Egypt paid yields that were close to the highest in two years at its first debt auction since the ouster of President Hosni Mubarak amid investor concern over the economic effects of 18 days of demonstrations.
The Ministry of Finance sold a combined 6.5 billion pounds ($1.1 billion) in 91-day and 266-day bills at a sale yesterday. The three-month bills yielded an average 10.95 percent compared with 10.97 percent at last week’s sale, the highest since February 2009. Egypt’s bourse, closed for more than two weeks, will open Feb. 16 to allow companies to disclose the impact of protests on their business. Middle East shares rose yesterday.
“The yields will stabilize or reverse direction to become a little lower” in the short and medium term, said Walaa Hazem, who helps run about $1 billion in equity and fixed-income as vice president for asset management at Cairo-based investment bank HC Security & Investment Co. A widening budget deficit and the likelihood of a drop in economic growth will prevent yields from falling “significantly,” he said.
Finance Minister Samir Radwan said in a Feb. 12 interview economic growth may drop to 4 percent in the fiscal year through June from 5.1 percent in the previous 12 months. The International Monetary Fund estimated before the unrest began that the country’s economy would expand 5.5 percent in 2011, more than twice the 2.5 percent growth rate the IMF forecast for developed countries.
An increase in public spending may push the budget gap to “double digits” in 2011, compared with 8.1 percent in the fiscal year that ended in June, Standard & Poor’s said Feb. 1 after lowering the country’s credit ratings by one level to two below investment grade. Fitch Ratings and Moody’s Investors Service also cut Egypt’s ratings.
Egypt’s dollar bonds due 2020 reversed losses after Mubarak’s resignation on Feb. 11, sending the yield down 15 basis points, or 0.15 percentage point, to 6.35 percent on Feb. 11. That’s still higher than the low for 2011 of 5.16 percent on Jan. 4. The yield on the 266-day bills in yesterday’s auction rose to 11.68 percent, the highest in two years, from 11.66 percent.
“Considering the current risk, it’s normal for investors to continue to demand high yields,” Moustafa Assal, managing director of Cairo-based Beltone Financial’s fixed income unit, said yesterday. “I don’t expect yields to shoot up to the 15 percent level unless we see more instability or problems with liquidity. They should remain relatively high in the short term.”
Egypt’s Army dissolved the country’s parliament and suspended the constitution yesterday, saying it will rule for six months or until general elections are held. The military in a statement promised to honor all international and regional treaties signed by the North African nation. Egypt has a peace accord with Israel that dates from 1979.
Israeli shares rose the first time in four days, gaining 0.4 percent yesterday and Abu Dhabi’s stock index climbed 0.6 percent to the highest in a month. The Market Vectors Egypt Index ETF, an exchange-traded fund that holds Egyptian shares, climbed 4.5 percent in New York on Feb. 11.
Egypt’s benchmark stocks index tumbled 16 percent in the week before the suspension. The stock exchange will give companies a chance to divulge “all information about their financial and operational situation, which will give investors the ability to evaluate the latest developments and take the appropriate investment decisions,” the Cairo-based exchange said Feb. 12. Feb. 15 is a public holiday.
‘Back to Normal’
Global depository receipts of Telecom Egypt surged 4.4 percent in London trading on Feb. 11 after earlier tumbling as much as 8.9 percent. The largest fixed-line telephone operator in the Middle East said yesterday it approved a 15 percent pay raise for its workers.
EFG-Hermes Holding SAE, the Egypt’s biggest publicly traded investment bank, distanced itself from the former president’s son, Gamal Mubarak, saying his involvement in the firm is limited to an 18 percent stake in a subsidiary that contributes 7 percent to its income. EFG’s London shares are little changed since Jan. 27 after paring a drop of as much as 5.6 percent on Feb. 11.
The cost of insuring Egyptian government debt against default for five years declined 16 basis points to 322 on Feb. 11, according to CMA prices. It peaked at 442, the highest since April 2009, on Jan. 31.
“We are starting to get back to normal, but there are still a few twists and turns along the road,” Wael Ziada, head of research at EFG-Hermes, said in a telephone interview. “The entity ruling today has to send a very strong message that Egypt is committed to reforms, that there will be reforms.”
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