Experts expected interest in the certificates to be high, due to the attractive yield of 12 per cent. But even the most optimistic among them said that the government would sell LE20 billion worth of certificates at most, and would have to cover the rest of the LE60 billion needed for the project through bank loans. In the end, however, the LE20 billion figure was reached in only the first three days of the issue, pushing many observers to believe that the whole cost of the project could be covered by certificates purchased over the course of one week. “I withdrew my deposits from two different banks and put all of them into the new issue,” said Sabry Abo Allam, a retired engineer. “My wife tried to convince me not to invest the whole sum, but when I saw the demand I was more convinced than ever that this was a good investment.” Thousands of people like Abo Allam withdrew their savings to invest in the issue, raising concerns that this might cause the banking sector to experience a liquidity crunch, especially since 40 per cent of liquidity is already directed to treasury bills and bonds. “These are far-fetched fears,” said Monsef Morsy, a senior banking analyst at CI Capital, a leading investment bank. “Those who have withdrawn money from the banks belong to people whose deposits range from one to five years and do not exceed 20 per cent of overall deposits in the listed banks. So there should be no impact on the banks as a result of the withdrawals.” Not all the money invested in the issue came from the banking sector. Egyptians are often under-banked, as millions still keep their money in their homes, in dollars or gold, rather than depositing it in the banks, Morsy added. The banking sector also has huge unemployed liquidity as the percentage of deposits to loans in the sector as a whole is 50 per cent, according to a banker at one of Egypt's listed private banks. “These deposits cost the banks high interest rates if they are not used in investments making a higher yield,” he explained. “‘If depositors are withdrawing costly deposits to finance a national project, rather than the government borrowing from the banks, and they are getting a rewarding yield, then all parties are benefiting,” the banker, who asked to remain unnamed, added. There has been a retreat in private-sector funding in recent years, and Morsy believes that an improvement in the macroeconomic situation due to the development of the Suez Canal project will indirectly solve this problem. “Such a project will start attracting investors, and Egypt will once again become an investment destination. Foreigners will resume buying treasury bills, and there will be more liquidity available for banks to extend financing to the private sector,” he said. Foreign investments in treasuries took a nosedive after the 25 January Revolution, descending from their peak of $10 billion in 2010. Foreign direct investment then started to recover, doubling in the year ending in June to reach $6 billion. Buyers of the issue also include companies, syndicates and even Al Azhar University. However, Samer Attallah, a professor of economics at the American University in Cairo, said it was hard to tell whether the Suez Canal project was economically feasible or not given the lack of independent studies. “It is important to bring another perspective to the economic feasibility of the project, which is the opportunity-cost perspective. A LE60 billion budget could have been better used in the current economic condition of Egypt. I would argue that the country's ailing infrastructure is in dire need of such resources. Such investment, for instance in the electrical grid, could have much better economic returns than on the new Suez Canal,” he said. Meanwhile, the Egyptian pound has benefited from the issue. According to Reuters, the dollar has lost ground on the black market, with the pound trading at LE7.30 to the dollar, slightly stronger than last Thursday's 7.38. “This is normal. There is demand for the pound and hence its price increases. Whether it will remain in this direction is hard to tell given that there are numerous factors that come into play,” Attalah said. The demand is not expected to fade, at least until the canal issue is fully sold, the banker said, citing the government's efforts to assure investors that the issue is risk-free. Minister of Finance Hani Kadri said Sunday that over the next five years the government will annually put aside LE19 billion in a special account to repay the certificates upon maturity. This sum includes interest costs, estimated at LE7.2 billion, and one fifth of the issue's value, LE12 billion.
