Egypt Pulls Bond Sale as Suez Canal CDs Prompt Yield Demands

Egypt scrapped a bond auction for the first time this quarter amid concern banks would drive up borrowing costs as government certificates financing the Suez Canal’s expansion compete for depositor funds.

The central bank, which conducts debt sales on behalf of the Finance Ministry, called off today’s auction of 2 billion Egyptian pounds ($280 million) of five-and 10-year notes, according to data posted on Bloomberg. The announcement came after the government raised less than a fifth of the 6 billion pounds it sought yesterday. Bids at the sale of three- and nine-month securities more than covered the target, the data show, meaning the government probably rejected orders because yield demands were too high, according to Ahmed Kheir Eldin, a fixed income trader at Bank of Alexandria SAE.

Egypt will start selling five-year Suez Canal CDs to the public this week and will pay citizens an annual rate of 12 percent, Central Bank Governor Hisham Ramez said in an Aug. 17 interview with al-Arabiya news channel. Similar-maturity CDs sold by state-owned National Bank of Egypt SAE, Banque Misr SAE and Banque du Caire SAE have rates of less than 10 percent.

“Banks are adjusting to the risk of increase in their cost of funding as the proposed Suez Canal CDs enter the market,” Kheir Eldin said by phone from Cairo yesterday. The bank is one of 15 primary dealers authorized to buy debt directly from the government. Egypt “is sending a message to the market that it won’t accept paying high yields on long term debt,” he said.

Planned Auction

Since the start of political turmoil in 2011, the North African nation has relied on domestic banks to buy government debt in the near absence of foreign investors. Egypt sold 623.4 million euros ($823 million) of one-year T-bills today, according to central bank data. The average yield on the notes fell 19 basis points from the last similar auction in November to 1.98 percent. The government has 550 million euros of maturing debt tomorrow, data compiled by Bloomberg show.

Samy Khallaf, head of the finance ministry’s debt management unit, didn’t respond to three phone calls and a text message requesting comment.

Egypt last sold five- and 10-year debt this month at average yields of 14.4 percent and 15.94 percent as part of a plan to raise a record 220 billion pounds this quarter. Borrowing costs jumped in July following the central bank’s decision to raise the benchmark interest rate for the first time since March 2013 to counter higher inflation.

The digging of a channel parallel to the existing Suez waterway would allow its annual revenue to more than double to $13 billion in four years, Finance Minister Hany Kadry Dimian said last week.