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Al-Ahram Weekly On-line 19 - 25 October 2000 Issue No. 504 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly On-line 19 - 25 October 2000 Issue No. 504
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Elections Palestine International Economy Opinion Culture Focus Features Travel Sports Profile People Time Out Chronicles Cartoons Letters Calling all investors
By Sherine Abdel-RazekAt last, and after a number of postponements, Telecom Egypt will be offered on the stock market at the end of this month. The Ministry of Telecommunications and Information Technology has announced that a 20 per cent stake in the company will be offered beginning 30 October. This initial public offering (IPO), Egypt's largest so far, will last through 17 November and is expected to bring in between US$1.2 billion and 1.4 billion. Egypt Telecom has a monopoly on Egypt's fixed telephone lines and is the largest company in the country's burgeoning information technology (IT) sector.
No better indicator of the significance of the offering could be found than the Egyptian Stock Exchange's decision to postpone the inauguration of its new electronic trading system, originally planned for 1 November, so as not to obstruct the smooth implementation of the IPO.
Hopes are high that Egypt Telecom will pull the market out of the doldrums of sluggish trade where it has languished since the beginning of the calendar year. Certainly, it will inject much needed liquidity into the local economy which has been burdened by a money shortage and a deficit in the balance of payments. The IPO will also expand Egypt's presence in international markets with a yet undetermined portion of the offering being launched as Global Depository Receipts (GDRs). The locally promoted stake will be divested through both public subscription and private placement transactions.
Extensive preparations for the offering drew on the expertise of a number of high profile international and local financial institutions. Leading the various stages of valuation and preparation for offering were ABN AMRO Rothchild and the Commercial International bank (CIB). Helping to coordinate activities were ING Barings, Credit Suisse, Nomura Securities, First Washington and the Hong Kong and Shanghai Banking Corporation (HSBC) among others.
Despite its thorough preparation, the timing of the offer "could not be worse" says Hesham Tawfik, managing director of the Egyptian Financial Group portfolio management company, with both the local and foreign markets suffering setbacks. While the local market has lost about 50 per cent of its momentum since the beginning of the year, international markets are coping with the waning euro and the increase in oil prices. These factors added to the violence in the Middle East have put a damper on international stock markets with the Dow Jones industrial average last week posting the fifth steepest decline in its history.
Tawfik believes that postponing the offering until the international and local situations improve would increase the chances that the IPO will succeed. But David Shelby, an economic analyst at EFG Hermes, disagrees. Shelby said that introducing Telecom Egypt on the market as scheduled would be "very beneficial since the offer is an asset that the market needs, with a big cap and highly liquid IT stock." Although under current conditions the offering might not be in heavy demand or oversubscribed, Shelby suggested that ultimately it will strengthen the market once investors start to compare among stocks.
Nonetheless, Tawfik and Shelby agree that pricing will be key to success of the offer. They suggest that those determining prices should take into account that international investors have recently indicated a preference for low-priced shares in the IT sectors of developed markets rather than shares in the same sectors of emerging markets. The recent offerings of stakes in Telecom authorities in Turkey and Bulgaria which attracted few bids despite predictions to the contrary should be taken as a lesson. Tawfik says "If the government insists on a high price, it should give investors the incentive to buy by stating that shares may be split and thus made more liquid after the offering."
A re-evaluation of the company's assets at the beginning of this year put the value of the share at LE100, but another assessment will take place to set the offering price by 28 October, following the conclusion of the pre-marketing phase.
The timing and pricing of the offering are not the only factors that dampen its appeal. That the government possesses 80 per cent of the company has been cited as a factor which might make potential investors wary. A market analyst, who spoke to Al-Ahram Weekly on condition of anonymity, asserted that a strategic investor should be offered a large tranche of the company so as to increase its efficiency.
However, the same analyst conceded that the offering has a number of "very positive aspects." For example, "The [new] management of the company has added to its value," he said. A new board, appointed in June, includes members with experience in the private sector, brought on board to give the entity's management an investor-friendly image.
The company's annual growth rate for 1999 was recently assessed at 20 per cent by the Ministry of Economy and External Trade. Established in 1957 as the Arab Republic of Egypt's National Telecommunication Organisation (ARENTO) before being corporatised in the mid-nineties, Telecom Egypt is expected to retain its monopoly on fixed telephone lines until December 2005.
It is anticipated that the national telecommunications company will operate Egypt's third mobile phone network when the exclusivity period granted the two private operators Misrfone and MobiNil expires in 2002. "This is a very exciting time for us, as it will enable us to take advantage of the commercial opportunities presented by our fast growing market and enhance our capacity to meet international standards in the management and corporate governance of Telecom Egypt," company chairman Akil Beshir said.
A company statement following the announcement of the IPO stated that the company plans to meet increased demand for fixed lines with an aggressive network expansion plan which will add one million lines a year. The release also indicated that charges for telephone services will be modified.
Not to be left behind in the fast changing technology, Telecom Egypt is already participating in Internet ventures. It owns 20 per cent of Egynet, which provides high speed data transmission services for financial institutions, in addition to a 24 per cent stake in Nile on Line, which has a license to build and operate a fiber optic network offering high-speed Internet services.
Telecom Egypt revenues during the fiscal year ending in June 2000 were LE5.7 billion compared to LE4.4 billion in the previous year. Its net profits in the 1999-2000 fiscal year doubled compared to those of the previous year, reaching LE1.6 billion.
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