Al-Ahram Weekly | Economy | Telecom leads the way

		Al-Ahram Weekly Online 19 - 25 July 2001 Issue No.543
Published in Cairo by AL-AHRAM established in 1875		Current issue \| Previous issue \| Site map

Telecom leads the way
The telecom sector was the market's only mover, as one top blue chip banked on news of good financial results and another surged after winning an international bid. Sherine Abdel-Razek reports

The week ending 12 July saw the market being driven up and down by news from the market's biggest caps and blue chips MobiNil and Orascom Telecom. The beginning of the week coincided with the two companies' announcement of their quarterly results.
While MobiNil's figures were better than expected, OT's results were disappointing. The net loss reported by OT shook investors' confidence, causing many to liquidate their positions and pushing the stock price and the overall market downward.
However, only two days later, OT eclipsed the negative impact of its financial results by announcing it had won a bid to operate Algeria's first private mobile network. Traders were relieved as the market returned to positive territory, with its all-share CMA index ending 35 points up at 608.
Owing to its population and per capita income, Algeria offers tremendous growth potential. Investment bank, Nomura Securities' economist Anais Faraj was quoted by Reuters as saying that while Algeria had an estimated per capita GDP of between $1,650 and $1,700 in 2000, Egypt had an estimated GDP per head of between $1,200 and $1,300 in the same period. Since wages in Egypt are about 40 per cent lower, this leaves Algeria with a much higher disposable income.
OT won Algeria's second GSM license with an offer of $737 million. The only other bidder, the European Orange, a unit of France Telecom, offered $422 million. Two months ago, the Algerian authorities made a bidders short list that included, together with Orange and OT, a consortium of the Spanish Telefonica and the Portuguese Portugal Telecom. The 15-year license is automatically renewable for five- year periods at no additional costs.
OT said its first-quarter core earnings (earnings before interest, tax, depreciation and amortisation or EBITDA) surged 59 per cent to LE240.75 million, compared to LE151.32 million a year ago. However, taking into account depreciation, amortisation and foreign exchange losses, OT lost LE32.85 million against a profit of 76.43 million in the same period a year ago.
Experts said the company's weak financial performance mainly stemmed from foreign exchange (forex) losses.
OT has recently repaid $109 million drawn from a $200 million syndicated loan facility arranged by Chase Manhattan and Citibank by acquiring a better termed local loan. Analysts think OT might show some forex gains in the coming quarters due to an increase in foreign exchange deposits.
The company's news has been dominating the headlines since the beginning of the year. In January, it was awarded a 15-year BOT (build, operate, transfer) contract with a local partner in Syria on a revenue- sharing basis for a GSM network. In addition, OT commercially launched, in the first quarter of 2001, GSM networks in Yemen, Uganda, the Democratic Republic of Congo and Burkina Faso.
It also increased its equity in Egypt's Egyptian Company for Mobile Services (MobiNil) to 31.2 per cent from 26.1 per cent, Jordan's Fastlink to 91.6 per cent from 65.5 per cent and Pakistan's Mobilink to 68.6 per cent from 38.6. Analysts view the companies are MobiNil's three key operations.
OT's shares reached LE23.12. The stock hit its lowest-ever level on 27 June when it closed at LE22.9.
MobiNil continued to be the market's bellwether. It posted a 22 per cent surge in net profits to LE110.02 million for the second quarter of calendar year 2001 from LE90.52 million in the first quarter, exceeding analysts' expectations of around LE100 million.
"The strategies we have adopted to increase efficiency and productivity are bearing fruit," MobiNil President and Chief Executive Osman Sultan said in a statement.
MobiNil said its end-June subscribers totalled more than 1.7 million, compared to 1.4 million at the end of March.
Contrary to OT's, MobiNil's core earnings did not witness a substantial growth. MobiNil's EBITDA were up only five per cent in the second quarter, reaching LE286.66 million, versus its 48 per cent record increase in the first quarter of the year.
At a press conference held after announcing its results, the company revealed that, starting this quarter, it would adopt the global practice of eliminating customers who are inactive for more than 90 days from its active subscriber base.
MobiNil is also working on a plan to minimise its foreign exchange exposure risk. "We are still in the process of working with both our major lenders, Commercial International Bank (CIB) and J P Morgan Chase, on the possibility of borrowing a fresh amount of funds specifically for the purposes of repaying the $220 syndicated loan," Chief Financial Officer Osama Deeb said.
Nevertheless, the company pointed to the possibility of a drop in revenues as it progressively lowers its connection fee.
Sultan said around 23 per cent of MobiNil's first-quarter revenue came from connection fees, falling to just above 20 per cent in the second quarter. He forecast that connection fees would be phased out by the end of 2002. The two existing operators' exclusivity period expires at the end of 2002, when state-owned fixed-line monopoly Telecom Egypt is expected to launch a cellular network.
For the long term, he forecast that there would be some 10 million cellular subscribers in Egypt by 2008, offering a market penetration rate of 16 to 17 per cent.
MobiNil's shares reacted positively to these results, ending at LE61.05. J P Morgan has last week put MobiNil's "fair value" at LE126 a share.
Away from the telecom sector, Orascom Construction Industries (OCI) continued to soar on speculation and rumours in anticipation of the half-year results announcement soon. The company cornered the lion's share of market transactions through the week, with LE45.9 million worth of its shares changing hands. The shares were last traded at LE33.99, capturing a LE2.11 increase.

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