[Intl-tobacco] Egypt: Rumors of Tobacco Privatization

[Robert Weissman]

http://www.businesstodayegypt.com/article.aspx?ArticleID=3D6399

February 2006
*Orascom=92s Up But the Banks Are Down*
*Nazif=92s economic team returns, ready for continued reform and
privatization as the banking industry suffers a rough month*

By Fatima El-Saadani

*Th*e CASE posted another record-breaking performance in 2005 with the
exchange as a whole up 150% and the benchmark CASE 30 Index up 146% over
the year before.

With most CASE-traded shares no longer bargain-priced, investment was
fueled by strongly improving macroeconomic fundamentals. Early numbers
show foreign direct investment topping $2.6 billion on the strength of
an 11% increase in investment flows to the petroleum sector, while
non-petroleum investment soared 500%. Also last month, the Central Bank
of Egypt (CBE) put Egypt=92s foreign reserves at $21.89 billion at the end
of 2005, up fractionally from $21.21 billion in November and a 42%
increase from $15.4 billion in December 2004.

The cabinet shuffle that saw the Nazif government largely reappointed
and new business leaders enter government service boosted investor
confidence and set high expectations. The economic team reaffirmed its
commitment to economic reforms and cutting unemployment amid word that
Suez Canal receipts were again up in the last quarter of 2004 and the
recovery of tourism from double-digit declines after last summer=92s
terror attacks.

Meanwhile, the Ministry of Investment=92s privatization program shows no
signs of flagging as the Central Bank of Egypt announced late last month
that it had given the green light to the National Bank of Egypt=92s
acquisition of the Bank of Commerce and Development and the sale of
Egyptian American Bank to Calyon Bank. More than 10 local and
international brokers have submitted offers to act as IPO book runners
in the sale of a 20% stake in MIDOR (the Middle East Oil Refinery, the
largest of its kind in Egypt), and the terms for the sale of the Bank of
Alexandria (BOA) are expected in late February. Bank officials say they
expect BOA=92s privatization to wrap up by June.

Privatization rumors also hit Misr Hotels and three leading mill stocks
(including North Cairo, Alexandria and East Delta) hard as investors
cashed out gains. The Ministry of Investment later confirmed it is
planning to offer nearly all of its milling companies for sale, raising
serious questions about their attractiveness to the private sector in
light of their commitment to supporting the state=92s commodity
subsidization program.

In a final privatization note, persistent rumors that the state=92s
majority share of the Eastern Company would, indeed, go on the auction
block this year propelled the cigarette maker=92s shares to an all-time
high of LE 345 as investors anticipated one of the international majors
=97 Altria and British-American Tobacco =97 paying a premium for the
still-undervalued company.

January was a rough month for banking and finance shares, with most
leading constituents closing the month down. Blue-chip Commercial
International Bank (CIB) began its fall after the week-long Eid El-Adha
vacation, tumbling from its high of LE 64, while Egyptian American Bank
(EAB) slipped all month long as investors sold their stakes on news of
the bank=92s sale to France=92s Calyon in a deal valued at some LE 2.916
billion, or LE 45 per share.

Al-Watany Bank of Egypt also had a turbulent month: Its share price
seesawed despite news that the bank=92s annual general meeting had agreed
to raise paid-in capital to LE 750 million from LE 500 million through a
rights issue at LE 15.

Bucking the trend was regional investment bank EFG-Hermes, which soared
last month to an all-time high of LE 240 per share on news that its
board of directors had approved the acquisition of at least a 20% stake
in Lebanon=92s Bank Audi while increasing EFG=92s authorized capital to LE
3.2 billion from LE 700 million.

Meanwhile, regional telecom giant Orascom Telecom (OT) finally crashed
through the LE 700-per-share barrier to peak at LE 724 on the eve of a
one-for-two stock split that saw its number of issued shares increase to
220 million from 110 million after the Eid vacation. OT announced last
month that its subscriber base now tops 30 million across its Middle
Eastern, African and South Asian networks, adding later in the month
that its bid to acquire 51% of Nigeria=92s Nitel had not been finalized.
Nigerian officials subsequently announced they were calling off the
Nitel sale because no buyer had matched the reserve bid.

MobiNil peaked at LE 229 early in the month before slipping as investors
came back from the Eid vacation. The company announced in January that
it was launching a battery-recycling program, but otherwise had little
news at month=92s end. Arch rival Vodafone=92s shares climbed throughout th=
e
month to close at a new high at LE 109. Newcomer Raya Holding saw its
shares rise as it announced it would be buying 25% of local call-center
services company C3 (www.c3.com.eg), adding to its core capacity in the
area and bringing it to within striking distance of market leader Xceed
(a division of Telecom Egypt). Despite the good news, Raya shares later
followed OT and MobiNil on the downward trend even as it was added to
the list of CASE shares able to trade without price limits as of January 29=
.

Telecom Egypt, the bourse=92s newest blue chip, remained largely stable,
selling flat at month=92s end on volumes that kept it among the ranks of
the CASE=92s three most actively traded shares last month. As January drew
to a close, the partially privatized giant announced it would soon apply
to the National Telecommunications Regulatory Authority (NTRA) for
permission to restructure its long-distance tariff system in
anticipation of new competition in the sector later this year. A ruling
from the NTRA is unlikely in the coming weeks after word surfaced that
the authority=92s chairman, Alaa Fahmy, was being tapped to succeed Aly
El-Moselhi as head of Egypt Post. El-Moselhi was named Minister of
Social Security in the new Nazif Cabinet.

Sister company Orascom Construction Industries (OCI) broke the LE 300
barrier as investor confidence peaked following an announcement that it
would increase its capital to LE 5 billion from LE 2 billion either
through a public offering or by increasing its number of spare shares.
OCI, an emerging global construction and construction materials giant,
announced consolidated net profits worth LE 1.67 billion for 9M05, a 49%
year-on-year increase. Also boosting its shares=92 performance was news
that it had acquired the Egyptian Sack Company in a deal worth LE 43
million, adding to its existing bag capacity a facility with an annual
production capacity of 60 million bags. Egyptian Sack had revenues of LE
38.6 million in 2004.

OCI later announced that it had snapped up an integrated cement plant in
the lucrative Turkish market in a deal worth $54 million. The
small-scale plant (annual production capacity of just 600,000 tons) near
Eastern Turkey=92s city of Van should be poised to exploit the new
Egyptian-Turkish free-trade deal and gives OCI a production facility
within striking distance of Eastern European, Iraqi and Central Asian
markets.

OCI announced at the same time plans to increase its capacity in Eastern
Turkey to 3 million tons a year =93through a local partnership that will
be subject to regulatory approval.=94 The company recently completed the
acquisition of a 20% stake in the 3-million-ton-per-year Baticim Cimento
in Western Turkey. Both companies are listed on the Istanbul stock exchange=
.

=93OCI has earmarked a total of $250 million for its investment in both
regions of Turkey,=94 said company chief Nassef Sawiris. =93We view Turkey
as a natural extension to our core geographic markets around the
Mediterranean rim.=94

In other cement news, Misr Beni Suef Cement also hit an all-time high
last month, gaining 1.5% to close at LE 103 on heavy volumes. Competitor
National Cement peaked in the first week of January at LE 53 before
closing the month at LE 44 amid profit taking, while Sinai Cement hit a
record high of LE 59 per share. Torah Cement was hit hardest by
profit-taking in the sector as it fell to LE 145 from a high of LE 165.

In other news likely to have an effect on the market in the weeks ahead,
Egypt Aluminum announced in late January that it would conduct a
five-for-two stock split to prepare to float 17% of the largely
state-owned company. Minister of Investment Mahmoud Mohieddin said last
year that he was looking to sell at least 12% of the company, but Egypt
Aluminum=92s notification to the CASE included no further details of how
or when the split and subsequent float were likely to take place.

Meanwhile, Kuwait=92s AREF investment group has offered tender to purchase
100% of Engineering and Development Consultants. The partially
privatized builder of state-subsidized housing recorded losses of LE
5.97 million during 9M05 against LE 5.22 million in the same period last
year. Shares dipped nearly 5% following the announcement. bt

//