Issue No.589
Economy
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6 - 12 June 2002 Issue No.589 Economy |
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| Published in Cairo by AL-AHRAM established in 1875 | Recommend this page | ||
Upbeat despite the odds
Investors may be cautious but the bourse still had an exceptionally eventful week. Sherine Abdel-Razek reports
A week after Standard and Poors downgraded credit ratings for the Egyptian economy, the National Bank of Egypt and the Commercial International Bank, investors were hesitant to put their money into equities. The bond market, always a haven during times of economic uncertainty, made up the lion's share of transactions during the week ending 30 May.
source: Zawya.comHowever, the market was upbeat due to good news being revealed by a number of blue-chip firms. Overall market turnover was LE726 million. Foreigners were net buyers in the market, accounting for 47 per cent of overall market transactions. This was 7 per cent higher than their sell orders.
Market revival was largely due to the performance of pharmaceutical companies, which were buoyed up by news from the Egyptian health ministry that a still unnamed local company would be licensed to produce Viagra. Analysts believe that it will be either Pfizer Egypt or the Egyptian International Pharmaceutical Industries Company (EIPICO). Pfizer Egypt sought permission to produce Viagra locally after New York-based Pfizer Inc. introduced the well known drug in 1998. However, the Egyptian Health Ministry rejected local licensing of the drug on safety grounds.
Viagra has since been smuggled into Egypt, and sold for LE100 a pill. EIPICO shares were last traded at LE9.12 while Pfizer Egypt closed up LE2.48. Investors who bought the stock before the weekend Viagra reports had already made capital gains of 15 per cent in many cases.
In the telecoms sector, investors in Orascom Telecom found that the week's events were full of surprises. Share prices rose following statements from Chairman Naguib Sawiris that the company was about to sell a key part of its debt-ridden sub-Saharan subsidiary Telecel. This is likely to have a significant impact on the balance sheet.
Last month, Orascom reported a larger-than-expected net loss for 2001 of LE435.32 million. This was blamed on foreign exchange and interest- related costs. However, this bad news was partially offset by Orascom's Algerian activities. Barely three months after setting up its network in the North African country, Orascom Telecom Algeria (OTA), has reached a subscription base of 100,000. Last year, OTA won Algeria's first private mobile phone licence with a $737 million bid.
Al-Watany Bank (AWB) is still making headlines. Kuwait's Burgan Bank officially announced the surprise withdrawal of its offer to purchase a 40 per cent stake in AWB. Sources from AWB asserted that the Kuwaiti bank has instead bid to purchase shares in the Misr America International Bank (MAIB), which in return made a counter offer. The offer involves selling 100 per cent of MAIB at the same value that Burgan would have paid for only 40 per cent of AWB. AWB is one of Egypt's leading private sector banks. It is involved in securities trading, the establishment of new companies and promoting initial public offerings.
AWB is credit rated by the local Nile Rating and its international parent company FitchRatings (formerly known as Fitch IBCA).
According to Robert Young, senior director with FitchRatings, both ratings put the bank in a positive credit standing. He explained that national ratings show only relative credit strengths within Egypt. International ratings are globally standardised.
While he said that banks usually requested ratings when they considered tapping the bond market as a means of finance, he asserted that the bank had not so far revealed any plan of this kind. AWB's profitability has been impacted in recent years by increased loan loss provisioning and rising costs. One-off gains from a depreciating Egyptian pound have helped to offset these pressures.
The banking sector in general has recently suffered from a lot of negative publicity. After reducing Egypt's rating last week, Standard & Poors criticised the performance of the sector and the dominance of public-owned banks. Young agrees that, in general, banking conditions in Egypt are very shaky. They are likely to remain so, given today's economic climate. "This has placed a lot of pressure on the profitability and asset quality of banks. As a consequence, capital adequacy has also come under pressure. In addition, foreign banks are also entering the market, which is adding to competitive pressures," he said.
Misr International Bank (MIBank) posted net profits of LE50.3 million in the first-quarter of 2002, a 4.5 per cent drop compared with the same period of last year, roughly in line with analysts' expectations. Although MIBank, Egypt's second biggest private bank, is planning to expand its retail business, analysts believe that it would struggle against stiff competition from local and international rivals, as banks rush to secure business from the country's growing middle class.
A bourse committee has recommended that the Cairo-listed shares of Egyptian industrial and healthcare conglomerate Lakah Group be de-listed because Lakah Group has failed to abide by disclosure rules and has not so far submitted any documents showing its ability to repay its debts. The group sent a statement to the bourse on 12 March saying it had settled some of its local and foreign debts. The bourse then asked Lakah to submit documentary evidence,. The deadline was even extended to 15 April, but no such evidence has been received to date.
A bourse spokesman said the board of directors was due to meet within a week to make the decision effective. Once de-listed, Lakah shares would only be traded over the counter. Lakah is one of nine Egyptian companies with shares traded in the International markets as Global Depository Receipts (GDRs).
The bourse said it had notified the Bank of New York, the custodian bank for Lakah's shares, about its position in the Egyptian market. The bank refused to suspend the GDRs or de-list them.
Another blue-chip has announced its results this week. Orascom Construction Industries (OCI) posted a rise in net profits in the first quarter of calendar 2002, to LE76.1 million, despite a tough economic environment. This is compared with LE74.0 million for the same period last year. It was, however, slightly lower than market expectations of LE80 million. In 2001 the firm benefited from a series of devaluations of Egypt's pound: orders are kept in US dollars, while operating expenses are mainly in Egyptian pounds. Analysts say OCI continues to be well placed for any future devaluations. The company has also benefited from the launch of the fourth production line of its affiliate, the Egyptian Cement Company (ECC), which is now one of the world's lowest cost producers of cement, according to an OCI statement.
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