Bloomberg News

Egypt to Raise Average Debt Maturity to Cut Refinancing Risk

July 16, 2012

Egypt plans to raise the average maturity of its domestic debt to 1.8 years, Finance Minister Momtaz El-Saieed said, as the nation seeks to reduce refinancing risks.

The plan, which will gradually raise maturities from next quarter, will focus on selling more treasury bonds and fewer treasury bills, or securities that mature in less than a year, El-Saieed said in an interview in Cairo today. He declined to say when the target would be reached.

Egypt’s average debt maturity fell to 1.3 years at the end of 2011 from 1.7 years in 2010. Government borrowing, which has increasingly relied on local banks as foreigners withdrew amid unrest following the ouster of President Hosni Mubarak, isn’t straining lenders, El-Saieed said. About 78 percent of this quarter’s planned debt sales are for maturities of one-year or less.

“They maybe trying to lock in current rates as the prospect of further instability is still there,” said Jean- Michel Saliba, a London-based economist at Bank of America Merrill Lynch. “You don’t want keep exposing yourself every three to six months to refinance your debt. Also, T-bill yields are unlikely to come down in the near term so issuing longer- term debt makes sense.”

Egypt has raised its target 44 billion pounds to start this quarter, part of a plan to raise a record 175 billion pounds in the three-month period. Government borrowing costs have stabilized after the central bank reduced for the second time this year the local-currency reserve ratio for banks to 10 percent of deposits. The average yield on three-year T-bonds fell three basis points, or 0.03 of a percentage point, at an auction today to 16.15 percent compared with a July 2 sale.

The Finance Ministry also plans to offer floating-rate securities starting next quarter to encourage more investors to buy the debt, El-Saieed said. Increased borrowing by the government since last year’s revolt isn’t negatively impacting local lenders, he added.

“The private sector is dormant so government borrowing makes use of unutilized bank liquidity,” he said.

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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