Cairo: Egypt's 2020 dollar bonds had their best week ever, signalling a chance for the country to sell foreign-currency debt to cut record borrowing costs.
The yield on the 5.75 per cent securities slid 0.9 of a percentage point last week to 6.85 per cent. The rate rose one basis point at 11.40am in Cairo yesterday. It has dropped 193 basis points since reaching an all-time high on January 11 as Egypt's new parliament convened and talks resumed with the International Monetary Fund amid peaceful rallies to mark the one-year anniversary of the uprising that forced out the president.
Temper pressure
The nation's benchmark stock index surged 15 per cent last week as foreign investors returned and the cost to protect against a default by the nation tumbled for a third week. The country should take advantage of the momentum to sell debt abroad, according to investment firms such as Fischer Francis Trees & Watts and Landesbank Berlin Investment.
"A combination of an IMF agreement appearing imminent and reduced political uncertainty allowed markets to rally," London-based Michel Aubenas, who helps manage $5.5 billion (Dh20 billion) in emerging market debt at Fischer Francis Trees & Watts said by e-mail on January 26. A bond sale would be "well received," he said.
"The yield would be attractive and, for Egypt, it would temper the pressure on domestic rates."
Domestic borrowing costs have risen to records, forcing the Finance Ministry to cancel a sale of three-month bills until April and trim the amount it raised at treasury bill and bond auctions. The government sold 43.1 billion Egyptian pounds (Dh26 billion) in January, or 30 per cent less than targeted. It offered two billion pounds each of three- and five-year T-bonds yesterday.
Egypt had aimed to raise a record 170 billion pounds this quarter, according to the Finance Ministry, as it tries to plug a budget deficit of 8.7 per cent of gross domestic product in the current fiscal year. Moody's Investors Service and EFG-Hermes Holding SAE, estimate the gap will reach at least ten per cent.
"The political transition is looking clearer, but the economic outlook, with respect to growth and the Egyptian pound, is still uncertain," said Simon Kitchen, Cairo-based strategist at EFG-Hermes.
Foreign reserves tumbled 50 per cent in 2011 to $18.1 billion and economy growth slowed to an annual rate of 0.5 per cent in the quarter that ended in September from 5.6 per cent in the previous year. The benchmark EGX 30 Index plunged 49 per cent, making it the world's third-worst performer in 2011.
The yield on Egypt's 2020 dollar notes is still more than one percentage point higher than that of similar Lebanese debt, rated one level lower than Egypt by Standard & Poor's and two by Fitch Ratings.
Egypt's pound reached a seven-year closing low of 6.0426 a dollar on January 18. It has since strengthened to 6.0293.
Countries have yet to deliver on promises to provide aid, Kamal Al Ganzouri, the country's third interim prime-minister in a year, said last month. "Nothing has arrived" from the $35 billion pledged by the Group of Eight major economies to Egypt and Tunisia, he said. $1 billion of the at least $7 billion pledged by Arabian Gulf governments has materialised, he added.
To help fill the gap, the Finance Ministry sold dollar-denominated one-year treasury bills for the third time in as many months in January.
"Egypt should raise as much dollars as possible now because it needs them and the environment is good," said Lutz Roehmeyer, who helps oversee about €11.5 billion (Dh55 billion) at Landesbank Berlin Investment.
Egypt is negotiating a 1.1 per cent interest rate for the $3.2 billion IMF loan it requested to help support an 18-month economic reform plan now under development, according to Minister of Planning and International Cooperation Fayza Aboul Naga.