Bloomberg News

Egypt Government Bond Ratings Cut One Level to B1 by Moody’s

October 27, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 27 (Bloomberg) -- Egypt had its government bond ratings cut for the third time this year by Moody’s Investors Service, which cited “ongoing economic weakness” after the revolt that ousted President Hosni Mubarak.

The country’s ranking was lowered to B1, four levels below investment grade, the rating company said in an e-mailed statement. Standard & Poor’s reduced Egypt by one level to BB- last week, three steps below investment grade.

Egypt, which is relying on weekly sales of local-currency debt to fund 90 percent of its budget deficit in the year that ends in June, has seen its borrowing costs approach the highest levels in almost three years. The government sold one-year treasury bills today at an average yield of 13.854 percent, 341 basis points higher than the last sale before the start of its uprising in January.

“There are growing concerns about Egypt’s fund raising on the local market because the fiscal deficit is so large,” said Michel Aubenas, who helps manage about $5.5 billion in emerging market debt at London-based Fischer Francis Trees & Watts. “What would be healthier is for Egypt to issue more external debt, but that will be even more expensive after this downgrade.”

Foreign reserves have fallen $12 billion this year to $24 billion in September, according to central bank data. The budget deficit may widen to more than 10 percent of gross domestic product in the fiscal year through June 2012, Moody’s said. The government is targeting a deficit of 8.6 percent of economic output.

‘Unsettled’ Conditions

“Unsettled political conditions have further undermined economic performance and investor confidence in Egypt,” Moody’s said. Egypt has seen a “sharp loss” in foreign exchange reserves and faces “uncertainty over transition to a stable, civilian government,” the rating company said. The outlook remains negative.

The government is reviving discussions this week on a $3 billion loan from the International Monetary Fund to curb the increase in its borrowing costs. It had turned down a similar loan from the fund in June.

The yield on Egypt’s 5.75 percent dollar-bond due in April 2020 dropped three basis points, or 0.03 percentage point, to 5.76 percent at 4:55 p.m. in Cairo. The pound was unchanged at 5.9694 per dollar.

--Editors: Claudia Maedler, Inal Ersan

To contact the reporters on this story: Alaa Shahine in Dubai at; Greg Chang in San Francisco at

To contact the editor responsible for this story: Claudia Maedler at

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