World Crisis Online

By Ahmed A Namatalla and Alaa Shahine – 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. Photographer: Andrew Burton/Bloomberg

Egypt bond yields were at the highest in two years at the country’s first debt auction since the ouster of President Hosni Mubarak amid investor concern about 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. Global depository receipts of Orascom Construction Industries, the country’s biggest publicaly traded builder, surged the most in two weeks in London today.

“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.

Egypt’s Minister of Finance Samir Radwan said today the country’s budget deficit will widen to as much as 8.4 percent from 7.9 percent as spending increases and economic growth slows. He 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.

Sawiris

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.

Naguib Sawiris, the chairman of Orascom Telecom Holding SAE, said in an interview with Bloomberg television he is concerned about capital outflows from Egypt. The central bank intervened to support the Egyptian pound last week. The pound was little changed at 5.8780 at 11:21 a.m. in Cairo.

‘High Yields’

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 was little changed today at 6.34 percent.

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.

Egypt Bourse

Egypt’s bourse, closed for more than two weeks, will open Feb. 16 to allow companies to disclose the effects of protests on their business. The country’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.

GDRs of Orascom Construction advanced 6.5 percent, the most since Feb. 1, to $39.91. Orascom Telecom, the country’s largest mobile network operator by subscribers, gained 3.2 percent to $3.402, the highest intraday level since Feb. 2.

Telecom Egypt, the country’s monopoly fixed-line telephone service provider, plunged 13 percent, the most since March, to $13.61. The company said yesterday it approved a 15 percent pay raise for its workers.

’Back to Normal’

EFG-Hermes Holding SAE, 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 GDRs were little changed since Jan. 27 after paring a drop of as much as 5.6 percent on Feb. 11.

“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.”

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net Alaa Shahine in Dubai at asalha@bloomberg.net;

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net