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Egypt Sells 10-Year Bonds for 1st Time Since Mubarak Ouster

Egypt sold 10-year bonds for the first time since the start of its revolution more than a year ago at an average yield of 17.03 percent, in line with forecasts, as the nation moves closer to securing foreign aid.

The average estimate of six fixed-income analysts and traders surveyed by Bloomberg News was for a yield of 17.28 percent. The government auctioned 1 billion Egyptian pounds ($166 million) of the notes maturing in April 2022, according to central bank data on Bloomberg. The nation last issued similar- maturity bonds in January 2011 yielding 13.04 percent. Egypt also sold three-year and seven-year notes today.

The offering is part of a Finance Ministry 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 sales 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.

Yields Fall

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 longer-term bonds would provide more stability over short-term treasury bills, he said.

The most-populous Arab country also offered 2 billion pounds of three-year securities and 1 billion pounds of seven- year bonds. The country raised its target amount for each of the maturities, according to central bank data on Bloomberg.

The average yield on three-year notes fell eight basis points to 16.17 percent from the last sale of similar-maturity notes on March 26. The seven-year securities yielded 16.88 percent. The mid-yield on 10-year bonds in the secondary market was at 16.89 percent today, according to data compiled by Bloomberg.

Today’s sales represent new issuances, rather than re- openings, or roll-overs on maturing debt.

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 jumped 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.

Holding Off

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 cost of insuring Egypt’s sovereign debt against default for five-years fell 80 basis points in the first quarter to 560, according to CMA, which is owned by CME Group and compiles data from the privately negotiated market. That’s still the highest rate in the Middle East, more than 100 basis points over second- place Lebanon.

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 International Monetary Fund 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 fell three basis points to 6.52 percent at 2:39 p.m. in Cairo, according to prices compiled by Bloomberg. The rate dropped 145 basis points in the last three months, the biggest quarterly decline since the notes were sold in April 2010. The Egyptian pound strengthened less than 0.1 percent to 6.0395 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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