The stock market is expected to grow on the back of the huge demand for Telecom Egypt's shares, writes Niveen Wahish Telecom Egypt (TE) shares began trading yesterday on the Egyptian stock exchange following last week's sale of 20 per cent of the company's stock via public subscription and a private placement. Demand for TE's shares was enormous, with people liquidating assets, including hard currency savings, to obtain the cash to pay for the much sought-after stock. Thousands withdrew savings from banks and in at least one instance a branch of the National Bank of Egypt ran out of cash and had to send for supplies several times. At one brokerage company the garage became an impromptu waiting room, crowded with members of the public filling in application forms. The public offering was oversubscribed 10.6 times as brokers received buying orders worth LE11 billion. The result was that subscribers were allocated only 10.6 per cent of the shares they had wanted. TE had offered 170 million shares in the public subscription, of which 17 million were set aside for TE employees. The private placement of an additional 170 million shares was even more oversubscribed, with institutional investors putting in orders for 60 times the total. Subscribers to the private placement received only 1.8 per cent of the amount originally ordered. The minimum subscription within the private placement was one million shares, the maximum 17.1 million, with the final price set at LE15.56 per share. On the basis of the final offer price of shares sold to institutional investors, TE's market capitalisation is estimated at LE26.6 billion ($ 4.6 billion). TE is seen as a long-term, profitable investment with good growth potentials. "This is a strong, well established service company," said Ihab El-Desouqi, professor of economics at the Al-Sadat Academy, "and demand for services such as telecommunications is on the rise." As a result, he said, its shares are viewed as a low risk investment. But not all those who applied to buy shares are aware of the company's potential. Many, according to El-Desouqi, are actually looking to making a quick profit by selling stock during the first weeks of trading. Having watched the shares of companies -- such as Alexandria Mineral Oil Company (AMOC) and Sidi Krir Petrochemicals (SIDPEC) -- put up for public subscription earlier this year skyrocket, many members of the public wanted a piece of the action. As a result 210,000 individuals registered themselves for the first time with the stock market. "People are beginning to understand the stock market," says Hani Geneina, senior economist at EFG-Hermes, and one reflection of this growing understanding is the drop in the proportion of stock market turnover volume represented by retail investors which in 2005 fell to 60 per cent. Geneina believes the huge publicity that preceded the offering played a huge role in stimulating demand: "The demand for TE does not mean there were no good stocks already being traded. It is simply that people were more aware of TE." The growing awareness and increase in the number of individuals registered with the stock market will, believes Geneina, boost demand for upcoming public offerings like that of the Middle East Oil Refinery (MIDOR), slated for next year. Other privatisations, such as that of the Bank of Alexandria, are also likely to stimulate demand should they be put up for public subscription. El-Desouqi expects the bulk of those who bought TE shares to sell during the first few weeks as the price of the stock begins to rise. HC brokerage forecasts an upside potential of 18.2 per cent to the maximum offering price of LE14.8, while other observers believe the price could double. The chance to make a substantial profit quickly is likely to prove tempting, and El-Desouqi expects only a small minority of original buyers to hold onto their stock. The seemingly insatiable thirst for TE shares has the shown that there is plenty of liquidity in a market desperate for investment opportunities. It is a trend, argues El-Desouqi, that will be encouraged as interest rates on bank deposits are lowered and investors look further afield for new opportunities and higher returns. El-Desouqi expects trading in TE shares to help the market grow as other companies are encouraged to offer their stock to the public and increase their capital through the stock market. In addition it is a source of foreign direct investment. In fact, according to official statements, the private placement attracted interest from the Gulf as well as the US, UK and Europe. The proceeds from the sale, some LE5.1 billion, have gone to the owner, the Egyptian government. Subscribers' -- asked to pay 50 per cent of the value of the shares upfront -- have now been reimbursed. TE's offering was managed by a consortium led by Credit Suisse First Boston and including EFG-Hermes and the Commercial International Bank.
