Fitch may cut Egypt rating again depending on election

LONDON Wed Feb 6, 2013 9:19am EST

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LONDON Feb 6 (Reuters) - Egypt is at risk of a further credit rating downgrade if the country does not manage to hold parliamentary elections that are accepted by most political factions, a Fitch analyst said on Wednesday.

The ratings agency cut Egypt to B from B-plus last week, taking it deep into 'junk' territory, and warned it might cut further. On Wednesday it said the still unscheduled parliamentary elections and lack of progress on a loan from the International Monetary Fund could be "triggers" for a downgrade.

"For us the key event is the parliamentary elections," said Paul Gamble, director and Fitch's primary analyst on Egypt on a call with analysts, noting there was no "proper guidance" on the timing of the elections.

"An inconclusive or contentious election programme will extend political uncertainty. While there is some tolerance of Egypt's rating level for such political risk, it's not unlimited," Gamble said.

Moody's placed its B2 rating for Egypt - equivalent to Fitch's - on review for possible downgrade in January. Standard & Poor's cut its rating to B-minus, one notch lower, in December with a negative outlook.

An IMF loan - seen as vital to supporting Egypt's state finances and boosting investor confidence - is unlikely to be secured without greater political stability and in its absence, public finances have worsened, Fitch said.

To help finance the country's budget and external deficits, the Egyptian government is trying to pass a bill to eventually issue $10 billion in Islamic bonds.

But Fitch was unclear about when this could go through and the agency assumes an initial issuance of just $1 billion, if the bill is approved.

"The $10 billion is an ambition, rather than a realistic prospect, at least in the short term," said Richard Fox, senior director in Fitch's sovereign rating group. (Reporting by Dasha Afanasieva; Editing by Ruth Pitchford)

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