Egypt says Qatar asking 5% interest on $3bn bonds

Price is higher than expected but a desperate Cairo may have to accept terms

Qatar wants 5 percent interest on $3 billion in bonds it has offered to buy from Egypt, an Egyptian official involved in the talks said on Monday, a price higher than expected yet one that Cairo may have to accept.

Egypt has been asking Arab and Muslim friends for cheap funds to help it stave off financial collapse following the popular uprising that ousted Hosni Mubarak in early 2011.

It is negotiating a $4.8 billion dollar loan from the International Monetary Fund that would carry an interest rate of just 1.1 percent but has balked at the economic policy terms.

Qatari Prime Minister Sheikh Hamad bin Jassim al-Thani promised the money when Egyptian Prime Minister Hisham Kandil visited Qatar on April 10. The Gulf state has already lent Egypt $5 billion since President Mohamed Mursi took office last July.

The Egyptian official, who asked not to be named, said Qatar had asked for an annual 5 percent interest on the bonds and a maturity of no more than 18 months. No agreement had yet been reached.

"We are still discussing the terms, pricing and duration," he told Reuters.

Analysts said say the interest rate puts the bonds close to international rates but that the parlous state of Egypt's finances may nonetheless force it to accept the Qatari terms.

Since the uprising, Egypt has been drawing down its foreign reserves, borrowing from friends and delaying payments to oil companies to support the price of its currency and to plug a budget deficit.

Reserves have tumbled to $13.4 billion in March from $36 billion just before the uprising.

"I still expect a deal to be done and the funds to flow," said Simon Williams, an economist with HSBC. "The market has already priced the funds in ... if it were to fail, sentiment would turn bearish once again."

Earlier this month, Libya deposited $2 billion at the Egyptian central bank and said it would supply Egypt with $1.2 billion worth of crude on interest free credit for a year.

Cairo has been counting on soft loans and easy credit terms on fuel and food purchases to help get through what threatens to be tough summer of power outages, fuel shortages and possible unrest before parliamentary elections expected later this year.

If Egypt cannot accept the Qatari terms, it may face added heat to take an IMF loan and apply tax rises and subsidy cuts.

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