Corporate sector smiles
The market was boosted by a buoyant telecommunications sector and changes in interest rates during January, Sherine Abdel-Razek reports
The Egyptian market continued to rally through January with its main movers hitting all-time highs and posting better than expected results. A generally positive sentiment marked transactions after the unexpected move by commercial banks to lower their interest rates, making securities investments more appealing than bank deposits.
The profit-taking spree at the end of the month shaved off but a small part of market gains during the four trading weeks. Shares dominated market activity at around 90 per cent of the total turnover of LE2.73 billion. Market analysts see low interest in bonds as an indicator of the positive sentiment felt throughout the market, compared to 2001 when more than 60 per cent of market transactions were concentrated in bonds.
Good news was the main feature of the month for the market's magnates, mainly for those in the telecommunications sector. Aside from the sector's stars -- Orascom Telecom Holding (OTH), MobiNil and regional newcomer Vodafone -- Media Production City attracted much attention. The four companies were the market's most active in terms of the value of their transactions during the month.
Further, the regional GSM operator OTH is heading into new markets in the region. It has been short-listed as a candidate qualified to bid for Iran's second mobile GSM network. Inviting bids for the country's first privately operated mobile network, the Iranian authorities made it clear that the 300 million-Euro licences would go to the bidder with the highest profit sharing scheme with the Iranian government. OTH Chairman Naguib Sawiris said that the Iranian licence is promising given the relatively cheap licence fees. He has, however, expressed concern over the profit sharing scheme.
On a different note, OTH is competing with Vodafone over a tender for the second mobile licence in Saudi Arabia. Sawiris said that the competition is expected to be fierce given the high number of internationally renowned operators which have shown an interest. Sawiris added that were OTH awarded the licence, the total investment to be pooled towards this project ranges from $500 million to $700 million.
Mobile giants Vodafone Egypt and rival MobiNil had angered many of their prepay customers when they announced the lowering of their recharge card grace period. For example, the LE100 prepaid card grace period was slated to be reduced to only ten days. The move raised serious concerns over monopolistic practices. This was only calmed after the National Telecommunications Regulatory Authority (NTRA) bargained with the two corporations to increase the grace period on the vouchers, though not back to the duration set prior to the announced move. The impact of the dispute was offset by performance indicators of both companies.
MobiNil certainly gave its investors reason to be joyful. It announced that its net income for the 2002 fiscal year had almost doubled the corresponding figure in 2001, posting a total of LE915 million in net profits. A Prime Securities report said that the rise in profits was due to a 33.4 per cent leap in full-year consolidated revenues. The company also announced that its subscribers base widened by 31 per cent during 2003, to a total 2.99 million. Vodafone Egypt was no less fortunate, announcing third quarter performance indicators which revealed a 30 per cent growth in its subscriber base, now up to 2.74 million. Both companies witnessed record share increases, with MobiNil breaking the LE90 per share level more than once, and Vodafone reaching LE46.
The most actively traded shares in the sector were those of the Egyptian Media Production City. The growing interest in the share came as a result of rumour that a Dubai Stock Exchange representative had visited the company in preparation for a formal visit by a team of high ranking bourse officials scheduled for mid-February, in anticipation of the company's expected listing on the Dubai Stock Exchange.
Orascom Construction Industries (OCI) -- ranked fifth according to the value of its market transactions -- will soon join the group of companies issuing corporate bonds. OCI invited investors to subscribe to its issue of six-year non- convertible, callable bonds (bonds which can be sold prior to their maturity date) worth LE400 million. The bond issue is set to be distributed in two segments and covers a six-year period, and is callable after two years. The funds will be used to restructure the company's financial position. OCI was also awarded a contract valued at LE246 million by Eastern Tobacco for the construction of new warehousing facilities in Sixth of October City. This is the first major contract awarded by Eastern Tobacco as part of its relocation programme, which is expected to generate construction work valued at over LE700 million.
One of the month's main surprises was the commercial banks' move to lower the interest rates on three to six month deposits by 0.25 and 0.5 per cent respectively. The move fuelled market transactions as it rendered investments somewhat more appealing than bank deposits.
The reduction came amid expectations that the Central Bank of Egypt (CBE) will raise interest rates on deposits in order to avoid the dollarisation phenomenon. It has even been rumoured that the CBE plans to use monetary tools to modify the interest rate structure starting by an initial one per cent increase in discount rates, coupled with a draining of excess liquidity in the banking sector through treasury bills and bonds issuance. While the CBE did not reveal any further details about its plan, analysts believe that the move was a test of market sentiment.
From the ranks of the market's key players, it is also worth noting that the Commercial International Bank (CIB) made headlines throughout the month. The CIB, Egypt's largest private sector bank, announced that its net profit for fiscal year 2003 had escalated at a 8.3 per cent growth rate, settling at LE412.6 million. This stemmed from a 14.1 per cent jump in net interest income to LE578.8 million.
The CIB -- the first bank to offer its shares in the form of global depository receipts in international markets -- is now applying to issue shares in the form of American depository receipts (in other words, shares traded in dollars in US markets). It also expects to embark on associated trading during 2004 in an effort to increase US institutional investor interest. Additionally, CIB is currently being listed on two regional stock exchanges -- Kuwait and Abu Dhabi.
Egypt's corporate sector seems to be embracing a prosperous future.
