Egypt CBank launches 2nd T-bil

By TAREK EL-TABLAWY AP Business Writer

CAIRO (AP) - Egypt's Central Bank on Thursday launched an auction for 3.5 billion Egyptian pounds in Treasury bills, its second such offering in days as the government scrambles to raise money and offset the economic losses of more than two weeks of anti-government protests.

The roughly $595 million offering of six months bills is the second of three planned auctions to be held in under a week. The sales come as the government looks to raise money after promising a 15 percent pay and pension increase to its civil service employees and retirees, while also trying to mitigate what many economists and analysts expect to be a sharp blow to the economy because of the protests.

"The auction is going to draw in local banks," predicted Mohsen Adel, chief executive of the Cairo-based Pioneer Funds. "I don't think international investors will make an appearance at present."

A 13 billion pound T-bill auction on Monday was heavily oversubscribed and saw higher yields of about 11 percent for three-month bills. Six and nine-month bills averaged 11.48 and 11.65 percent, respectively.

But that auction also drew in only local banks as international investors warily eyed the unrest that has plunged a nation once viewed as a pillar of stability in the region plunge into political turmoil and lawlessness largely unseen during President Hosni Mubarak's nearly 30 years in power.

The protests and ensuing violence have prompted an exodus of tourists, offering a window into the potential beating the vital tourism sector will take in the months to come. Businesses were shuttered for at least a week, as were banks before they reopened on Sunday.

"There will be an impact on the broader economy, no doubt about that," said Wael Ziada, head of Egypt research at the Cairo-based investment bank EFG-Hermes.

While declining to provide a specific estimate of the economic losses the country could face, Ziada said that "what's very obvious is that if we don't have a stable country by June, the impact will be serious."

The latest Treasury auction was to be followed by a Feb. 13 offering of 3 billion pounds in bills, and analysts and brokers predicted that the yields may climb by about a quarter to one-half of a percentage point as the central bank tries to control financing costs considering the government's obligations going forward and the expected dearth in foreign investment because of the unrest.

The expected hit to the economy and the growing political uncertainty had helped bring the Egyptian pound to its lowest level against the dollar in about six year, prompting the Central Bank to step in on Tuesday and stabilize the currency.

But the pound nudged lower on Thursday, trading at 5.8840 to the U.S. dollar after closing a day earlier at 5.8775 to the dollar. Central Bank officials have said they are ready to step in again, as needed, to support the currency - even as some analysts predicted a 20 to 25 percent devaluation of the pound in the short-run.

The demonstrations that encompassed broad swaths of Egyptians population have now expanded to include workers as thousands strike across the nation demanding better pay. Their introduction into the protest mix offers a reintroduction of the same grievances about pay and the cost of living that served as the rallying cry for smaller scale protests last summer.

Against that backdrop, the Egyptian Exchange is slated to reopen on Sunday after a more than two-week closure. Its relaunch is widely expected to result in a broad sell-off, particularly in sectors either linked to the state, the currency or where foreign investment has been particularly active.

"The market is going to decline," said Ziada, adding that the "delay in its opening has helped."

Exchange officials have enacted some measures aimed at halting the anticipated decline. A 5 percent change in the broader EGX100 index, for example, result in trading being halted for 30 minutes while a 10 percent shift would halt trade for a period to be determined by the bourse's head. Existing caps on fluctuations in company shares also remain in place.

Even so, "there is no doubt that there is some pressure, and it's been building up ever since the market has been closed," said Ziada.

Ziada and other analysts downplayed the likelihood of a crash in the market, but noted that general unease will likely translate into heavy selling at the start that could carry over into the second half of the week.

"For local investors, who are perhaps more sanguine about the political developments, it becomes a buying opportunity" after the sell-off, said David Cowan, Africa economist with Citigroup in London.