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Egypt’s Record Debt Offering Plan on Track Amid Power Struggle

Egypt will offer 15 billion Egyptian pounds ($2.5 billion) of debt by July 16 amid a power struggle between the president and the military. Dollar bonds were little changed.

Egypt will sell six- and 12-month securities valued at 2 billion and 3.5 billion pounds tomorrow, respectively, according to central bank data on Bloomberg. It will seek bids for 2.5 billion pounds and 3.5 billion pounds of three- and nine-month notes on July 15. The government has raised the targeted 29 billion pounds from debt sales so far this quarter.

Borrowing costs have stabilized after the central bank cut a key reserve ratio for banks and added 28-day repurchase agreements to the seven-day contracts it already offers. The funds made available to the market in the last two weeks helped lower yields on one-year notes to 15.87 percent at last week’s auction from 15.97 percent at the end of June, near the highest level since Bloomberg started tracking the data in 2006.

“We’re seeing a positive trend in yields,” said Khalil El Bawab, head of fixed-income at Cairo-based EFG-Hermes Holding SAE. “For that to continue we need to see foreign inflows or fresh funding, which are largely dependent on the perception of currency risk. The reserve ratio cut freed up funding for banks but on its own it’s not enough to sustain the decline in yields.”

Court Ruling

The nation’s highest court yesterday overturned a decree by newly-elected President Mohamed Mursi that reinstated parliament. The decision, which reaffirmed a June ruling, effectively returns legislative authority to the military until a new parliament is elected. Mursi is yet to appoint a prime minister.

Egypt plans to raise a record 175 billion pounds from debt sales in the three months ending September and has relied on local banks to buy debt as foreigners exited the market amid unrest that followed President Hosni Mubarak’s ouster last year. The central bank cut the local-currency reserve ratio for lenders twice this year to 10 percent.

The pound, subject to a managed float, was little changed at 6.0625 a dollar at 2:32 p.m. in Cairo. The yield on the 5.75 percent dollar bonds due April 2020 held at 6.26 percent, according to prices compiled by Bloomberg.

The government will also sell 2 billion pounds and 1.5 billion pounds of three- and seven-year bonds on July 16, the data show.

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