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Volume I—Issue 2 January-March 2010 EGYPT QUARTERLY MARKET REVIEW Table of Contents Economic and Political Highlights..……….…………………………1 Macroeconomic & Corporate News…………………………………2 Stock Fundamentals………………………………………………….3 Feature Story: Morgan Stanley Joint Venture with OCI…...…………4 Egypt’s Economic and Business Highlights The government seeks to boost corporate bond market through simplified regulations for issuing corporate bonds, in a fresh bid to develop the capital market and to diversify the sources of finance for companies and for infrastructure projects. This has encouraged the car manufacturer GB Auto to announce its intention to issue bonds. Government talks on health insurance costs through introducing a new law which will extend compulsory health insurance to all Egyptians, is proving controversial. The law’s opponents have accused the government of planning to bring healthcare services under the umbrella of a holding company before privatizing the sector. After a decade-long hiatus, Private developers are invited back into power sector. In late January, the state-owned Egyptian Electricity Holding Company (EEHC) launched a new independent power project at Dairut in Beheira governorate. The government has made a final decision to locate Egypt’s first nuclear power station at Al Dabaa, 160 km west of Alexandria, on the basis of a recommendation of Worley Parsons, an Australian consultancy. Government plans return to 7% growth as prime minister, Ahmed Nazif, stated that government plans to achieve this level of GDP growth within two years, returning to 2004-08 levels. Government’s budget deficit target of narrowing the budget deficit to 3% of GDP by 2012 has been postponed for two years. The fiscal deficit is expected to reach 9.4% of GDP for the current fiscal year, up from 6.6% in the previous year. ECMS and EGPC plan new debt issuance as Mr Mohieddin’s decree came shortly after the EFSA had approved plans by the Egyptian Company for Mobile Services (ECMS), the operator of the Mobinil mobile-phone network, to issue a E£1.5bn bond. Egypt’s Political Highlights Mr Mubarak implements a minor reshuffle of the cabinet through replacing the transport minister, Mohammed Mansour who resigned after a fatal train crash, with Alaa Fahmy and appointing a new education minister, Ahmed Zaki Badr, the dean of Ain Shams University. Government is criticized over flood response as at least ten people were killed when flash floods hit Egypt in mid-January. Some of the worst affected areas included Abu Sweira and Al Arish in Sinai and Aswan in Upper Egypt. Mohamed ElBaradei, the former head of the UN’s International Atomic Energy Agency (IAEA) and a potential candidate in the 2011 presidential election, returns and launches reform initiative through forming the National Association for Change to campaign for the amendment of the constitution to facilitate free and fair presidential elections in 2011 with opposition from the Muslim Brotherhood. The General Assembly of the State Council, Egypt’s highest legal body, ruled against the appointment of female judges within the council in an emergency meeting on February 15th. The US and European states urged Egypt to lift its state of emergency "which has been in place since 1981, and under which up to 10,000 people are believed to be being held without charge" at a UN Human Rights Council meeting in Geneva, Switzerland on February 17th. Egypt accepted 119 of the Council’s 165 recommendations, including the release of administrative detainees, changing the penal code to abolish impunity in torture cases and ensuring that the new terrorism legislation complies with international human rights standards. Egypt’s Key Economic Indicators Key Indicators Population GDP Real GDP growth (%) Consumer price inflation (%) Budget balance (% of GDP) Current-account balance (% of GDP) Total External Debt (% of GDP) Exchange rate EGP vs. US$ 2008a 81.5 158.8 7.2 18.3 -7.1 -0.8 86.4 5.43 2009b 83.1 188.8 4.7 11.8 -6.6 -1.5 78.7 5.55 a: Economist Intelligence Unit Estimate, b: Economist Intelligence Unit Forecast 2010b 84.7 225.4 5.5 10.1 -9.4 -0.8 80..2 5.50 2011b 86.3 253.6 5.6 7.6 -7.6 0.0 78.2 5.58 Volume I—Issue 2 January-March EGYPT QUARTERLY MARKET REVIEW Money Market Statistics Overnight Int. bank Rate 91 T-Bill Rate 182 T-Bill Rate 365 T-Bill Rate CBE Discount Rate Deposit Rate Lending Rate EGX30 Three-Month Chart GDR Trading Rate Date 31/03/2010 8.260 9.707 10.030 10.436 8.500 8.250 9.750 30/03/10 CIB (1:1) EFG (1:2) Lecico (1:1) OCI (1:1) OT (1:5) Telecom Egypt (1:5) Suez Cement (1:1) 30/03/10 30/03/10 30/03/10 02/08/09 30/03/10 30/03/10 Local L.E 65.06 31.76 22.07 263.9 5.63 17.01 44.28 GDR (USD) P/D% 11.70 11.52 3.40 47.61 5.12 15.01 8.25 -1.00 -0.20 -13.5 -0.70 0.10 -2.90 2.50 EGX 30 Index 7200 7000 6800 6600 6400 6200 6000 5800 Value Traded (L.E mn) 58,674 Close 31/03/10 Open 03/01/10 High Low Prev. Close % Change 6,806.11 6,214.28 7,076.60 6,208.34 6,208.77 9.52 Yr. H 7,249.55 Yr. L 4,193.94 Volume Traded (L.E mn) 5,893 Macro News Corporate News Egypt's unemployment rate edged up to 9.4 percent in the fourth quarter of 2009, from 9.36 percent in the third quarter. The world economic downturn hurt Egypt's key revenue earners such as tourism, Suez Canal receipts and remittances from Egyptians abroad. First public-private partnership scheme secures financing as the NewCairo wastewater treatment project, closed in the first week of February. A team of a local firm, Orascom Construction Industries, and Aqualia of Spain secured a E£570m (US$110m) loan for the project from a consortium of local banks. Egypt's current account deficit shrinks to $1.28 billion in the six months to the end of December from $2.51 billion a year earlier. The trade deficit also narrowed to $11.93 billion from $14.63 billion in 2008/09. FDI dropped 35 percent to $2.63 billion, while net private transfers, or remittances, fell 16.5 percent to $3.46 billion. Egypt's net foreign reserves were $34.32 billion in February, up from $34.21 billion a month earlier, the Central Bank of Egypt stated. Egypt's state-owned Egyptian General Petroleum Corporation (EGPC) is looking to secure a $2 billion, 58-month debt financing that will be used for export finance. The company invited banks in mid-December to pitch for an either a pre-export syndicated loan, a bond or a mix of the two, a banker at a European lender said. Private equity firm Citadel Capital expects to close a $2.2 billion financing related to an Egyptian refinery in the second quarter. Financing for the project, a green-field refinery Egypt's budget deficit rose to 65 billion Egyptian pounds ($11.88 billion) in July-Jan of fiscal year in partnership with Egyptian General Petroleum Corp, will include $900 million from 2009/10, citing a report from the finance ministry. The figure represents 5.5 percent of Egypt's state-run Japan Bank for International Cooperation. GDP, the report added, and compares with 39 billion pounds in the same period a year earlier. PubEgypt's Orascom Construction Industries (OCI) unit BEXIS Group won a $1.3 billic spending declined by 6.2 percent in July-Jan of fiscal year 2009/10 to 173.8 billion pounds. Corporate income tax slumped 34.7 percent to reach 19.1 billion pounds, the report said, com- lion contract to build a medical centre in a joint venture with Samsung in Abu pared with 29.3 billion in the same period a year earlier. Taxes on international trade dropped 6.9 Dhabi. BESIX's share of the contract was $780 million, or 60 percent. The client is Mubadala Healthcare, owned by the Abu Dhabi government and the project is due to be percent to 7.7 billion pounds. completed by the first quarter of 2013. Egypt sees GDP growth at 5.5 pct in fiscal 2010/11. The growth forecast matches the consensus of 15 independent economists polled by Reuters and is stronger than projections for any of the Gulf Egypt's Orascom Telecom has pushed back the date on which its newly created 871 million depositary receipts (GDRs) will begin trading in London until March 26, citArab states apart from Qatar and for neighbors Turkey and Israel. ing "unexpected delays". The regional operator has raised $800 million to ensure liquidity as it challenges an Algerian claim for back taxes. Stock Fundamentals Powered by: Price Stock Telecommunications Orascom Telecom Holding MobiNil Telecom Egypt Construction and Materials Orascom Construction Industries Banking Commercial International Bank Credit Agricole Egypt Housing & Development Bank Financials EFG-Hermes Holding Pioneers Holding Real Estate TMG Holding 6th Oct. Development Heliopolis Housing Medinet Nasr Housing Palm Hills Development Oil and Gas Maridive & Oil Services Sidi Kerir Petrochemicals Egyptian Financial & Industrial Tourism, Travel & Leisure Egyptian for Tourism Resorts Orascom for Hotels & Development Industrial Goods El Swedy Cables El Ezz Steel Rebars Consumer Goods Delta Sugar GB AUTO Oriental Weavers Reuters Code Close Yr. H P/E Yr. L Market Cap Target Price Recommendation EV (m) 09 10 ROA 11 09 10 ROE 11 09 10 11 24.51 ORTE.CA 2.63 8.03 4.57 39,709.80 7.08 Hold 68,025.7 18.05 11.60 6.86 4.65 5.70 NA 31.75 26.82 EMOB.CA 214.61 242.5 183.0 20,500.0 229.80 Hold 24,665.0 10.11 10.05 10.00 15.15 14.75 11.50 64.02 55.13 45.96 ETEL.CA 17.01 20.59 15.12 31,768.6 20.15 Hold 30,400.4 10.95 10.25 9.79 9.20 9.85 10.50 11.90 12.26 12.03 OCIC.CA 263.9 287.9 148.0 57,426.08 284.6 Hold 66,123.7 NA 17.53 12.12 5.10 6.25 8.10 13.09 18.77 23.10 COMI.CA 65.06 76.00 37.01 21,416.85 73.63 Hold 9,430.3 14.47 11.75 10.25 2.50 2.90 2.90 25.05 24.99 24.62 CIEB.CA 12.16 15.00 9.40 3,630.55 15.0 Outperform (4,092) 9.58 9.44 8.21 1.39 1.58 1.60 18.10 20.30 21.60 HDBK.CA 24.11 28.30 18.87 1,814.34 29.76 Buy 2,314 NA NA NA 2.30 1.80 2.00 21.80 20.60 23.15 HRHO.CA 31.76 37.29 18.29 13,988.2 37.0 Buy 11,404 25.38 18.42 19.58 NA NA NA 7.94 11.28 7.76 PIOH.CA 4.62 9.50 4.38 2,642.76 11.0 Buy 2,046.7 7.54 NA NA NA NA NA NA NA NA TMGH.CA 7.67 8.49 3.70 16,801.46 10.24 Buy 19,659.6 15.20 8.36 6.21 2.05 4.00 4.70 4.91 9.70 10.26 OCDI.CA 97.57 103.0 39.75 3,409.8 124.75 Buy 3,186.8 103.8 NA 23.66 (1.00) 3.80 5.50 (2.57) 7.05 18.35 HELI.CA 32.24 45.89 24.88 2,628.87 57.00 Outperform 2,702.78 26.51 27.32 27.32 8.03 9.30 9.10 32.15 26.30 29.20 MNHD.CA 32.63 42.50 23.60 3,529.0 57.85 Hold 3,511.7 NA 39.21 35.65 NA NA NA 35.00 39.80 42.40 PHDC.CA 6.57 7.16 4.70 6,835.05 7.50 Outperform 8,758.7 12.93 7.42 6.10 NA NA NA 14.00 NA NA MOIL.CA 25.43 26.37 15.71 6,540.26 26.92 Outperform 7,376.58 16.61 12.24 8.53 12.90 21.10 18.70 25.20 38.40 36.80 SKPC.CA 14.62 15.80 8.22 7,302.70 15.80 Buy 6,137.47 NA 8.04 9.03 NA 30.00 21.00 NA 43.25 36.20 EFIC.CA 23.97 27.97 18.67 1,654.92 31.0 Buy 2,623.44 7.24 11.85 14.93 NA NA NA 1.20 1.70 10.00 EGTS.CA 2.16 ORHD.CA 3.23 1.62 2,740.5 3.00 Buy 2,331.26 NA 30.71 16.31 NA NA NA 1.20 1.70 10.00 23.87 15.88 4,286.30 455.14 Outperform 6,885.18 NA 0.83 0.74 NA NA NA 11.40 11.90 8.90 SWDY.CA 75.18 94.96 53.00 9,996.96 83.9 Outperform 13,838.6 NA 10.96 8.59 8.00 10.00 12.00 17.52 19.00 20.70 ESRS.CA 21.13 26.00 8.93 12,950.04 25.16 Outperform 20,622.3 NA 16.17 11.92 1.00 4.90 6.80 1.89 14.20 15.75 SUGR.CA 19.45 27.40 14.61 2,408.71 27.70 Hold 2,212.98 NA 9.46 9.84 9.80 17.00 14.70 11.80 19.80 16.90 AUTO.CA 35.94 37.90 15.25 4,521.07 40.00 Buy 5,441.40 22.15 12.98 8.99 5.60 8.10 8.80 10.00 19.10 22.10 ORWE.CA 39.89 45.00 25.07 2,922.47 39.26 Hold 4,941.8 9.35 8.47 7.45 7.80 8.05 8.40 13.31 14.56 15.58 Data Retrieved from Volume I—Issue 2 January-March 2010 EGYPT QUARTERLY MARKET REVIEW Highlight of the Quarter: Contacts & Disclaimer Morgan Stanley in Infrastructure Joint Venture with OCI Morgan Stanley (MS) and Orascom Construction Industries (OCI) announced their agreement to set up a 50/50 joint venture to develop and invest in infrastructurerelated assets across the Middle East and Africa regions. Nassef Sawiris, CEO and Chairman of OCI, said, “This proposed joint venture is positioned to capitalize on Morgan Stanley Infrastructure’s investing expertise and its global reach as well as our local and regional awareness of infrastructure needs. Bringing together both entities will result in significant investing and execution capabilities, which we believe are unparalleled in the region.” CCFC Team Director: Dr. Eskandar Tooma Program Manager: Aliaa Bassiouny Program Executive: Ghada El Eraqi Research Associate: Diana George Research Associate: Jasmin Abu El-Dahab For more Information regarding CCFC Services, contact us on: +(202) 2615-3443/3469/3680/3442 or [email protected] Sadek Wahba, Global head of Morgan Stanley Infrastructure, added, “The coming decade will require higher investment rates in infrastructure to sustain economic growth in the Middle East and Africa.” The deal will help OCI juggle more work by providing a partner willing to absorb some of the risk associated with long-term projects. On the other hand, Morgan Stanley would benefit from OCI's regional expertise. The venture is studying investments in power generation, port construction, waste water management and other projects. Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. Morgan Stanley Infrastructure, with $4 billion in equity under management, is a leading infrastructure investment platform that focuses on long-term investments in infrastructure. Orascom Construction Industries is a leading international construction firm based in Cairo. The Construction Group ranks among the top global contractors, providing a range of services in key markets in the Middle East and North Africa in addition to Europe, Africa and Central Asia. Disclaimer: This newsletter has been prepared by Citadel Capital Financial Center staff and undergraduate students at the American University in Cairo. This review is based on information available to the public. This review is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The information and opinions in this review were prepared by CCFC from sources we believe to be reliable and information available to the public. CCFC makes no guarantee or warranty to the accuracy and thoroughness of the information mentioned in this review and accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this review. CCFC does not undertake to advise you of changes in opinion or information.