Bloomberg News

Egypt Misses Bills Sale Goal, Yields Rise on Funding Strain

December 29, 2011

(Updates with analyst comment in fourth paragraph.)

Dec. 29 (Bloomberg) -- Egypt raised almost three quarters of the 6.5 billion Egyptian pounds ($1.1 billion) it sought at a treasury bills sale today and yields rose as banks faced funding constraints due to increased state borrowing.

The government sold 2.757 billion pounds in six-month notes at an average yield of 14.751 percent, six basis points higher than the last sale, according to Central Bank of Egypt data on Bloomberg. It raised 2.044 billion pounds from an offering of one-year securities at an average yield of 15.399 percent compared with 15.292 percent in the previous auction of similar maturity notes.

Egypt has relied more on local banks to fund its budget deficit as foreign investors withdrew in the aftermath the ouster of President Hosni Mubarak in February. This reduced banks’ cash levels and prompted them to demand higher yields. In March, the central bank started a repurchase facility to ease funding pressure, allowing banks holding state securities to sell them back to the regulator for a week to access funds at 9.25 percent, a rate it raised to 9.75 percent last month.

“The central bank has so far succeeded in managing short- term liquidity needs for the local banks through the repo facility,” Mohamed Kotb, Cairo-based asset management director at Naeem Financial Investments, said by phone. “The big jump in yields earlier this quarter has calmed down as the Ganzouri government clearly has a green light to borrow from abroad to ease pressure off of local banks.”

Prime Minister Kamal El-Ganzouri’s government will meet with a delegation from the International Monetary Fund next week to negotiate a $3.2 billion loan, Minister of Planning Fayza Aboulnaga said this week. Banks have drawn about 138 billion pounds through repurchase contracts this quarter, including a record 22 billion pounds at this week’s sale. The compares with 67 billion pounds in the previous three months, according to data compiled by Bloomberg.

The average yield on one-year bills has climbed 152 basis points since September, bringing their advance since the start of political unrest in January to 496 basis points. Egypt’s five-year credit default risk soared 390 basis points this year to 632 on Dec. 28, according CMA prices, making it the riskiest in the Middle East. Owned by CME Group Inc., CMA compiles prices quoted by dealers in the privately negotiated market.

The yield on Egypt’s 5.75 percent 10-year dollar bond due April 2020 fell less than one basis point, or 0.01 percentage point, to 7.99 percent at 2:29 p.m. in Cairo. The pound gained 0.1 percent to 6.0273 against the dollar.

--Editors: Daliah Merzaban, Shanthy Nambiar

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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