Egypt Yields Hit Two-Year High as Bourse Closure, Probe Sends GDRs Sinking

Egypt’s borrowing costs are rising to the highest in more than two years and stocks listed overseas are tumbling as the Cairo exchange’s five-week shutdown and new rules on shareholder disclosure keep investors away.

The Ministry of Finance sold 3 billion pounds ($509 million) of bonds yesterday, 1.5 billion pounds less than planned, as yields on 266-day notes climbed 31 basis points from the last auction to 12.47 percent, data compiled by Bloomberg show. Global depositary receipts of Commercial International Bank Egypt SAE (CBKD) sank 15 percent in London last week to the lowest level since July. Orascom Telecom Holding SAE (OTLD) traded 5.2 percent below its Jan. 27 close, when the Egyptian Exchange shut down.

Egypt’s bourse delayed indefinitely the reopening planned for yesterday citing the resignation of Prime Minister Ahmed Shafik in a March 3 statement. Regulators said last week they may require investment funds to disclose their shareholders as part of a probe of officials linked to ousted president Hosni Mubarak. The new rules and the bourse’s closure are deterring foreign funds and may spur selling when trade resumes, according to F&C Asset Management Plc and ING Investment Management.

“The fact that Egypt’s market is not open today is a very big negative, especially as we do not have an idea of when it may reopen,” Ahmed Talhaoui, the Abu Dhabi-based head of investment at Royal Capital PJSC, which is 44 percent-owned by United Gulf Bank BSC, an investment bank in Bahrain, said in an interview yesterday.

‘Pariah’

The benchmark EGX 30 Index (EGX30) plunged 16 percent in its last two trading sessions before the closure. Investors have protested outside the bourse in Cairo to demand that trades in the final days be canceled and that shares be suspended in companies with links to the former Mubarak regime.

The U.S.-traded Market Vectors Egypt Index ETF (EGPT) has lost 6.2 percent in two weeks even as the MSCI Emerging Markets Index rose 1.5 percent.

Egypt risks becoming “a pariah of an investment destination,” said Jeff Chowdhry, the London-based head of emerging-market equities at F&C, which oversees about $163 billion worldwide. “If they value foreign investment in their stock market, they should get that market open immediately and take off any restrictions in terms of having too cumbersome administrative requirements.”

The bourse extended its suspension on Feb. 14 because of worker protests disrupting bank operations, exchange spokesman Hisham Turk said at the time. The exchange said on Feb. 22 it would have to put off opening in order to implement rules to limit daily share price moves. It postponed a planned reopening on Feb. 28 after investors facing losses criticized exchange chairman Khaled Seyam at a news conference, calling for an extension of the closure.

Disclosure Rules

The Egyptian Financial Regulatory Authority, the bourse’s regulator and the main clearing house, said on its website on March 2 that it may require brokerages and fund managers to disclose the owners of financial assets traded in the country as part of a probe of officials linked to Mubarak.

The Market Vectors Egypt Index ETF, an exchange-traded fund in New York that holds Egyptian shares, rose 19 percent between Jan. 28 and Feb. 14, three days after Mubarak’s fall. It has since lost 9 percent as the Egyptian bourse remained closed. Orascom Telecom rebounded 12 percent before losing 10 percent.

The EGX30 may drop another 10 percent when it eventually reopens, said Slim Feriani, London-based chief executive officer of Advance Emerging Capital Ltd., which manages $750 million in frontier and developing nation stocks including Egyptian shares.

MSCI Membership

“It’s difficult for people like us as international investors to do much in these markets, no matter how much they fall in the next few days or weeks,” Feriani said in a phone interview. The outlook for Egypt’s economy and companies is too uncertain to make investment decisions, he said.

Foreigners hold about $13 billion in Egyptian shares, Barclays Capital said in a Jan. 18 report, and account for almost 25 percent of trading.

If the market is closed for 40 days or more, MSCI Inc. may begin investor talks to determine whether to remove Egypt from the MSCI Emerging Markets Index, Frank Nielsen, the company’s executive director for equity and applied research, said in a telephone interview from New York on March 1. Argentina removed from the index in 2009, when it was reclassified as a frontier market, according to MSCI’s website.

New Cabinet

Prime Minister-designate Essam Sharaf may announce the full list of his cabinet by the end of the week, spokesman Magdy Rady told reporters on March 5. Economic growth will slow to about 4 percent in this fiscal year through June, from an earlier forecast of about 6 percent, Finance Minister Samir Radwan said.

“On Egypt I’m really disappointed on the way it’s been handled,” said Fadi Al Said, a Dubai-based senior investment manager at ING Investment Management, which oversees about $518 billion worldwide. His ING L Invest Middle East & North Africa fund has beaten 88 percent of peers in the past year, according to data compiled by Bloomberg. “I hope that the market will open up soon and let’s get over with this cleanout, because this will create massive opportunities,” he said.

To contact the reporters on this story: Jason Webb in London at jwebb25@bloomberg.net; Michael Patterson at mpatterson10@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net.

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