Egypt Credit Risk Drops Most Since June on IMF; Yields Fall
January 17, 2012, 11:34 PM ESTBy Ahmed A. Namatalla
(Updates with analyst comment in fourth paragraph.)
Jan. 17 (Bloomberg) -- Egypt’s credit default risk fell the most in more than seven months and the nation’s dollar bonds rallied after the country started talks with the International Monetary Fund for a loan.
The central bank sold $1 billion one-year dollar- denominated treasury bills today at an average yield of 3.855 percent, compared with 3.88 percent at the last sale on Dec. 20, according to Central Bank data on Bloomberg. Five-year credit default swaps, or the cost of protecting government debt against default for that period, declined 25 basis points, the most on a closing basis since June 1, to 600, according to data provider CMA.
Egypt’s government is trying to lower borrowing costs as it began talks with the IMF yesterday for a $3.2 billion loan to help implement an 18-month economic-reform program that it will propose in the “next few weeks,” said Fayza Aboulnaga, the minister of planning and international cooperation.
“The market believes talks with the IMF will work this time,” said Khalil El-Bawab, director of fixed income at Cairo- based investment bank EFG-Hermes Holding SAE. “It’s not the end of Egypt’s problems because we need much more than that, but it’s a major milestone and it’s a reason to be bullish about a possible turnaround on the economic front.”
Lending Conditions
The yield on the country’s 5.75 percent dollar bonds due April 2020 fell 11 basis points, or 0.11 of a percentage point, to 8.17 percent, the lowest level in almost two weeks, at 4:43 p.m. in Cairo. The yield on one-year pound-denominated bills was at a record 15.555 percent at the last sale on Jan. 12.
The IMF won’t set lending conditions and will measure progress according to government goals, Masood Ahmed, the agency’s director for the Middle East and Central Asia, said yesterday. Egypt’s ruling military council had vetoed a similar loan from the fund last June.
If granted, the IMF facility’s “most-positive impact would be to reassure international investors that Egypt is implementing clear and sustainable fiscal and economic policies, an essential platform for kick-starting renewed foreign investment,” Fitch Ratings said in a statement today. “This in turn could stabilize, or even ease, borrowing costs until the transfer of power from the military council, due in June.”
Previous Sales
Egypt’s budget deficit is targeted to reach 144 billion Egyptian pounds ($24 billion), or 8.7 percent of gross domestic product, in the year that ends in June, Aboulnaga said yesterday. The deficit target has been revised four times.
The Finance Ministry raised $2.53 billion in two auctions of one-year dollar treasury bills in the last two months. The notes are exempt from a 2 percent tax paid by holders of pound- denominated treasuries.
Egypt’s central bank accepted 12.6 billion pounds in seven- day repurchase agreements, all bids made for the contracts, which allow government security holders to sell them back to the regulator to access funds at a rate of 9.75 percent.
The pound was little changed today at 6.0409 a dollar. CMA is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
--Editors: Claudia Maedler, Daliah Merzaban
To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net
To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net
