Egypt Default Risk Retreats Fifth Day on Referendum, Bourse

Egypt’s default risk dropped for a fifth day, the longest stretch of losses since April, after voters approved a constitutional referendum and the government agreed to resume equity trading for the first time in seven weeks.

The cost of protecting Egyptian bonds against default for five years fell 19 basis points, or 0.19 percentage point, to 352.5, according to CMA prices in London. The contracts climbed to as high as 442.3 on Jan. 31, just after the stock market shut and protests to unseat former President Hosni Mubarak grew.

Investors perceive increased stability in Egypt after voters backed changes to the constitution March 19, paving the way for parliamentary and presidential elections by year-end, in the Arab country’s first referendum since Mubarak’s ouster last month. The cabinet, meeting yesterday in Cairo as dozens of investors demonstrated outside with placards that read “Enough!” and “Our livelihood has been ruined,” agreed to open the bourse tomorrow.

“We have surpassed an important milestone which is the referendum, which means the environment is more stable and more conducive to opening the stock market,” said Wael Ziada, the head of research at Cairo-based EFG-Hermes Holding SAE.

Gulf Stocks Up

London-traded shares of Orascom Telecom Holding declined from a one-month high, falling 5.7 percent to $3.15 at the 3:40 p.m. close. Orascom Construction Industries, Egypt’s biggest publicly traded builder, lost 4.5 percent to $35. Telecom Egypt global depositary receipts soared 13 percent to $11.50, while EFG Hermes Holding SAE lost 5.5 percent in London. Stocks in the Persian Gulf have climbed 4.5 percent this month, based on the Bloomberg GCC 200 Index.

Egypt’s “market should have opened a long time ago,” said Mohamed Radwan, the head of international sales at Cairo-based Pharos Holding for Financial Investments. “But this week is better because of the positive movements in the GDR market, Gulf markets and also after a successful referendum.”

Egypt’s cabinet said in a statement it will open the stock market after taking “all necessary measures” to “ensure the safe opening and smooth trading of the bourse.” The cabinet also announced the appointment of Mohamed Abdel Salam, head of the state-run clearing house, to supervise the stock exchange for six months, replacing Khaled Seyam, who resigned.

Plunge on Uprising

The stock market has been closed since the end of trading Jan. 27 after the benchmark EGX 30 Index plunged 16 percent that week amid the uprising that toppled Mubarak. Orascom Construction London-traded shares are down 7 percent since the local market shut, while Orascom Telecom lost 3.1 percent. Telecom Egypt, 80 percent owned by the government, has lost 16 percent over the same period.

The stock market in Cairo will be governed by rules approved during the closure, including a 10 percent limit on daily equity moves and a halt to intraday and margin trading. In addition, brokerages needing financial support will have partial access to an emergency fund.

The exchange’s scheduled opening tomorrow makes its removal from the MSCI Emerging Markets Index less likely, Frank Nielsen, executive director for equity and applied research at MSCI Inc., said in an interview yesterday.

MSCI Deadline

“If the stock exchange opens on Wednesday that will be great news,” Nielsen said. “That certainly would make it less likely that it would be downgraded.”

The opening will fall on the 38th business day since its closure. If the market is closed 40 business days or more MSCI may begin investor talks to determine whether to remove Egypt from the emerging markets index, Nielsen said March 2.

“The MSCI deadline should not be overlooked, but more importantly, decisions going forward have to be reasonable, transparent and consistent with the emerging markets status, or there’s the risk of being downgraded,” EFG-Hermes’ Ziada said.

Egypt’s default swaps traded last year as low as 185 in New York in May. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Finance Minister Samir Radwan forecasts economic growth of 4 percent this fiscal year, down from the pre-crisis estimate of 6 percent, after the revolt that toppled Mubarak curtailed factory production and deterred tourists.

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