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Al-Ahram Weekly 11 - 17 May 2000 Issue No. 481 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 11 - 17 May 2000 Issue No. 481
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Books Features Interview Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Don't hold your breath
By Niveen Wahish
The government yesterday announced that a 20 per cent stake of Telecom Egypt (TE), the national telecommunications company, would be floated during the last quarter of the year.
Telecoms Egypt is for a complete rehaul
photo: Khaled El-Fiqi
The step may be seen as settling government indecisiveness over the timing and extent of the company's privatisation, though given the on-going twists in the tale, it will take more than an announcement to get the ball rolling. Only last week Minister of Telecommunications and Information Technology Ahmed Nazif told reporters then that "no specific date for the flotation of the company's shares has been set" adding that nothing is to be expected for at least two months. Perhaps the minister's declaration was an attempt to dampen the market's increasingly hysterical speculation over the issue. Saying that neither the percentage to be privatised, nor the formula for privatisation, have yet been decided, Nazif further insisted that the government "would not offer the company until it is ready and the market is also prepared to receive it."
Experts, though, supposed that the company's privatisation would be sooner rather than later. According to Robert Phelps, director of the US-based Carana Corporation's Privatisation Coordination Support Unit (PCSU), the privatisation needs to get underway "even with a small tranche." The telecommunication industry, he believes, has peaked. "And it's time the privatisation programme began to involve some of the large service enterprises," Phelps said.
For over six months a consortium including ABN AMRO, Rothschild, Commercial International Bank, KPMG and Baker and Mackenzie have been evaluating the company for the impending offering. The valuation, which according to the minister is still being worked on, has yet to be announced but is estimated at around LE25 billion, though the company's nominal value, as listed on the Cairo and Alexandria Stock Exchanges in early January, is LE19.5 billion.
How the company will be sold is another topic of speculation. It remains to be seen whether the company will go to a strategic investor or will be partially floated through an initial public offering. Experts had believed that an IPO offering between 10-20 per cent of the company's shares would be the most likely option, quickly followed by an issue of global depository receipts (GDR) on the London Stock Exchange.
Investors have been champing at the bit for some time. The sporadic rumours of privatisation have all been followed by sales of shares already held as investors seek to increase their liquidity in order to buy into the company.
"TE will be the first public sector company of its size, and in the services sector, to be put up for sale when it enters the market," said a stock broker, who preferred to remain anonymous. Yet the extent to which the Egyptian economy stands to benefit from its sale will depend exclusively on how the privatisation is concluded.
Phelps agrees, insisting that the effect of the privatisation of TE will depend on the portion of shares sold, and to whom. If the government's strategy is to modernise and upgrade technology and management, then it should eventually go for an anchor investor. However, an IPO of a small tranche would be ideal if the aim is to stimulate "popular interest in the privatisation and build support for it."
The stock broker firmly backs the issuing of GDRs, or else the sale of a majority stake to a strategic investor, which would have the added benefit of injecting foreign currency into the Egyptian economy, in addition to furnishing the know-how and improved services which come with a strategic investor. But if neither of these two scenarios is eventually adopted, the positive effect of the sale of TE on the economy is likely to be limited. "Then it would certainly not help with liquidity problems," the stock broker argues, pointing out that local investors would only off-load stocks in order to round up liquidity for TE. The only possible source of additional funding, in such a case, would be foreign investors on the Egyptian stock exchange who are unlikely to risk foreign currency when the economic situation is as strained as it is. Foreign investors are only likely to pump in money if they can exit the market as easily as they enter, which "with the current shortage of liquidity and a possible shortage of foreign currency" is certainly not the case. Nonetheless, flotation of TE will inevitably boost market capitalisation and will increase the number of shares traded, a precondition for activating the market.
The announcement has been made. Yet, given the strange twists and turns of the privatisation process, and conflicting ministerial statements over the past week, the last quarter of the year remains a long way off.
