Bonds Market Development Plan. Ministry of Investment November 2009

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1 Bonds Market Development Plan Ministry of Investment November

2 Financial Sector Reform Program Phase I: Phase II:

3 Financial Sector Reform Program Reform Objective Phase I: Improve the soundness and efficiency of the financial sector through comprehensive structural and financial reform, to ultimately boost economic growth and development as well as enhancing competitiveness, and financial innovation. Main Pillars of the Reform Program 1. Restructuring the Insurance Sector 2. Deepening the Capital Market 3. Developing the Mortgage Market 4. Activating other Financial Services Time Frame

enhancing competitiveness, and financial innovation. Main Pillars of the Reform Program 1.

4 - Merging six banks. - Settling 65% of public sector NPLs. - Privatizing Bank of Alexandria - Divesting 13 cases of public sector banks holdings in JV banks. Financial Sector Reform Program 1- Reforming the Banking Sector Main Implemented Reforms of Phase I: Deepening the Capital Markets - Establishing a special registrar for qualified auditors at the CMA. - Introducing Margin Trading, Short Selling, Same Day Trading, Market Making Activity, and Securitization. - Issuing the legislative framework for organizing Acquisitions. - Issuing the new Egyptian Accounting Standards in compliance with the International Accounting Standards. - Issuing regulations to organize and introduce investment funds, and organize exchange traded funds, money market funds and real estate funds. - Establish the Nile Stock Exchange (Nilex) for SMEs. 2- Restructuring the Insurance Sector - Merging Al-Shark and Egypt Re in Misr Insurance. - Establishing the Holding Company for Insurance. - Restructuring the boards of public insurance companies. - Establishing a State Fund for compensation - Amending the insurance law and allowing corporation to act as insurance brokers. - Raising the minimum issued capital to EGP 60 million for life and non-life insurance companies. - Reducing stamp duties on insurance policies for life, property and casualty insurance. 4- Developing a well functioning Mortgage Finance - Introducing more flexibility to income recognition rules and regulations. - Reducing the registration fee to a maximum of EGP Establishing the Egyptian Mortgage Refinance Company. - Raising the maximum subsidy obtained from the Mortgage Finance Subsidy and Guarantee fund from EGP 10,000 to EGP 15, Activating the role of insurance in mortgage finance activity. - Standardizing contracts of mortgage finance to facilitate the securitization process. 4

auditors at the CMA. - Introducing Margin Trading, Short Selling, Same Day Trading, Market Making Activity, and Securitization. - Issuing the legislative framework for organizing Acquisitions.

5 Financial Sector Reform Program Impact of Reforms of Phase I: Insurance 2004/ /2008 Premiums/GDP 0.8% 1.1% Assets (EGP bn) Investments(EGP bn) Equity (EGP bn) Volume of Premiums Paid Claims Net profits (EGP bn) Public Companies Market Share 70% 49% Mortgage Finance 2004/ /2008 Institutions 2 Companies and 2 Banks 10 companies and 2 banks Mortgage finance 16 Million 2.6 billion Evaluation experts Intermediaries Auditors Investors Capital Market 2004/ /2008 Value traded 83.7 Billion Billion Monthly Average value of trade 0.6 Billion 46.1 Billion Volume 3 Billion Paper 19.9 Billion Paper Monthly Average volume of trade Billion Paper Billion Paper Total acquisitions 3.64 Billion Billion The number of registered investors 875 Thousand 1.6 Billion 5

1 Public Companies Market Share 70% 49% Mortgage Finance 2004/2005 2007/2008 Institutions 2 Companies and 2 Banks 10 companies and 2 banks Mortgage finance 16 Million 2.

6 Financial Sector Reform Program Phase II: Reform objectives Phase I of the reform program aimed at restructuring financial institutions and enforcing prudential regulations to enhance soundness of the financial sector and ensure its stability. Phase II aims at improving the efficiency of financial intermediation, and to enhance its ability to mobilize savings and provide finance. Main Pillars of the Reform Program Mobilize savings and financing investments Improving access to finance especially for SMEs Developing the society s financial culture Enhancing the efficiency of the markets and further developing the non bank financial services Increasing the efficiency of regulations and supervision to ensure the soundness of the financial system Strengthening the reach of the non bank financial services to remote and under develop areas in Egypt and enhancing regional expansion by the non bank financial institutions Time Frame

Main Pillars of the Reform Program Mobilize savings and financing investments Improving access to finance especially for SMEs Developing the society s financial culture Enhancing the efficiency of

7 Bonds Market Development Plan 7

8 Bond Market Indicators Issuance Indicators 8

9 Bond Market Indicators Issuance Indicators 9

10 Bond Market Indicators Trading Indicators 10

11 Bond Market Indicators Trading Indicators 11

12 Action plan to Develop the Bonds Market Measures related to the primary market (supply side) Problem Reform Measures -Simplifying corporate bond issuance procedures - Lengthy and costly issuance procedures -Introducing shelf registration to reduce the time taken for secondary public offerings of bonds. -Encouraging the establishment of a new credit rating agency in Egypt to promote competition in this field to ultimately reduce the rating costs 12

shelf registration to reduce the time taken for secondary public offerings of bonds.

13 Action plan to Develop the Bonds Market Measures related to the primary market (supply side) Problem Reform Measures -Lack of diversity of fixed income instruments in the Egyptian market -Limited number of issuers - Introducing amendments to the executive regulations of the Capital Market Law No. 95/1992 to regulate the issuance of Sukuk in the Egyptian Market -Issuing the regulations pertinent to the issuance of local currency bonds by supranational institutions. This is in relation to the latest amendments of the CML by the law No. 123/2008 -Further developing the REPO market on treasury bonds via introducing amendments in the current trading and settlement systems 13

95/1992 to regulate the issuance of Sukuk in the Egyptian Market -Issuing the regulations pertinent to the issuance of local currency bonds by supranational institutions.

14 Action plan to Develop the Bonds Market Measures related to the primary market (demand side) Problem Reform Measures -Amending the executive regulations to allow for and facilitate the promotion of fixed income funds in the Egyptian market - Weak institutional demand for bonds - Modifying the investment regulations for insurance companies and pension funds to increase the demand on bonds -Increasing the investors awareness with bonds, and training investment managers to increase their investments in this asset class 14

demand for bonds - Modifying the investment regulations for insurance companies and pension funds to increase the demand on bonds

15 Action plan to Develop the Bonds Market Measures related to Trading and Settlement Problem Reform Measures -Reducing settlement time of bonds from T+1 to T+0 - Shallow Secondary Market trading -Introducing short selling on bonds. -Introducing intra-day trading on bonds. -Amending the current trading and clearing and settlement systems to allow for REPO transactions 15

Market trading -Introducing short selling on bonds. -Introducing intra-day trading on bonds.

16 Action plan to Develop the Bonds Market Measures related to Transparency and Awareness Problem Reform Measures - Enhancing Disclosure by publishing the trading data by the Egyptian Exchange and the Clearing house on a daily basis -Lack of transparency and investor awareness related to bonds trading and prices - Launching an index on bond prices and publish this index on a widely read newspaper - Amending the current trading system to allow for gathering prices for treasury bonds with reference maturities - Creating and publishing a yield curve -Improve market monitoring and surveillance procedures to reduce window dressing 16

- Launching an index on bond prices and publish this index on a widely read newspaper - Amending the current trading system to allow for gathering prices for

17 Thank you.. 17

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