As Moody’s Downgrades Egypt, A Win For Credit Agencies And Investors
Moody’s downgraded the debt of Egypt, one of the few times a credit rating agency acted quickly to change an opinion on sovereign debt. Moody’s, Fitch, and S&P have been accused of being slow in announcing opinions on weak European…
The rating agency commented on Egypt as it downgraded the Middle Eastern nations sovereign paper from Ba2 to Ba1 and changed its outlook from stable to negative:
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.
Political turmoil could cause Moody’s to seriously examine Egypt’s financials again.
“Bond vigilantes” will hit Egypt’s paper hard this week and raise interest rates to unsustainable levels. Intrepid capital markets investors will probably buy Egypt’s sovereign bonds at a discount on the assumption that the country’s problems will be solved by a military crackdown or a regime change.
The situation in Egypt is not like the ones of Greece or Ireland, but the outcome for investors could be similar. Greece’s problem was a balance sheet one. Egypt’s is one of political stability. Either way, large international investors make similar calculations. Interest rates on Egypt’s debt may swing wildly which give money managers plenty of volatility to make profits.
Money does not care about distress no matter who the victims or winners may be. Business is business, not personal, even if “personal” is the fate of an entire country.
Douglas A. McIntyre
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Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.
McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.
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A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.
TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.
McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.