Al-Ahram Weekly On-line 26 Oct. - 1 Nov. 2000 Issue No. 505
Published in Cairo by AL-AHRAM established in 1875

	Egypt Palestine International Economy Opinion Culture Focus Travel Living Sports Profile People Time Out Chronicles Cartoons Letters

Market up despite TE delay

By Niveen Wahish

Investors who had been looking forward to the floating of a portion of Telecom Egypt (TE) on the local stock market were disappointed last week with the announcement that the offering has been postponed.

The initial public offering (IPO) of 20 per cent of TE, Egypt's national telecommunications company, which was scheduled for later this year, has been postponed indefinitely. A government official told Al-Ahram Weekly that the offering will probably be delayed for six to 12 months. According to a statement by Ahmed Nazif, minister of telecommunications and information technology, the government is committed to floating a portion of the company when the timing is suitable. Nazif also said that the company will make use of the interim period prior to the offering to continue its administrative and financial restructuring. The reason for holding off on the IPO, explained Nazif, is that international and emerging markets are not ready to receive TE's shares. A promotion campaign for the IPO was originally scheduled to begin in early November.

One stockbroker, who preferred to remain anonymous, agreed with the government's decision despite the fact that the offering would have generated much-needed momentum in the market. However, he pointed out that this postponement is only the latest in a series of delays and as a result has damaged the public's confidence that TE will be privatised any time soon.

Given that conditions have for some time been antithetical to the success of an IPO, the broker also criticised the timing of the announcement of the delay. He pointed out that many investors had liquidated stock-holdings to be able to buy into TE. Following the postponement, he suggests that it is unlikely that they will put all the money they received from divesting shares back into the market. "Buying dollars is more profitable and less risky," he said highlighting the continuing decrease in the value of the Egyptian pound. "Individual investors who are not compelled to get involved in the market, unlike banks or mutual funds, will keep their money out of the market."

In spite of these negative factors, last week witnessed an increase in the General Stock Market Index by 4.8 per cent to register 584.81 points. Simultaneously, the value of trading increased sevenfold to reach LE1.665 billion.

A long-time market analyst, the stockbroker suggested that last week's slight improvement in stock prices could be attributed to a measure of government intervention. Also contributing to the slight upturn are rock bottom stock prices. For example, the price of the Egyptian Company for Mobile Services (MobiNil), which peaked last year at over LE180 has fallen to less than LE60 two weeks ago.

However, the anonymous stock broker said that the upturn last week can only be construed as "improvement" in the market if it continues -- an outcome he views as unlikely because "investors no longer trust the stock market." He attributed this lack of confidence to mixed signals given by the government. As an example, he cited the announcement of the Central Bank of Egypt's recommendation to limit cash withdrawals and deposits to US$20,000 a day -- a recommendation that Prime Minister Atef Ebeid only days later said had not been in force nor would it be implemented.

The Egyptian Stock Market's recent woes are only an extension of those it has suffered since the beginning of the year. A Ministry of Economy and External Trade report on the third quarter of this year reveals it to have been one of the poorest in recent years. The General Stock Market Index dropped during that period to as low as three per cent, the lowest it has been since the end of 1999. New economy stocks -- those of MobiNil, Media City and Orascom Telecom -- suffered more than those of the traditional economy. The Ministry of Economy attributes this drop to the release of financial statements by some companies, revealing limited trading in their stock and a decline in the growth of their profits.

As if this were not enough, rumours abounded that a foreign investor had bought a large share in Orascom Telecom (OT) and that the Capital Market Authority had forced the founding shareholders of the Egyptian Media Production City to repurchase their shares. So when the announcement was made that a portion of TE would be floated on the market during the fourth quarter of 2000, many investors began to liquidate their holdings to be able to subscribe. Potential buyers became wary of investing in Egyptian stock due to the fluctuating exchange rate for the pound, which they were concerned might impact negatively on company productivity and revenues.

During the third quarter, 191 million shares and bonds changed hands representing LE7.4 billion worth of transactions. The number of shares which dropped in value exceeded those which gained value and the market was noticeably oversold in a number of shares of relative weight, thus causing them to drop in value.

The 20 most traded companies, which comprise 24 per cent of the market's capitalisation, accounted for approximately 81 per cent of the total value of trading and 82 per cent of the number of shares traded. In fact, three companies represented over 60 per cent of the total value of trading. The Egyptian Company for Mobile Services (MobiNil) led these accounting for 27 per cent of the total value of trading. Orascom Telecom followed it with 22 per cent, while Media City Company took third place with 17 per cent.

Meanwhile, bonds represented around 10 per cent of the total value of trading, that is double the value they accounted for during the first half of 2000. This is a positive sign of increased activity in the secondary bonds market, which the Ministry of Economy and Foreign Trade is carefully attempting to develop.

Market capitalisation during the third quarter of 2000 fell by two per cent compared to market capitalisation at the end of June 2000. At the end of the third quarter it reached LE117.2 billion -- approximately 35 per cent of Gross Domestic Product -- compared to around LE120 billion at the end of June 2000. The number of companies listed on the market reached 1,056 during the third quarter of 2000. However, daily trading focused on 98 companies on average, around nine per cent of total companies listed.

This overall picture also took its toll on the performance of global depository receipts (GDRs) registered on the London Stock Exchange. Most GDRs fell with the exception of those for Paints and Chemical Industries, the value of which rose by around 29.4 per cent in September compared to August. And GDRs for the Lakah Group rose by 16.7 per cent due to the announcement that businessman Rami Lakah had settled his differences with the banks and rescheduled his LE1.2 billion debt. The GDR that suffered most was that of the Commercial International Bank (CIB) which fell by 16.8 per cent, while OT's fell by 6.8 per cent.

Trading may also have taken a turn for the worse during the third quarter due to Standard & Poor's decision to downgrade its outlook for the Egyptian economy. Thomson Financial Bankwatch also announced that its sovereign grade for Egypt fell from positive to stable.

© Copyright Al-Ahram Weekly. All rights reserved

	weeklyweb@ahram.org.eg