Egypt likely to accept Qatar's $3bn offer despite ungenerous terms

Ahmed Feteha, Monday 29 Apr 2013

Qatar has requested a 5% interest rate on the $3 billion worth of Egyptian treasury bonds it plans to buy

Qatar’s Prime Minister and Foreign Minister Sheik Hamad bin Jassim Al Thani (R) talks with Egypt’s Prime Minister Hisham Kandil after a news conference in Doha, April 10, 2013 (Photo: Reuters)

The 5 percent interest rate that Qatar has requested for a potential $3 billion worth of Egyptian treasury bonds is not particularly low, but the cash-strapped Egyptian government is likely to accept it nonetheless.

On 10 April, oil-rich Qatar pledged to buy $3 billion worth of Egyptian treasury bonds in a bid to support Egypt's struggling economy.

On Monday, a source close to the negotiations between Egypt and Qatar on the deal said that the latter asked for 5 percent interest and an 18-month maturity on the bonds, Reuters reported. No agreement has been reached yet.

"This rate doesn’t look particularly generous. It is in line with possible market rates," Simon Kitchen, strategist at EFG-Hermes investment house told Ahram Online.

Qatar has already given Egypt $5 billion, including a $1 billion grant and $4 billion worth of deposits at the CBE, since the country's 2011 uprising.

A drop in foreign currency reserves and a problematic balance of payment deficit has prompted Egypt to seek help from other countries, including the Gulf states, Libya, Turkey and Russia.

Egypt is also seeking a $4.8 billion loan from the International Monetary Fund, but a deal has been lingering ever since negotiations restarted in March 2013.

"While the interest rate on the IMF loan is lower, it will be conditional on government reforms," Kitchen added.

The IMF loan would be priced at around 1.1 percent, a rate that is kept low to support economically troubled countries. The world lender has voiced concerns about the government's ability to successfully implement fiscal reforms that would bring down the country's budget deficit.

The Qatari bond, on the other hand, does not have such conditions attached to it, making it a quicker and easier alternative to support the economy.

"Since the government has very limited choices, it is likely to accept the Qatari offer," Kitchen added.

A recent series of downgrades of Egypt's credit rating by major agencies has made tapping the international debt markets a tough venture.

"If Egypt goes to debt markets, it will most likely pay more than the 5 percent Qatar is offering," Ahmed Atta, managing director of asset management company Piraeus Egypt told Ahram Online.

The yield on the Egyptian government’s $1 billion of benchmark 5.75 percent dollar-denominated bonds, due to mature in April 2020, boasts around 7.1 percent in secondary markets.

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