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Al-Ahram Weekly 22 - 28 July 1999 Issue No. 439 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 22 - 28 July 1999 Issue No. 439
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Features Focus Interview Travel Living Sports Time Out Chronicles People Cartoons Letters MobiNil sparks market recovery
By Sherine Abdel-RazekThe market revival started in early June, and since then new records have been set both in the volume of weekly transactions and in the gains the market index has scored each week. The general index which ended at 460.4 in May settled at 492.8 last week. Moreover, the average value of weekly transactions has continued to rise and exceeded LE800 million in each of the last three weeks. It even reached LE1 billion two weeks ago.
When the recovery started, it was at least partly driven by a strong foreign presence, which was reflected in the increase in foreign activity during June, as compared to May. The percentage of foreign transactions compared to the overall market turnover was 50.72 in June compared to 39.07 the previous month. However, the strong foreign interest in traded securities in the market was diluted during the last two weeks when foreigners were net sellers, with their selling orders exceeding their securities purchases.
This development was attributed by analysts to the fact that some of the foreign funds seeking to invest in Egyptian companies are being directed to the recently launched private placements of bonds and shares which are primarily promoted overseas.
But if the spurt in foreign transactions was not the main cause of the recovery, what sparked this heightened activity? The answer surely is MobiNil which is the engine that pushes market activity up and down. The market follows MobiNil shares regardless of which way they move.
Analysts have described this phenomenon by referring to the Egyptian market as a "one stock market". This is not an exaggeration since MobiNil alone corners an average of 45 per cent of all transactions each week. Moreover, despite fluctuations in its price, the company's shares topped the gainers list in the market since the beginning of June, while at the end of May the shares stood at LE76. Last week it closed at LE84, its highest level since it was floated last year at LE10 a share.
The increasing demand on MobiNil's shares is not surprising as the company last week acquired $570 million worth of loans which reflects continuing investor confidence in its performance.
This new loan is a package of both local and international facilities arranged by Chase Manhattan Bank of the US. It consists of an international loan worth $220 million in which 15 international financial institutions have subscribed and a long-term local facility in Egyptian pounds (equal to $350 million) to be covered by Egyptian investment and financial institutions. The latter will mature in seven and a half years.
Besides financing MobiNil's ambitious mobile phone network expansion plans, part of the new loan will be used to repay the $490 million bridging, or short-term, loan that the company received last year and used to obtain the licence to operate Egypt's first mobile phone network. This loan matures next September.
MobiNil has announced its second quarter results which, despite showing losses of LE10.36 million, were better than those of the previous quarter. The company has posted LE330 million in revenues during the quarter ending 30 June, a 30 per cent increase over the level of the previous quarter.
Moreover, experts believe the company will reach the breakeven point by the end of this year, and that its profits will exceed LE800 million within eight years.
In addition to the success of MobiNil's transactions, the stock market revival was enlivened by the execution of a number of big ownership transfer transactions, such as the sell-off of LE107 million worth of Coca Cola Egypt shares and the Italian company Perilli's purchase of Alexandria Car Tyres for LE159.69 million.
Another share whose transactions contributed to the market's strength was Ezz Steel Rebars. Since the execution of its private placement worth LE336 million three weeks ago, the company's shares are gaining momentum and taking big slices of the overall market cake. This is demonstrated by the fact that the offering was 240 per cent over-subscribed. This caused the company to increase the volume of the offering from 21 million to 25 million shares. Shares of the company have jumped from LE5.5 prior to the offering to around LE14 last week.
Another stock with better than expected demand was Chipsy for Food Industries which floated 34 per cent of its equity last week and was highly over-subscribed.
Experts are concerned about the market's focus on just a few shares as this could jeopardise market stability and even the overall economy if one heavyweight company encountered a serious problem.
However, those concerns were partly calmed by the government announcement that it will be floating its long awaited offerings of power companies. Starting with the biggest of its seven power firms, the company plans to float -- by the end of August -- a 20 per cent stake in the Greater Cairo Power Company which has assets valued at LE7.5 billion. This stake will be followed by others so that the privatised part of the company will ultimately reach 49 per cent.
In another privatisation-related development, after five months of negotiations, one of the important divestment deals, which demonstrates the interest of multinationals in the Egyptian cement sector, has been clinched. France's Lafarge has succeeded in acquiring 76 per cent of Beni Suef Cement after reaching an agreement with the government on a way to settle the company's mounting debts. The LE1.23 billion deal involves the settlement of LE825 million worth of the company's outstanding debts. Moreover, Lafarge plans to buy a further 19 per cent of the company in the near future, bringing its total holdings to 95 per cent.
This was not all, as Titan for Cement, another multinational, is currently negotiating with Lafarge to acquire 50 per cent of its stake in the Beni Suef company. The sector got another pat on the back when the US investment bank Merrill Lynch repeated its buy recommendations for the shares of Suez Cement, which emphasises the high potential of the sector. On the other hand, Hong Kong and Shanghai Banking Corporation (HSBC) has given a strong buy recommendation for Suez Cement as well as Alexandria Portland Cement and Ameriya Cement.
Nevertheless, Egypt's privatisation programme received some strong criticism which might deprive it of some of its credibility. The dilemma that Misr for Duty-Free Shops is currently facing has cast a cloud over the future of the country's privatisation programme. The company's board is currently negotiating to return the 77 per cent privatised company to public hands after recent government decisions which limited the company's activities and deprived it of a significant stake of its revenues, thus hurting the interests of its new shareholders. The company's shares have lost about 45 per cent of their value since the government took its action.
The privatisation programme was also criticised by the US rating agency Standard & Poor's in mid-June when it noted that the slow pace of privatisation is one of the main reasons preventing the agency from upgrading its rating for the Egyptian economy. The agency said the pace of the privatisation programme has slowed since 1997 and, consequently, the small number of companies offered for privatisation has deprived the market of highly attractive investment opportunities and thus weakened it.
