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Al-Ahram Weekly 29 Apr. - 5 May 1999 Issue No. 427 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 29 Apr. - 5 May 1999 Issue No. 427
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Focus Special Travel Sports People Features Living Time Out Chronicles Cartoons Letters Corporate bond issues are the rage
by Sherine Abdel-RazekIt was only six months ago that market observers, investors and traders started each trading day expecting a new decline in the traded companies share prices that would be reflected on the index and definitely mirrored in the yield curve. Now, it is completely the opposite. Each day brings more positive news. During the last six weeks, the performance of the main market movers, such as the Commercial International Bank (CIB), Mobinil and the latest newcomer to the most-actively traded companies list, Orascom Construction Industries, was good.
The market jumped to 463 points last week, recording a 16.7-point increase over its level at the same time last year. This was ignited by a strong foreign participation which accounted for 36 per cent of the overall market transactions last week. Domestic investors are also showing growing interest in the market with the average yield on shares traded reaching 11.22 per cent compared to an interest rate on bank deposits of 9 per cent and an 8.8 coupon on treasury bonds. This means that the capital market has become the most lucrative venue for investment in Egypt.
One of the most active participants in this revival is the CIB. News about the bank's shares have put it back in the limelight. The bank's new five-year bonds, to be offered next month, will carry a fixed yield of 10.25 per cent to be paid twice a year. The offering will be available in lots containing a minimum of 10 bonds. The issue is expected to be warmly welcomed by investors not only because of the bank's current solid performance, but also for its potential good results as reflected in its projected income statement for the period from 1999 to 2004. The statement shows that the bank will post an annual 8.9 per cent increase in its net profits through this period.
Outside experts also noted the bank's improved performance Both the Egyptian Nile Rating Company and the British Thomson Bank Watch, another rating agency, have granted the bank high ratings.
The new CIB bond issue is the bank's second one after its general assembly last year approved the issuance of LE1.1 billion worth of bonds in batches. The first batch, comprising LE300 million issued last July, was well received. CIB's pending bond issue will be a new addition to the strengthening corporate bonds market. This market has stolen much of the spotlight, with more companies applying for approval from market authorities to issue bonds.
Some experts estimate that the volume of bond issues during the coming period will equal LE905 million. They believe that the corporate bond market will be Egypt's next sensation as most of the new issues bear more than an 11 per cent coupon.
No wonder then that recent 10 per cent coupon treasury bonds, which closed in mid-April, were not strongly welcomed by individuals and private institutions. The issue was around 60 per cent subscribed by public banks while the rest was covered by private banks, financial institutions and investment funds. This issue is the fifth to be offered by the government since August 1998. The weak demand for the issue was attributed to its low interest rate and its long maturity period of 10 years.
Mobinil was one of the best performers in the market, alternately occupying the first and second place. Being the only hi-tech share in the market increases its appeal despite some losses it has sustained. One of the main reasons for these losses was the high interest that it has to pay on its loans. Moreover, market experts believe that because most of the company's debts are denominated in dollars, exchange rate fluctuations are a problem that the company might suffer from in the near future. This is considered likely since its financial statement shows that its provisions for exchange rate fluctuations are insufficient. This means that if the dollar-Egyptian pound exchange rate increases, as expected, the company will have to pay larger amounts of money to settle its debts.
The performance of different stocks was not the only matter of concern during the recent period. The issue of improving the regulations governing the market has also surfaced. Last week, Economy Minister Youssef Boutros Ghali asserted at a meeting that new amendments will definitely be introduced to the current capital market law. Among these amendments will be the imposition of legal penalties for any company that will be proven to have used any information for insider trading purposes to affect the performance of its shares in the market. Ghali pointed to a number of wrong practices by some brokerage companies that lead to big losses for investors.
Wrong practices by companies working in the market seems to be a worrisome issue. The number of legal cases involving the stock market has increased from just two in 1992 to 65 last year.
Head of the stock exchange Sameh El-Turguman said that a dispute settlement mechanism is now being finalised.
Furthermore, the stock exchange's newly formed Users Committee, which includes representatives of all brokerage firms working in Egypt, has organised a number of meetings recently to discuss new broker's membership rules. According to these rules, brokerage companies will be divided into two categories: one will have the right to receive buying and selling orders and execute them while the other's job will be confined to just receiving orders. After these rules are finalised, they will be submitted to the Capital Market Authority for approval.
One of the stars of the market during the past month was EFG-Hermes, Egypt's leading investment bank. First its good results came out. EFG has reported a net profit of LE40.1 million for 1998, compared to LE22 million the previous year. It will pay a dividend of LE3.4 a share. Another important company event was its general assembly's approval of the appointment of former US Assistant Secretary of State Robert Pelletreau as a non-executive member of the board of directors. Pelletreau previously served as US ambassador to Cairo.
The assembly also decided to raise EFG's authorised capital from LE50 million to LE200 million. This was not all. The company has been chosen as part of the team promoting the initial public share offering in Goldman Sachs, which is one of the leading international investment banks. The offering consists of shares worth LE60 million with an overall value of $3 billion.
