28 March - 3 April 2002
Issue No.579
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Al-Ahram Weekly Online 28 March - 3 April 2002 Issue No.579 |
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Survival strategies
Struggling to survive the recession, the capital market still needs invigorating news. Sherine Abdel-Razek reports
Investors are still waiting for any hint of encouraging news to start injecting their money, once again, into the hard-hit Egyptian market. All that they get, however, are bits of news and rumours that appear to make them even more hesitant to stay in. The week ending on March 21 is the perfect example of that which is fast becoming the norm.
On the macro-economic level, the market received, and reacted to, two government announcements: the widening in the balance of payments deficit, and the Central Bank of Egypt's (CBE) possible cancellation of a plan to finance mortgage activities. Figures released for the balance of payments for the period October-December 2001, show a deficit of $925 million, compared with a deficit of $156 million for the same period last year -- and a surplus of $545 million between July and September 2001. Moreover, the CBE's foreign reserves dropped 6 per cent in the last quarter of the calendar year, ending at $14.08 billion.
The increase in the deficit stems from a sharp increase in net errors and omissions -- an indicator of the capital flight from the country. Another factor contributing to the increase is the growing deficit in the current account -- a result of the 43 per cent drop in tourism-related revenues. The only positive note in the figures, was the decline in trade deficit with the import bill's decrease of 16 per cent.
The hopes investors had placed in the long-promised revival of the construction and housing sectors were frustrated by some newspaper reports that the CBE might put its plans to inject one billion pounds into the mortgage sector on hold. The effect of the decision was reflected in the weak performance of the companies in the related sectors, and the market in general.
Overall turnover of the week totalled LE606.5 million, with bonds still dominating the transactions. Given their status as safe havens in times of recession due to their fixed income, bonds trading came as high as LE455.6 million. Foreigners were still net sellers, with LE30.3 million worth of sold shares compared with LE25 million worth of buying orders.
The banking sector remained under the magnifying glass throughout the week. Al-Watany Bank's Annual General Meeting (AGM) approved the amendments asked by the CBE to its fiscal year 2001 results. The amendments have meant the reduction of its net profit to LE97.2 million, from the LE107.9 million announced earlier this month. The bank adjusted its financial statement according to CBE's demand to transfer LE10.7 million from provisions to general reserves.
The AGM, however, still offered the bank's investors reasons to celebrate. It announced the distribution of a LE3 dividend on April 8, and gave the go-ahead for a capital increase plan that will bring the bank's paid-in capital to LE315 million -- distributed among 45 million shares. The capital increase will be carried out through the
issuance of 20 million shares -- 16 million of which will be offered to a strategic investor with the rest being offered to existing shareholders at LE7 per share. The bank's management is already in negotiations with a regional financial institution to purchase the strategic stake. The shares of the bank were traded at LE19.93.
CBE's meeting was not the only good news. MobiNil investors, too, had reason to celebrate. The company has approved the distribution of the first-ever cash dividend -- shares of LE 1.5 per share will be distributed as dividend for 2001 within the coming month. EFG-Hermes commented on the decision by saying: "It was generally expected that MobiNil will start paying cash dividends for FY 2002. The fact that the company decided to start one year earlier than expected reinforces our belief that lower levels of capital expenditure, coupled with the paying down of long-term debt, is quickly contributing to MobiNil's transformation towards being a value play." The company shares closed higher at LE 32.65.
Losers were as charged with disappointment as the winners were with their good news, unfortunately. Tourah Cement registered a 40 per cent decline in its profits for the fiscal year 2001. The LE101 million profits came lower than expected, as EFG-Hermes had forecast profits would be eight million pounds higher than they actually were. EFG attributed the decline to the retreat in cement sales amidst the recession in 2001. Analysts believe that the results of Suez Cement -- which owns 66 per cent of Tourah -- are likely to be affected by this poor performance. Time, as always, will be the telling tool.
In other market news, the stock exchange said that the medical conglomerate Lakah Group might be delisted, as the group's chief executive did not provide the exchange with any documents proving that he had settled the company's debts. This is likely to put investors in the sector even more on edge.
The market has shown glimpses of promise and change here and there, but analysts agree, if investors are injected with investment confidence, a rather sizable change is going to have to occur. So far, it appears, the change is nowhere in sight.
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