With 20 per cent of Telecom Egypt up for grabs the clamour is deafening, reports Niveen Wahish During recent weeks investors have been rushing to liquidate holdings on the Egyptian stock market and free up cash to invest in Telecom Egypt's eagerly awaited share issue. The waiting is now over. The subscription for 20 per cent -- i.e. 341 million -- of Telecom Egypt shares opened on Tuesday and will continue until 7 December. Trading in the shares is scheduled to begin on 14 December. A maximum of 10 per cent -- 170 million -- of Telecom Egypt's total shares will be offered to the public. A minimum share price of LE13.3 and a maximum price of LE14.8 have been specified, with a minimum of 100 shares and a maximum of 10,000 allowed per subscriber. One per cent -- equivalent to 17 million shares -- of the offer has been reserved for the company's 53,000 employees, who will receive a 20 per cent discount. The remaining 10 per cent will be subject to a private placement with a minimum subscription of one million and maximum of up to 17.1 million shares. A portion of the private placement will be in the form of Global Depository Receipts (GDRs) at the London Stock Exchange. The price of the private placement -- whether locally or of GDRs -- will be determined after buyers submit their offers and calculated according to the weighted average. The public offering will be at a three per cent discount on the weighted average of the private placement, with a ceiling of LE14.8 fixed on shares offered to the public. The road show promoting the offer began even before the subscription date was announced. Company managers were joined by their financial advisors, first on a trip to the Gulf, and are now meeting European and US investors. A consortium led by Credit Suisse First Boston (CSFB), including EFG-Hermes and Commercial International Bank (CIB), is acting as advisor for the floatation. Not that the company is in much need of promotion. The subscription is expected to close wildly oversubscribed. When 20 per cent of Alexandria Mineral Oils Company's (AMOC) was floated at the end of September it closed 27 per cent oversubscribed. At the press conference this week announcing the floatation Tareq Kamel, minister of communication and information technology, ruled out the possibility that demand might tempt the company into floating more shares. The 20 per cent float was based on advice from financial advisors and the government, which owns the remaining 80 per cent and maintains an interest in ensuring the value of share increases during trading. Kamel did not rule out the possibility of additional floats later though under the Telecom Act, and Law 19/1998 that transformed the then National Telecommunications Authority into Telecom Egypt, the government must retain a 51 per cent stake in the company. The current float, explained Kamel, is intended to improve company governance as well as boost interest in the Egyptian stock market. According to Walaa Hazem, associate at HC Brokerage, Telecom Egypt's earning before interest, taxes, depreciation and amortisation (EBITDA) margin -- as of 30 September, 2005 -- is 55.4 per cent, "one of the highest in the region". Other company results indicate strong recent growth. Company revenues have increased by 8.3 per cent in September 2004 to reach LE6.4 billion. Net profit after tax is also up from LE1.1 billion to LE1.6 billion. Egypt Telecom's revenues are generated from local and long-distance telephony, international calls from Telecom Egypt's lines and mobile subscribers and interconnections between fixed and mobile lines. According to a Prime Securities research report international and domestic calls each account for a quarter of total revenue. There is great potential for growth. As Hazem points out, despite having one of the largest populations in the region Egypt has one of the lowest penetration rates. With only 14 per cent penetration in fixed lines there is plenty of opportunity for growth. Hazem believes Egypt's penetration rate could reach 20 per cent during the next four years. Telecom Egypt, which currently enjoys a monopoly of fixed line telephony, has some 10.3 million subscribers, up from 9.35 million in September 2004. Hazem does not expect the growth in mobile penetration to jeopardise the company's subscriber growth, though with 12 million subscribers mobile lines now outnumber fixed lines. Hazem believes that there is plenty of room for fixed line growth in new cities and outside urban centres, particularly with 50 per cent of the population below 20 years of age. Indeed, Telecom Egypt has announced plans to install one million new lines per year over the coming five yeas. In favour of the company, according to the Prime Securities report, is the fact that, "TE remains the sole local fixed line provider even though local telephony has been open to competition for several years." "Other companies were wary of venturing into such an investment, since it would require a capital expenditure level unjustified by a market in which TE already has mass coverage, along with low local minute tariffs." Although the company's service revenues have been restricted to the local market up till now, say HC, the acquisition, together with Orascom Telecom Holdings, of a new 15- year fixed line licence to build and operate a national network in Algeria allows the company to pursue cross border expansion and diversify its sources of revenue. Fixed line penetration in Algeria, which currently stands at around 10 per cent, is expected to reach 30 per cent by the end of 2009. Income from international calls, says the Prime Securities report, has been in decline for several years, and may well shrink further following the introduction of two new international gateway companies in 2006. Should Telecom Egypt lose either of the two mobile providers to the new companies it will see seven to eight per cent of its revenue disappear. The government had initially planned to privatise the company in 2000 but revised its plans in the wake of the downturn in telecommunications stocks worldwide.
