Egypt plans to sell about 60 percent more government bonds next quarter after political unrest prompted authorities to delay an International Monetary Fund loan regarded as crucial to regaining investor confidence. The Finance Ministry will seek to sell 26 billion pounds ($4.2 billion) in bonds maturing in three years to 10 years, compared with about 16 billion pounds sold so far this quarter, according to an issuance calendar obtained yesterday by Bloomberg News and central bank data. Egypt also plans to raise 134 billion pounds of T-bills due in a year or less. The plan marks a reversal of the government's strategy last quarter to cut long-term debt sales by 49 percent in expectation of a $4.8 billion IMF loan deal. Public opposition to tax increases linked to the deal led authorities to delay the loan this month even as the country, which Standard & Poor's rates at the same level as Greece, struggles to finance the Middle East's biggest budget deficit. The borrowing plan includes 30.3 billion pounds of new debt, Bloomberg calculations show. “Unless we see liquidity inflows from the central bank or foreign investors, local banks will have to carry the burden of the extra debt," Amr Seif, chief dealer at Piraeus Bank Egypt, said by phone yesterday. “The IMF loan is crucial as a signal for foreign investors to come back." ‘Significant' Risk Reducing long-term bond sales last quarter helped push the average-yield on three-year notes down 17 basis points, or 0.17 percentage point, to 13.89 percent. That compares with a 25 basis-point increase in the three-month treasury bill yield to 12.96 percent, according to central bank data on Bloomberg. Egypt's credit rating was lowered by one level at S&P on Dec. 24 to B-, six steps below investment grade, with a negative outlook. The rating, which is also on par with Pakistan, may face more downgrades should political instability result “in a sharp deterioration of economic indicators such as foreign exchange reserves or the government's deficit," S&P said. The agency today cut ratings of state-owned National Bank of Egypt and Banque Misr SAE, as well as Commercial International Bank Egypt SAE (COMI), to the same junk level as the state, citing “significant sovereign risk because they hold a high amount of government debt compared to their equity bases and earnings capacity." Shares of CIB, the biggest publicly traded lender, fell 0.4 percent at the close in Cairo. Higher Costs The ratings cut won't affect IMF loan negotiations and the country isn't at risk of bankruptcy, Cabinet Spokesman Alaa El- Hadidi told reporters in Cairo today. Egypt's foreign-currency reserves have plunged almost 60 percent since the uprising that ousted President Hosni Mubarak as foreign investors sold their holdings of state debt. The budget deficit may reach 10.5 percent of economic output in the fiscal year ending June 2013, according to the median estimate of seven analysts on Bloomberg. That exceeds forecasts of 6.4 percent and 2.5 percent for like-rated Greece and Argentina, respectively. The yield on the government's 5.75 percent dollar bonds due April 2020 fell two basis points to 5.99 percent at 3:53 p.m. in Cairo, trimming this month's jump to 81 basis points amid growing political unrest. The yield is down 201 basis points this year. The pound, subject to a managed float, weakened 0.1 percent to 6.1788 a dollar, the lowest in eight years. It has depreciated 1.1 percent this month and 2.4 percent this year. Egypt will seek to raise 6 billion pounds in one-year and six-month treasury bills tomorrow, central bank data on Bloomberg show. “Theoretically, yields should increase again based on the projected liquidity shortage in the absence of fresh funds from outside the banking sector," Seif said. Bloomberg
