While Latin America is certainly not dead when it comes to emerging-market securitizations (see Banistmo, p.18), there does appear to be a volume shift towards the East. The bulkiest deals this year have sprung from Russia and Turkey and now Egypt is joining the mega-league. In the works is a $1 billion transaction from state-owned Egyptian General Petroleum Corp. (EGPC), with BNP Paribas, Merrill Lynch and Morgan Stanley as joint book runners, according to sources. Morgan is also global coordinator.
The transaction will most likely be cut from the same cloth as energy receivables deals issued by Latin American energy giants Petroleos de Venezuela (PDVSA)and Petroleos Mexicanos (Pemex). But its size should handily eclipse most deals in the sector. The largest oil-backed transaction in recent memory came from Brazil's Petrobras, a market stalwart that issued $750 million in a two-part bond during May 2003.
National Bank of Egypt (NBE), which enjoys a 50-year creditor relationship with EGPC, will co-manage the transaction, along with Banque Misr, according to a source close to the transaction. Both are state owned. The brokerage arms of HC Securities and Investment and EFG-Hermes will also distribute the paper. Bringing in these four Egyptian-based players underscores the issuer's aim of ensuring that a good portion of the transaction end up with investors in Egypt and the Persian Gulf region, the source said.
A withholding tax issue that has stalled a financial future flow deal originated by NBE and being handled by Merrill and Morgan Stanley should not be a problem for the oil-backed deal, according to a source. The tax code "is ambiguous when it comes to banks," he said, explaining the origin of the NBE impasse. What's more, the participation of four Egyptian entities no doubt bodes well for execution.
Egyptian General Petroleum explores and develops oil and natural gas deposits. Egypt is the second-largest natural gas producer in Africa, behind Algeria, according to newswire reports.
Meanwhile, activity has slowed down in Brazil, typically the largest emerging-market contributor to cross-border securitizations. "The banks are very liquid right now and there's decent funding in the plain vanilla market," said one New York-based banker, fresh from a visit to Sao Paulo. Banks, which securitize credit cards and diversified payment rights, are not the only ones bloated with cash. Buoyed by China's insatiable appetite for raw materials, Brazil's exporters have been raking it in as well, obviating structured transactions for now.
Indeed, save for two deals, Brazilian exporters have been egregiously absent from cross-border action this year. They are likely to return once the cash for aggressive investment projects dries up and rising interest rates make other funding sources unattractive. "The combination of both will coax them back, but I still don't see tons of new activity," the banker said.
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