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As Perfectly Expected, Moody's Cuts Revolutionary Egypt From Ba1 To Ba2, Outlook Negative, CDS Spikes

Tyler Durden's picture


The most predictable, (and certainly worthless: see Mark Zandi) entity in the world has gone ahead and done precisely what Zero Hedge said 24 hours ago it would. Moody's has just downgraded Egypt's bond rating from Ba1 to Ba2, with the outlook changed from stable to negative. The move which was as a surprise to idiots everywhere comes as "Moody's notes that Egypt suffers from deep-seated political
and socio-economic challenges. These include a chronic high
rate of unemployment, elevated inflation and widespread poverty.
These, together with a desire for political change, have fueled
popular frustrations." And as we predicted yesterday, Egypt CDS continues to slide ever higher, pushing around 460 on the offer side, in those rare occasions it is actually offered.

From Moody's:

Moody's Investors Service has today downgraded Egypt's government
bond ratings to Ba2 from Ba1 and has changed the outlook to negative from

Today's rating action was prompted by the recent significant rise
in political event risk and concern that the policy response could undermine
Egypt's already weak public finances. We had previously signaled
that such developments may result in a ratings downgrade (see Moody's
latest Credit Opinion on Egypt published 24th November 2010).


Moody's has today also downgraded the country ceiling for foreign currency
bonds to Baa3 from Baa2 and the country ceiling for foreign currency bank
deposits to Ba3 from Ba2. The outlook on these ratings was changed
to negative from stable. The short-term country ceiling
for foreign currency bonds was downgraded to P-3 from P-2.
The local currency ceilings were downgraded to Baa1 from A3.




Moody's decision to downgrade Egypt's government bond ratings
is driven by increased event risk. This has resulted from escalating
political tensions in the country following the recent uprising in Tunisia,
with large-scale anti-government protests taking place.


Moody's notes that Egypt suffers from deep-seated political
and socio-economic challenges. These include a chronic high
rate of unemployment, elevated inflation and widespread poverty.
These, together with a desire for political change, have fueled
popular frustrations.


In Moody's opinion, there is a strong possibility that fiscal
policy will be loosened as part of the government's efforts to contain
discontent. A background of rising inflationary pressures further
complicates fiscal policy by threatening to increase the high level of
budgetary expenditure on wages and subsidies.


The public finances in Egypt are already stretched and are significantly
weaker than Ba rating peers. For example, Egypt's fiscal
deficit approximates 8 percent of GDP, compared with a median for
the Ba rating category of around 4 percent of GDP. Egypt's
public debt also exceeds the Ba median by a considerable margin.


Moody's points out, however, that Egypt's ratings
continue to be supported by a number of important factors. These
include a relatively robust external position, a well-diversified
economy and a favourable public debt structure with limited refinancing
risk. The government has shown a high degree of willingness to
repay and has never defaulted on its bonds.


Moody's would be ready to move the ratings outlook to stable in
the event that political tensions and attendant fiscal and economic risks
abate. Conversely, Moody's would downgrade Egypt's
sovereign ratings again if there were a substantial escalation of political
volatility, a large fiscal slippage, or evidence of lasting
economic damage that threatened to impair credit fundamentals relative
to Ba2 rating peers.




Moody's last rating action affecting Egypt was implemented on 26
April 2010, when a Ba1 rating was assigned to the government's
dollar-denominated senior unsecured bonds worth USD1.5 billion.
Prior to that, Moody's last rating action on Egypt was taken
on 19 August 2009, when the rating agency changed the outlook on
Egypt's sovereign ratings to stable from negative.


The principal methodology used in this rating was Moody's Sovereign
Bond Methodology published in September 2008.




Information sources used to prepare the credit rating are the following:
parties involved in the ratings and public information.


Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.


Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.

Please see ratings tab on the issuer/entity page on
for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website
for further information.

Please see the Credit Policy page on for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.


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Mon, 01/31/2011 - 08:14 | 919684 Id fight Gandhi
Id fight Gandhi's picture

Egypt 10 yr at record high yield, near 7.5? that quote right? Anything over 7% is the doom bringer for defaults

Mon, 01/31/2011 - 08:16 | 919685 Dick Darlington
Dick Darlington's picture

And to keep the fubar bs in balance they have now done 180 what comes to Spain. Seems that the gravy train still had one spot open for the last fool.

Mon, 01/31/2011 - 08:19 | 919688 Racer
Racer's picture

And the US futures continue to climb

Mon, 01/31/2011 - 08:23 | 919690 max2205
max2205's picture

Ahead of the curve again I see. NOT. worthless MF's

Mon, 01/31/2011 - 08:28 | 919696 Quintus
Quintus's picture

Is it a bird?  Is it a plane?  No, it's Captain Hindsight!

Mon, 01/31/2011 - 08:47 | 919731 Hephasteus
Hephasteus's picture

Yo moody's. While your handing out grades and permission to live or die. Why don't you paint a giant F on a baseball bat and permit it to get shoved up your ass.

Mon, 01/31/2011 - 09:04 | 919765 cossack55
cossack55's picture

I missed the title and thought they were talking about amerika.

Mon, 01/31/2011 - 09:14 | 919792 DavidC
DavidC's picture

Hilarious Tyler! DavidC

Mon, 01/31/2011 - 09:38 | 919857 Sudden Debt
Sudden Debt's picture

from Ba1 To Ba2....


Ba1 is much better then Ba2 right?  Or is Ba2 worse then Ba1?....



Mon, 01/31/2011 - 09:54 | 919898 Judge Smales
Judge Smales's picture

Right, Moody's, because I guess these conditions didn't exist last week, or last year, or the last 20 years when you had them rated higher. Sometimes, those "deep-seated political and socio-economic challenges" sneak right up on you.

Moody's notes that Egypt suffers from deep-seated political and socio-economic challenges. These include a chronic high rate of unemployment, elevated inflation and widespread poverty. These, together with a desire for political change, have fueled popular frustrations.

Mon, 01/31/2011 - 11:50 | 920375 Spigot
Spigot's picture

All "Ratings Agencies" useless except that they provide numbers which are plugged into computerized trading systems. Just as the numbers from the BLS, etc only matter in so much as they are fodder for these automated systems, so RA's provide numbers. No thinking person cares anymore what Moody's rates anything at...well, maybe pension funds.

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