Another Fundraising Door Shutting for Egypt as Bond Yields Soar

To buy the nation’s international bonds instead of Treasuries, investors are demanding the highest premium in more than two years, with the yield spread exceeding the average for emerging-market debt, according to data compiled by Bloomberg. The last time Egypt’s spread over Treasuries exceeded that of emerging markets, the yields made the sale of bonds unaffordable.

Nineteen months after the election of President Abdel-Fattah El-Sisi, the former head of the military, Egypt is still unable to meet its economy’s hunger for dollars and is running out of resources to plug the gap. Cash aid from Gulf Arab allies has dried up with the plunge in oil prices and exports are down. Tourism and foreign investment never recovered fully from the Tahrir Square uprising that toppled President Hosni Mubarak in 2011, after which surging borrowing costs effectively shut Egypt out of international markets.

“Egypt is very cost sensitive at a time when funding is not highly available for emerging-market issuers that have non investment-grade ratings,” said Lutz Roehmeyer, who oversees about 1 billion euros ($1.1 billion) of developing-nation debt as director of fund management at Landesbank Berlin Investment GmbH. Despite the rise in the nation’s spreads, “from our point of view, Egyptian debt is a bad investment as the huge risks are not compensated by high enough interest on the bonds,” he said.
Gulf Aid

After ending a five-year drought of international bond sales in June, officials delayed a second issuance slated for the fourth quarter because of rising borrowing costs. Egyptian authorities have burned through more than $20 billion in aid received from Gulf Arab allies since July 2013. The country lost more than half of its foreign reserves in the last five years to $16.4 billion.