CAIRO: Egypt said it would offer $2 billion in 1-year US-dollar treasury bills at an auction next week as it struggles to raise funds to finance a growing budget deficit, but analysts said a rating downgrade and political unrest could make it a hard sell. Violent protests ahead of the country's first parliamentary elections since an uprising ousted president Hosni Mubarak in February led to a fresh sell-off of Egyptian assets this week. The deficit has burgeoned since the uprising and last month the finance minister said liquidity at domestic banks had almost been exhausted. Yields on domestic Egyptian pound treasury bills have surged in recent weeks, with the average yield on 182-day T-bills at an auction on Thursday jumping to 14.648 percent from 13.978 percent a week earlier. "It's a difficult time to be issuing new debt, particularly with the downgrade having just happened," said John Bates of Silk Invest. "It makes it a really tough sell, not only because of the turmoil but also because of the time of year." He said some investors were shoring up positions before year-end and market activity was weakened by the US Thanksgiving holiday. Youssef Kamel, a Cairo-based fixed-income analyst at Rasmala, said the central bank may be hoping to raise the funds by tapping into dollars held by Egyptian banks. "It may not be an entirely difficult task. According to central bank data, foreign currency deposits in the Egyptian banking sector increased by 11.74 percent from December 2010 to August 2011, while local currency deposits were almost unchanged," Kamel said. After the uprising toppled Mubarak, the government increased subsidies on some goods and agreed to raise the pay of state workers at a time when a collapse in tourism and foreign investment was reducing tax revenue. Earlier on Thursday, Standard & Poor's cut its foreign and local currency rating on Egypt to B+ from BB-, saying the political and economic outlook had worsened following a renewed outbreak of violence that has killed 39 people in five days. The Egyptian pound weakened to more than 6 to the dollar, its lowest since January 2005. Richard Segal, an analyst at Jefferies, said the dollar bond issue seemed to be aimed at satisfying local demand for the US currency, "thereby addressing capital flight tendencies," but expected the sale would be only a partial success. The dollar-denominated bills will be auctioned on Nov. 29 for settlement on Nov. 30 and will mature on Nov. 26, 2012, the bank said. The bonds will have no coupon and will be available only to local banks and foreign financial institutions. They will be sold through local banks, the central bank said. –Additional reporting by Carolyn Cohn
