Egypt’s Dollar Debt Costs Plunge as Gulf Money Trumps Low Demand

Egypt paid the lowest yield on record to raise $1.8 billion in an auction of dollar-denominated treasury bills as additional aid pledges from the Persian Gulf overshadowed low demand for the securities.

The average yield on the notes dropped 114 basis points, or 1.14 percentage point, from the last similar sale in June to 2.74 percent, according to an e-mail from the central bank today. That’s the lowest since the government started auctioning the notes two years ago. Bids were 1.3 times the $1.7 billion of securities offered, the lowest in 13 auctions over that period, data compiled by Bloomberg show.

Egypt’s borrowing costs have tumbled in the aftermath of the military’s overthrow of President Mohamed Mursi in July as Saudi Arabia, the United Arab Emirates and Kuwait pledged about $15 billion in aid to the North African country. Kuwait plans to buy $2 billion of Egyptian bonds as part of a second aid package, the Cairo-based Al Borsa newspaper reported today, citing an unidentified Egyptian central bank official.

“Dollar yields are catching up with the rest of the market and money from the Gulf is improving sentiment for the economy, overriding low demand for the debt,” Nour Mohei-el-Din, assistant general manager for treasury at BNP Paribas Egypt SAE, said by phone. “This also opens a window for the government to borrow more foreign currency locally as it seeks to boost growth.”

Boosting Reserves

Standard & Poors raised Egypt’s rating to B- this month after six downgrades since the start of the uprising that ousted president Hosni Mubarak in 2011. The nation began selling foreign-currency debt locally that year to boost foreign reserves by tapping growing bank deposits. Egypt has $1.72 billion of debt due tomorrow, data compiled by Bloomberg show.

The government also raised 4.5 billion Egyptian pounds ($654 million) of treasury bonds today, paying 11.65 percent on the 18-month notes, 13.1 percent on five-year bonds and 14.46 percent on 10-year securities, according to the Finance Ministry’s website.

The yield on the government’s benchmark $1 billion of 5.75 percent Eurobonds due in April 2020 fell five basis points to 7.3 percent as of 5:15 p.m. in Cairo, set for the lowest close in almost three weeks. The pound was little changed at 6.8875 a dollar after a regular central bank currency sale in which banks received 19 percent of their demand, on average.

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