Bloomberg News

Egypt Yields Jump on Panel Suspension, IMF Delay: Cairo Mover

April 11, 2012

Egypt’s dollar bond yields surged the most in more than three months and the nation’s default risk rose after a court halted the work of a panel drafting a new constitution and on bets foreign aid may be delayed.

The yield on the country’s 5.75 percent dollar bonds due in 2020 advanced 28 basis points, or 0.28 of a percentage point, to 7.1 percent at 4:13 p.m. in Cairo, prices compiled by Bloomberg show. That’s the biggest gain since Jan. 5. The cost of insuring Egypt’s debt against default for five years rose eight basis points to 638, the highest level in almost three months, according to data provider CMA.

A Cairo court yesterday decided to halt work by the 100- member panel chosen by parliament to write the constitution after the ouster of Hosni Mubarak last year. Speculation is growing that a $3.2 billion loan from the International Monetary Fund may be delayed, putting more pressure on the nation’s foreign reserves, which plunged 50 percent in the year to March to $15.1 billion.

The bonds are being affected by a “general risk-off sentiment, uncertainty related to the political picture, especially the presidential race, and diminishing prospects of an IMF deal given the latest stance of the Muslim Brotherhood,” said Emanuele Del Monte, who helps oversee about $1.5 billion in emerging-market debt at Fideuram Asset Management Ireland Ltd.

IMF Loan

Perceptions of Egypt’s default risk are the highest in the region, according to CMA, which is owned by CME Group Inc. and compiles data from the privately negotiated market. The contracts pay the buyer face value if a borrower fails to meet its obligations.

The government obtained approval today from two parliamentary committees for an economic plan required to obtain the IMF loan, said Ashraf Badreldin, a lawmaker with the legislature’s biggest Islamist bloc, the Freedom and Justice Party. The support was granted on the basis that the funds won’t be disbursed to Prime Minister Kamal el-Ganzouri’s government because parliament doesn’t trust it to “manage the money in a way that will achieve the hoped-for goals,” he said.

Badreldin said last week his party may reject the aid package when the issue is presented before parliament because the government hasn’t answered questions from lawmakers about the loan. The party, the political arm of the Muslim Brotherhood, holds 47 percent of seats in the lower house, the largest bloc.

Vote for President

The IMF said yesterday loan talks were continuing and the agency will stay in contact with Egyptian authorities in “the coming weeks as they finalize the remaining details of their economic program.”

Twenty-three candidates have filed to run in the nation’s presidential election, scheduled for May 23 and 24, the Election Commission said this week. The vote pits Islamist candidates against a number of secular figures including Omar Suleiman, one of the most-senior figures in Mubarak’s regime.

Egypt’s 2040 dollar bonds also declined, pushing the yield 16 basis points higher to 8.3 percent, the highest level in almost six weeks. The Egyptian pound, which is subject to a managed float, weakened 0.1 percent to 6.0414 a dollar.

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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