Egypt may convert Gulf funds into bonds

Egypt could convert part of the USD12bn of loans and grants pledged by Gulf nations this week into tradable bond securities, a lawyer working with the Egyptian government said. The lenders in question - Saudi Arabia, the UAE and Kuwait - will then have the flexibility to sell the bonds to other investors, should they wish to.

Qatar already has that option: Egypt recently converted USD3.5bn of Qatari loans into bonds through a newly established USD12bn Euro Medium-Term Note programme. The loans made by the other three Gulf nations might be given similar treatment.

"The contributions from non-Qatar states are certainly capable of being represented by notes issued through the program," said James Healy, a partner at law firm Skadden, which represented Egypt in connection with the establishment of the programme.

According to the program's prospectus, however, funds raised in the form of notes must be used to finance the country's budget deficit, something that may be less attractive for Egypt compared with the alternative of keeping the money on deposit in the central bank.