Egypt sets limits on GDRs, tightens grip on local stocks

The new regulation puts a limit on the number of local shares that can be changed to Global Depositary Reciepts certificates

Egypt has set limits on transferring shares of local companies into internationally-traded global depository receipts (GDRs), a move which could prevent a repeat of a controversial deal which may lead to the delisting of one of the country's biggest firms.
The Egyptian Financial Supervisory Authority (EFSA) made the ruling while a dispute is raging over a share offer which is likely to lead to Orascom Construction Industries leaving the Egyptian stock market, against the government's wishes.
"There are new regulations that were set in place by the authority to impose a limit to the (number) of local shares that can be changed into GDR certificates," an EFSA official told Reuters on Monday.
The amount transferred into GDRs, which foreign investors often use to invest in companies based in emerging markets, must not exceed a third of the company's capital, the official said, requesting anonymity.
Under the ruling, which came into force on Sunday, firms must also obtain approval from an extraordinary shareholders' meeting before they can make the transaction.
In a further twist, an Egyptian public prosecutor barred Orascom's chief executive Nassef Sawiris and his father Onsi on Sunday from leaving the country as part of an investigation into suspected tax evasion.
Dutch-listed parent company OCI NV, a fertilizer and construction firm, announced an acquisition deal in January, under which holders of OCI's GDRs were offered shares in OCI NV, while holders of the firm's Egypt-listed ordinary shares got the option of cash or OCI NV shares.
If enough shareholders of the Egyptian-listed company accepted either of the two options, this would lead to its departure form the local bourse.
OCI, which is seeking to improve its ability to fund global expansion with international capital, obtained board approval for the deal in February but EFSA delayed completion of the deal after requesting more information.
An analyst saw a link between EFSA's Sunday ruling and the OCI deal. "This is in order to prevent a replication of the case of OCI," said Mona Elshazly, an equities analyst at Pharos Securities.
"This is going forward so no one can make any acquisitions or tender offers on GDRs except through the local market and through EFSA so that it can have control over any transaction," she added.
Sources close to the Sawiris family said the chief executive and his father were out of the country. Under the order, they would be detained if they returned.