14 - 20 June 2001
Issue No.538
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Al-Ahram Weekly Online 14 - 20 June 2001 Issue No.538 |
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Thwarted expectations
Confounding predictions, the stock exchange has sustained a slowdown in foreign buying activity and a lack of interest in the offered cement sector stakes. Sherine Abdel-Razek reports
The Bourse was in a state of anxiety during the week ending 7 June. Contrary to the speculation of market watchers, the expected foreign funds influx as a result of Egypt's inclusion in the Morgan Stanley Capital International's (MSCI) Emerging Market Free (EMF) index did not materialise. Foreigners were net sellers during the week, with their selling orders coming to LE51.29 million, accounting for 14 per cent of total market transactions and representing almost double their buying orders through the four-day trading week.
The development in share price of Suez Cement and Lakah Group since June 2000
Overall transactions came to LE373 million -- a very low volume in light of the fact that bonds transactions dominated market activity by cornering LE224.6 million worth of dealings.
The revival in bond transactions might have been fuelled by the law passed by parliament giving the government the green light for issuing its first sovereign bonds in international markets. The law stipulates that Finance Minister Medhat Hassanein has the right to issue bonds worth up to $2 billion in tranches. Hassanein is also to decide the bond's maturity period within a range of between five and 30 years. Investment banks Morgan Stanley and Merrill Lynch have been chosen by the Ministry of Finance to promote the bonds in Arab, US and Asian markets.
Floating sovereign bonds internationally has always been considered a means of stimulating the market for local bonds since the sovereign bonds' price, maturity and coupons will be used as a benchmark for future corporate bond issues.
Cement companies were the focus of attention as the trading week ended with no news of bids for the 25 per cent stake offered in Suez Cement. The deadline for the bids was on the last day of the trading week. The company could not capitalise on news of two bids from interested international cement companies which came at the end of the last trading day of the week. The two firms are the French-based Ciments Français and Irish-based CRH.
Suez had stipulated that only investors who do not have a presence in Egypt's cement sector are eligible to bid. Foreign companies now produce 35 per cent of the country's current cement sector output.
While the prices offered in the two bids were not announced, experts have put the fair price of Suez shares at around LE55. Suez last traded at an official closing price of LE35.82.
The company had postponed the auction deadline to 7 June after only one company made a firm bid before the previous deadline of 9 April and a second firm requested a two-month extension for research on Suez. According to the terms of the sale, a strategic investor would buy 10.1 million shares as capital increase and would be allowed to buy a maximum of 5.9 million free float shares to bring the total stake to 25 per cent.
Some industry analysts said the sale, which has caused a great deal of speculation in recent months, would not attract many bidders because the stake on offer was too small and would not give strategic investors the management control they require.
Suez is about 40 per cent owned by state entities, including state banks, state insurance firms and state cement companies. Another 16 per cent or so is owned by private cement companies, while the remaining 44 per cent is freely floated.
Helwan cement has also had its share of publicity amid news that the Portuguese cement company, Secil, was weighing a bid for Helwan's 47 per cent stake currently on the block. This has pushed the shares up to LE34.67.
The ailing shares of Lakah Group are again stealing the spotlight, but this time not because of news of the status of its chairman's parliamentarian immunity. The group has commissioned Price Waterhouse Coopers to assess the company's assets, operations and cashflows, but the reason for the evaluation was not revealed. The industrial and medical group has been involved in debt talks with its creditors, including state-owned Banque du Caire, for the past year. Lakah's share price has plummeted from a peak of LE13.60 in August 1999 to LE2.41 by the end of 2000 and less than LE1 in recent weeks.
The telecom sector did not fare well during the week after its bell-wether, MobiNil, was badly hit by investor disappointment with the results of Egypt's inclusion in the EMF index. MobiNil suffered the most because it is the most heavily weighted Egyptian stock in the index.
To add insult to injury, MobiNil and Orascom Telecom were negatively affected by the contradicting recommendations issued by the investment banking arm of Deutsche Bank. The shares of the two companies dived at the beginning of the week after the bank's recommendation to its investors to limit their exposure to MobiNil. By the end of the week, the same bank made a positive recommendation that offset the impact of the first. MobiNil ended the week at LE62.35, compared to LE76.43 for the previous week.
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