Egypt Bonds Post Worst 3-Day Drop in 14 Months on Clashes

Egypt’s benchmark bonds posted the steepest three-day drop in 14 months as Muslim Brotherhood supporters took to the streets to protest the deadly government crackdown that left hundreds dead, sparking renewed clashes.

The 5.75 percent dollar-denominated debt maturing April 2020 fell 4.3 percent in the past three days, as per data compiled by Bloomberg. That’s the most since the period ended June 22, 2012, the final trading day before Mohamed Mursi, who was ousted by the army last month, was declared Egypt’s first democratically elected president. The London-traded shares of Commercial International Bank Egypt SAE fell to a one-month low.

Egypt’s default risk rose to a five-week high as thousands of Egyptians poured into the streets of Cairo after Friday prayers, and at least 27 people died in ensuing violence. The bloodiest day in Egypt’s recent history and its aftermath, which left at least 600 dead according to official figures, triggered the closing of the nation’s stock exchange and banks Aug. 15.

“Egypt has shown that events can unfold quickly and unpredictably,” William Jackson, a London-based emerging-markets economist at Capital Economics Ltd., said by phone yesterday. “The heightened political uncertainty may cause renewed capital flight, which would put further pressure on the pound and force the central bank to burn through its foreign-exchange reserves to support the exchange rate.”

Saudi Support

The Egyptian pound depreciated 9 percent this year as the central bank eased support for the currency to conserve foreign reserves, which have slumped by almost half since the 2011 revolt that ousted former President Hosni Mubarak. The currency strengthened 0.6 percent since July 3, the day the army overthrew Mursi, to 6.9889 a dollar on Aug. 14.

Saudi Arabia’s King Abdullah said in a statement to Al Arabiya television yesterday that anyone who “interferes” in Egypt’s internal affairs risks “instigating strife.” Persian Gulf countries including the kingdom pledged $12 billion of aid to the army-backed government, helping boost reserves by almost $4 billion in July to $18.9 billion.

Global depositary receipts of Commercial International Bank, Egypt’s biggest publicly traded lender, dropped 2.9 percent to $4.66, the lowest since July 18. The GDRs tumbled 11 percent in the past five days, the steepest weekly drop since June 14. Orascom Telecom Holding’s London-traded shares lost 3.3 percent to $2.95, the lowest close in two weeks.

Gulf Money

“King Abdullah’s unequivocal support for the army coup means that the Gulf money spigot will continue to flow and the Egyptian pound will remain stable,” Emad Mostaque, a London-based strategist at Noah Capital Markets, said by e-mail yesterday. “Thus, significant, sustained widening in bonds is unlikely, with most of the pain being in the stock market.”

Aug. 15 was the first time the bourse faced an unscheduled shutdown since the January 2011 revolt, when trading was suspended for almost two months. The market will reopen Aug. 18, according to the exchange.

The yield on the 2020 bonds rose 16 basis points to 9.18 percent in Cairo, capping an 85 basis-point increase since Aug. 14. Credit default swaps, contracts insuring the nation’s debt, have jumped 59 basis points in the past three days to 809, the highest on a closing basis since July 9, CMA data show

Egypt has struggled to pull the economy out of the worst slump in two decades as talks with the International Monetary Fund for a $4.8 billion loan halted.

The army, which has assumed responsibility for maintaining order after a state of emergency and curfews were declared, was deployed in force in central Cairo yesterday as tear gas was fired at crowds. The government authorized security forces on Aug. 15 to use live ammunition to repel attacks on personnel or government buildings after attacks on state offices.

“Uncertainty may lead to even less investment over the next few years,” Capital Economics’ Jackson said. “It’s impossible to say how long this will go on for.”

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