Borrowing from banks is costlier. It's cheaper to borrow from the market at around 11 per cent, than to borrow from banks at 14 per cent.

How soon can you offer another bond issue?

The company's financial management shifts with market conditions. If the interest rate in the market drops, we could have a bond issue at the low interest rate, and use the call option to refund these bonds.

The movement of the interest rate and the availability of liquidity within the company are what determine whether or not we will have another bond issue.