Bloomberg News

Egypt Dollar Offerings Grow on Record Local Borrowing Costs

February 13, 2012

(Updates bonds in fifth, bond sale in sixth paragraph.)

Feb. 13 (Bloomberg) -- Egypt will offer $2.5 billion in dollar debt in the next two weeks and look for $10 billion from land sales over three years to reduce record local borrowing costs and replenish dwindling foreign reserves.

The Arab country will sell $500 million in one-year dollar- denominated treasury-bills in the next “week or two,” and offer Egyptians living abroad certificates of deposit valued at $2 billion, Finance Minister Momtaz el-Saieed said in a phone interview yesterday. The country also will offer more than 8,600 plots of land for sale to Egyptians abroad, he said.

“The government is taking the risk on the expectation that over the next year there will be a recovery,” Angus Blair, chairman of Cairo-based Signet Institute, a group that studies business and politics in the Middle East and North Africa, said by phone yesterday. “But there are still some uncomfortable decisions needed to be made on the economy such as cutting the budget deficit, targeting subsidies and improving sentiment.”

Egypt’s local borrowing costs have surged to their highest levels since Bloomberg started tracking the data in 2006, with the average yield on one-year treasury bills climbing to 15.975 percent. By comparison, the finance ministry sold similar- maturity dollar bills last month at 3.855 percent. Egypt’s benchmark EGX 30 Index has risen 41 percent this year, making it the world’s best performer among 93 markets tracked by Bloomberg. It slumped 49 percent last year.

Yields Rise

The yield on the 5.75 percent dollar bonds due April 2020 advanced nine basis points, or 0.09 percentage point, to 7.41 percent at 2:07 p.m. in Cairo, the highest level in three weeks, according to prices compiled by Bloomberg. The pound weakened 0.1 percent to 6.0380 a dollar.

The Central Bank of Egypt, which holds domestic debt auctions on behalf of the Finance Ministry, today sold 1.5 billion pounds ($248 million) of three-year bonds at an average yield of 16.43 percent, seven basis points more than at the Jan. 30 sale. The regulator sought to raise 2 billion pounds.

Standard & Poor’s lowered the ratings on Egypt’s long-term foreign- and local-currency debt on Feb. 10 to B, five grades below investment quality, from B+. The outlook was negative, suggesting the next move may be another cut. It was the country’s third downgrade in four months at S&P, which cited political instability and declining foreign reserves.

Egypt’s international reserves fell to $16.4 billion in January, the smallest total in more than seven years.

Widening Deficit

The budget deficit, which Egypt finances mostly through bi- weekly sales of treasury bills, will reach 9.4 percent in the fiscal year that ends in June, el-Saieed said in a statement posted on the finance ministry website. That’s the fifth revision of the rate that reached as high as 11 percent when it was first announced last June.

A delegation from the World Bank arrived in Cairo yesterday to start talks on a $1 billion loan to Egypt. The country will also present the International Monetary Fund with an 18-month economic-reform proposal to obtain approval for a $3.2 billion loan, according to Planning Minister Fayza Aboulnaga. The country needs about $11 billion in external financing by June 2013, el-Saieed said Feb. 10.

“Some investors are willing to bet that the political transition will proceed smoothly, judging by the pricing of recent dollar debt and the increase in the stock market,” Blair said. “You can give Egypt lots of money, but if you don’t improve sentiment for the domestic private sector, it’s not going to help much.”

--With assistance from Alaa Shahine in Dubai. Editors: Shanthy Nambiar, Claudia Maedler

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


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