Egypt to Offer $2 Billion Debt After 3rd Budget Gap Revision

Egypt plans to sell 12 billion Egyptian pounds ($2 billion) in treasury bills and bonds during the next week after revising its budget deficit target for the third time since the fiscal year started July 1.

The North African country will offer 11 billion pounds in three-, six-, nine- and 12-month notes and 1 billion pounds in seven-year bonds, according to Central Bank of Egypt data on Bloomberg. The yield on one-year securities rose at the last 10 auctions to a record 15.399 percent at the last sale on Dec. 29.

Egypt’s local borrowing costs soared and its dollar bonds have slumped as the country’s interim governments failed to set clear economic policies following the ouster of former President Hosni Mubarak almost a year ago. Finance Minister Mumtaz el-Saeed said yesterday the government is sticking to the 8.6 percent budget deficit target it set in June, down from the 10 percent goal announced by the Minister of Planning, Fayza Aboulnaga, on Dec. 15.

“There’s nothing concrete to show the government will accomplish its budget deficit goal so the market probably won’t react positively and will likely demand higher yields,” Nour Mohei-el-Din, Cairo-based assistant general manager for treasury at BNP Paribas Egypt, said by telephone. “There are still a lot of unresolved issues relating to political stability which will continue to keep foreign investors out and local ones reason to demand higher returns.”

Foreign Investment

Minister of Trade and Industry Mahmoud Eissa told Germany’s Handelsblatt that Egypt is considering asking for aid from the International Monetary Fund as “an option,” and will shortly begin a series of “road shows” abroad to attract foreign investment. His comments came after Aboulnaga said this week the government has asked the IMF to postpone “by a few weeks” talks on a $3.2 billion loan originally planned for this week. Egypt had turned down a similar loan package from the agency last June.

The yield on Egypt’s 5.75 percent 10-year dollar bond due April 2020 rose for a fourth day, gaining three basis points, or 0.03 of a percentage point, to 8.07 percent at 2:52 p.m. in Cairo. This is on par with the rate on Dec. 23, the highest since the notes were issued. The pound was little changed at 6.0332 a dollar.

Default Swaps

The cost of protecting Egypt’s government bonds using credit-default swaps was unchanged at 642, according to CMA, which is owned by CME Group Inc. and compiles data from the privately negotiated market. Egypt’s credit default swaps rate is the highest in the Middle East.

The central bank, which holds local debt auctions on behalf of the Finance Ministry, will seek bids tomorrow for six-month and one-year bills valued at 2 billion pounds and 3.5 billion pounds, respectively. It will offer three- and nine-month notes valued at 2 billion pounds and 3.5 billion pounds, respectively, as well as the seven-year bonds on Jan. 9.

The Ministry canceled the sale of three- and five-year bonds earlier this week because it deemed investors’ demands for yields of more than 16 percent too high, a government official with knowledge of the decision said at the time.

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