Leading deal maker

Published: 19 February 2010

HSBC success prompts further work with Egyptian government

HSBC Bank Egypt (HBEG) acted as Joint Lead Arranger on the issuance of an EGP4.65 billion (USD830 million) asset-backed securitisation bond for Tameer Securitisation Company in June 2009.

This is an onshore special purpose vehicle (SPV) established for the sole purpose of issuing the eight-year, single-tranche bond. The SPV was created by the New Urban Communities Authority (NUCA), the development arm of the Egyptian Ministry of Housing.

Mr Ahmed Mobarak, Associate at HBEG and a member of the deal team, said: “In December 2007, NUCA signed a contract with the Qatari-based real estate developer, Barwa, to sell an eight million square metre parcel of land in New Cairo worth over USD1 billion.”

“The payment is scheduled to be paid in eight years.The notes were enhanced by an irrevocable guarantee from the Egyptian Ministry of Finance to bondholders, guaranteeing bond proceeds and coupon payments.”

It was a landmark transaction for several reasons. The notes represented the first securitisation bond to be issued by a government authority. It was also the largest bond issue ever in Egypt, reinforcing HSBC’s leadership in the Egyptian market.

“This is the first transaction to be made by a government authority, either as a securitisation bond or even a traditional bond. No government authority has ever issued a bond before,” Mr Mobarak said.

“The second important reason is the size. This transaction is by far the biggest bond issue to take place in Egypt. I can recall the second-biggest issue was for EGP2 million only, which took place three or four years ago for Telecom Egypt, the state-owned land line operator.”

Trustee

The Sub-Custody and Clearing department was also mandated as the transaction’s Trustee. This is the first time for HBEG to act as Trustee for a securitisation transaction in Egypt.

“The Trustee has different responsibilities under Egyptian law, including the management of all cash inflows and outflows in relation to the securitised asset such as paying coupon payment, principal payment and investing any credit balances from collections on behalf of bondholders,” Mr Mobarak said.

From the Bank’s point of view, providing trustee services for securitisation transactions supports the ongoing relationship between the Bank and the client. This will also help HBEG offer more integrated services to other clients in the future.

“The notes were tightly priced at Central Bank of Egypt (CBE) discount rate less 25 basis points (the current CBE discount rate is 8.5 per cent), thanks to the Ministry of Finance guarantee that secured an ‘AAA’ rating to the notes,” he said.

The deal was well-received, with lead arrangers receiving around 40 subscribers for the bond issue. Most of these were banks, while the rest were non-bank financial institutions such as insurance companies and various funds. The structure fitted in with the banks’ search for secure investment vehicles during the current economic turmoil.

New issue

“We have recently been mandated by the Ministry of Finance to Lead Arrange a direct bond issue for NUCA with a total issue size of EGP5 billion (USD910 million),” Mr Mobarak said. “This is a direct reflection of our success in managing the first issue.”

The success of the issue in difficult market conditions enhanced the relationship between HBEG and the Government of Egypt. The transaction was awarded Best EMEA Securitisation Deal 2009 by emeafinance.

This latest deal was preceded by a string of award-winning deals with which HSBC was involved. In 2007, HSBC acted as a Joint Lead Financial Adviser to the EGP500 million securitisation deal for Egyptian Arab Land Bank, which was chosen Deal of the Year by The Banker magazine. The deal was the largest securitisation in the Egyptian capital market at the time.

The award was one of four HSBC won that year. All of them came in the debt markets, highlighting the sophisticated debt requirements of regional institutions. Each deal was a groundbreaking transaction in its own way.