Egypt: Delivering for the Delta

Egypt, the host country for next year’s United Nations climate conference, is one of the most vulnerable countries to the impacts of climate change. Its dependence on the river Nile and the low-lying Nile Delta leaves it susceptible to both water scarcity and rising sea levels – the world’s longest river provides over 70% of Egypt’s fresh water and more than half its population is concentrated in the coastal Delta area.

The government has laid out a vision for a greener, cleaner and more equitable society by 2030. Priority projects include investing in renewable energy and mass transportation, which will cut emissions and improve living standards in notoriously congested cities.

But this development agenda requires capital.

In September 2020, Egypt became the first sovereign in the Middle East and North Africa (MENA) region to issue green bonds, coming to market with a US$750 million five-year deal.

Proceeds go towards the development of Egypt's US$1.9bn portfolio of green projects covering transportation, renewable energy, energy efficiency, water consumption, and coastal protection. These initiatives include a new, low-emissions urban rail transport programme for Alexandria and Cairo and a drive to promote clean energy by reducing solar energy prices.

Egypt has a target of generating 42% of its energy from renewable sources by 2035.

“This green bond issue will support our ambitions to reduce our carbon footprint while also providing better facilities for our population,” said Finance Minister Mohamed Maait.

The London-listed green bond offering was increased from an original target of US$500m after investors placed orders totalling US$3.7 billion, and priced at a yield of 5.25%, lower than expected. HSBC advised on the green financing framework and acted as a joint bookrunner on the deal.

The deal’s popularity provided additional benefits as a signal to others.

“Issuing green debt in US dollars places Egypt squarely on the global stage with a serious statement of intent,” said Nadeem Habib, Head of Financial Institutions and Public Sector at HSBC Egypt. “The enthusiastic investor response shows that the country is on the right track, both in its environmental policy and its debt management approach.”

Egypt has committed to diversifying its funding sources and increasing the maturity of newly issued debt, aiming for 52% of its borrowing to be in longer tenors by June 2022.

Egypt’s experience shows that green finance is a global effort. The World Bank has also lent its endorsement in the form of technical assistance on post-issuance reporting.

“By issuing this first green bond, we have paved the way for Egyptian corporations to follow our example,” says Maait. “Our country has an important role to play in addressing climate change while ensuring we continue to develop our economy.”