Egypt has taken a significant step in green financing by issuing its first green Panda Bond. The issuance of this bond is a testament to Egypt’s commitment to environmental sustainability and its efforts to transition to a low-carbon economy. The proceeds will help to reduce Egypt’s reliance on fossil fuels and promote the development of clean and renewable energy sources.
The bond, valued at US$478.7 million, is set to mature in three years. The proceeds will be allocated to various sustainable development projects, including clean transportation, renewable energy, energy efficiency, sustainable water and wastewater management projects, and financing for micro, small, and medium-sized enterprises as well as several critical health service initiatives.
The issuance was supported by partial credit guarantees from the African Development Bank and the Asian Infrastructure Investment Bank. The Bank of China Limited, with backing from HSBC Bank (China), served as the lead underwriter and bookrunner.
This issuance not only strengthens Egypt’s ties with its Chinese counterparts but also introduces an alternative, sustainable financing mechanism for other African countries.
Economic expert, Mohammed Al-Bahwashi, applauds Egypt’s strategic decision to diversify its bond portfolio, emphasizing its focus on generating hard currency income and channeling this towards the green economy.
“Egypt has a track record of similar initiatives,” Al-Bahwashi told DevelopmentAid, highlighting Egypt’s issuance of multiple green bonds last year, leveraging its existing infrastructure to improve its appeal to investors.
This endeavor forms a crucial component of the Egyptian government’s strategy to address the foreign currency crisis, exploring options ranging from full compliance with the IMF’s stringent conditions to venturing into new investment avenues aimed at diversifying foreign income sources.
Al-Bahwashi underscored that Egypt’s strategy of diversifying its debt portfolio and expanding into new markets aligns seamlessly with the country’s overall development goals. This approach will not only bolster Egypt’s ability to secure hard currency but also promote sustainable development practices, ensuring that future generations benefit from the actions taken today.
Despite facing a series of challenges over the last four years, including the Russian-Ukrainian war, the COVID-19 pandemic, Israel’s conflict in Gaza, and a significant foreign currency shortage, Egypt’s economy has demonstrated remarkable resilience. This resilience highlights the country’s strength and adaptability, paving the way for future growth and prosperity, Al-Bahwashi added.
Dr. Wafiq Naseer, a member of the World Parliament for the Environment, opined that the issuance of green Panda Bonds for Egypt’s economy holds the potential to stimulate investments in renewable energy, particularly in solar and wind power. This would also strengthen the country’s position as the creator of the region’s first green hydrogen production project, which was inaugurated last year during the Climate Summit 27 in Sharm El Sheikh.
Dr. Naseer elaborated that such bonds could contribute to elevating operational excellence within the renewable energy sector, thereby improving regional performance and raising consumer living standards. Moreover, the issuance may serve as a catalyst for human capital investments in the renewable energy domain, fostering greater energy compatibility and mitigating the environmental impact associated with economic activities.
However, Dr. Naseer cautioned that Panda Bonds, like any other type of bond, carry potential risks. These include interest rate risks due to fluctuations and increases in interest rates versus decreases in bond prices, currency risks due to exchange rate fluctuations between the currency in which the bonds were issued and the investor’s currency, credit risks should the debtor be unable to repay the value of the bonds in line with the agreed terms and conditions, liquidity risks should there be no active market for selling or buying the bonds at suitable prices, and political and legal risks due to changes in government policies or legislation that may affect the value of the bonds.
Nevertheless, the issuance could improve development and coordination among countries for renewable energy shipping, enhancing international communication and investment in the renewable energy sector. It could also augment the investment of expertise in the renewable energy sector, improving development and coordination among countries, Dr. Naseer commented.
