Egypt canceled the sale of 6 billion Egyptian pounds of treasury bills three days after a ratings cut at Standard & Poor's raised borrowing costs.
Egypt cancels debt sales after ratings downgrade
Egypt canceled the sale of 6 billion Egyptian pounds of treasury bills three days after a ratings cut at Standard & Poor's raised borrowing costs. The pound weakened the most in two weeks.
The Arab country was planning to raise 2bn pounds in six-month notes and 4bn pounds in one-year securities, according to central bank data on Bloomberg. It sold similar-maturity notes last week at average yields of 13.3 per cent and 13.54 per cent. The pound, subject to a managed float, depreciated 0.2 per cent, the biggest intraday drop since December 13, to 6.1915 a dollar.
S&P cut Egypt to B-, six levels below investment grade, on December 24 on concern political instability will hinder the government's ability to take steps to boost the economy. Six-month bills traded in the secondary market yielded 13.48 per cent yesterday, up 37 basis points, or 0.37 percentage point, since the downgrade, according to prices compiled by Bloomberg. The one-year yield rose five basis points to 13.61 per cent.
"It's natural for investors to demand higher returns after S&P's rating downgrade," Sherif Othman, the head of treasury at Arab Banking Corp in Cairo, said. "The dispute between the government and opposition in the absence of dialogue isn't an encouraging sign for anyone."
Egypt asked the IMF to delay its decision on a $4.8bn loan, originally slated for this month, until it can hold dialogue on planned tax increases linked to the initial IMF deal reached in November. S&P warned that political rifts could hinder the broad consensus Egypt needs to implement an IMF program, rendering the program "inactive."
* Bloomberg News