Egypt Stocks Fall on Signs of Deepening Rift With Saudi Arabia

  • Suspension of Aramco aid confirmed by Egyptian Oil Ministry
  • Egyptian pound plunges to record in black-market trading

Egyptian stocks declined for a second day and the currency fell to a record low on the black market after Saudi Arabia suspended a fuel-aid program, prompting concern among investors of a deeper dispute with one of the country’s key financial backers.

The benchmark EGX 30 Index lost 1.6 percent, the most since Sept. 15, to 8,232.77 at the close in Cairo. About 678 million Egyptian pounds ($76 million) of shares traded, 21 percent more than the market’s three-month daily average. The Egyptian pound weakened to its lowest level since the start of a weekly Bloomberg poll of unregulated trading in 2013.

The Saudi decision, for which no official reason was announced, follows Egypt’s vote in the United Nations in favor of a Russian-drafted resolution on Syria that the kingdom opposed. Egypt has received billions of dollars in cash and oil from Saudi Arabian Oil Co., known as Aramco, over the past three years and is counting on continued support to seal its bid for an International Monetary Fund loan.

"People are connecting Aramco’s decision to halt oil product supplies with Egypt’s vote at the UN Security Council and are afraid there will be problems with Saudi Arabia, who is the biggest supporter of the economy and an important ally," Hassan Kenawi, a vice president at Cairo-based HC Brokerage said.

The Saudi decision comes at a time when Egyptian authorities are looking to raise at least $5 billion dollars, which the IMF has set as one requirement for its approval of the North African country’s $12 billion loan request. Egypt must also implement reforms to its foreign-exchange and subsidy policies, the IMF said, both of which risk fueling inflation and public discontent in a country where millions of people live in poverty.

To make up for the cut in Saudi oil products, Egypt has imported fuel to cover its needs this month, the country’s Oil Ministry said today.

The pound tumbled to 14.78 in the black market on Tuesday, according to the average price from three dealers in Cairo surveyed by Bloomberg, on growing speculation that the government will weaken the official exchange rate and possibly float the currency. Money changers taking part in the survey ask not to be identified because they are discussing trading outside price limits set by central bank, which is illegal.

"An aggressive devaluation is right around the corner," Reham El Desoki, a Cairo-based senior economist at Arqaam Capital, said in an e-mailed report on Tuesday.

Yields on the nation’s Eurobonds due in 2025 rose for a fifth day, rising 10 basis points to 6.88 percent, the highest since July. Egyptian officials have said that they are seeking to issue as much as $5 billion in new securities by the end of he fiscal year in June, with the first tranche planned for this quarter.

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