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Bloomberg Businessweek: Egypt to Sell 10-Year Bonds for First Time Since Mubarak Ouster

The government will pay a yield of 17.28 percent at today’s auction of 1 billion Egyptian pounds of the notes maturing in April 2022.
02.04.12 | Interesting article at Bloomberg Businessweek

Egypt aims to sell 10-year bonds for the first time since the start of its revolution more than a year ago as borrowing costs level off and the nation moves closer to securing a loan from the International Monetary Fund.

The government will pay a yield of 17.28 percent at today’s auction of 1 billion Egyptian pounds ($166 million) of the notes maturing in April 2022, according to the average of six fixed- income analysts and traders surveyed by Bloomberg News. It last sold similar-maturity bonds in January 2011 at an average yield of 13.04 percent. The nation will also offer 2 billion pounds of three-year securities and 1 billion pounds of seven-year bonds.

The offering is part of the Finance Ministry’s plan to raise 27.5 billion pounds from bond sales in the fiscal fourth- quarter that started yesterday, 18 percent of its total target. The nation halted the sale of longer-term bonds and resorted to selling shorter-term bills after the start of the revolt that ousted President Hosni Mubarak to avoid paying higher yields.

The 10-year offering is a “positive move because it could signal a return of investor confidence even if the bonds only attract domestic buyers,” Moustafa Assal, head of fixed-income at Cairo-based Beltone Financial, said by phone yesterday. The issue of issue longer-term bonds would provide more stability over short-term treasury bills, he said.

The government sold three-years bonds at an average yield of 16.25 percent at the March 26 sale, while the seven-year securities yielded 16.88 percent on March 19. The mid-yield on 10-year bonds in the secondary market was at 16.918 percent yesterday, according to data compiled by Bloomberg.

Banks Step In
Egypt’s borrowing costs surged over the past year as foreign investors dumped $7.5 billion of domestic debt following the uprisings, central bank data until the end of September show. Average yields on one-year notes surged 512 basis points, or 5.12 percentage points, since the popular uprising in January 2011 to 15.709 percent at the March 29 sale. The yield reached 15.975 percent on Feb. 14, the highest level since Bloomberg started tracking the data in 2006.

Local banks bore the brunt of government financing and four credit rating cuts by Moody’s Investors Service effectively shut the country out of global markets. The central bank lowered the reserve requirement ratio on local-currency deposits by two percentage points last month to 12 percent to “ease credit conditions in the market.”

“The government should have held-off on long-maturity bonds sales until at least after the presidential elections so there’s more clarity on where the country is going,” said Nour Mohei-el-Din, assistant general manager for treasury at BNP Paribas Egypt.

IMF Visit
The Muslim Brotherhood, the dominant power in Egypt’s parliament, on March 31 chose its deputy leader Khairat el- Shater to be a candidate for president in the country’s May election, making him one of the favorites to win. The group has clashed in recent weeks with the military rulers who took over after Mubarak was ousted.

The government and political parties are holding talks with the IMF about a $3.2 billion loan to reduce borrowing costs and stem the decline in the country’s foreign-currency reserves, which plunged more than 50 percent since the uprising to $15.7 billion in February.

The IMF sent a technical committee to Egypt last week to discuss the loan and an 18-month economic program proposed by the government, Al Ahram newspaper reported on March 29, citing Finance Minister Momtaz el-Saieed. The program focuses on the budget deficit and revamping tax and customs laws, and won’t have a negative impact on the poor, the newspaper said.

The yield on the 5.75 percent dollar bonds due April 2020 gained five points to 6.55 percent on March 30, according to prices compiled by Bloomberg. The rate dropped 145 basis points last quarter, the biggest three-month drop since the notes were sold in April 2010. The Egyptian pound was unchanged at 6.04 a dollar on March 30.