The market has just completed a year of a non- directional performance. Analysts commenting on the market's performance through the year have often failed to find the justification for its leaps and declines, unable to provide forecasts that were later proven accurate. Part of the problem was the strong correlation that the local market now has with international stock exchanges that were shaken several times throughout the year by the Euro zone's economic woes. The international financial turmoil that no one really expected made markets both vulnerable and volatile. As on 27 December, the Egyptian market's main index EGX30 had gained 11 per cent in 2010. While this is an achievement compared to the 56 per cent it lost in 2008, it only comes to one third of its gains in 2009, which saw the 30-member index surging by 35 per cent. The EGX70, which tracks the performance of 70 small caps, outperformed the EGX30 and increased by 12.6 per cent through the year. The market started off the year on a positive note, especially after economic growth rate figures showed a 4.7 per cent increase in the first quarter. Indeed, the market ranked first among all emerging and developed markets, according to a Morgan Stanely index. However, concerns around President Hosni Mubarak's health after his surgery in mid- March slowed the market down for a while. Later, a wave of foreign buying after the worries subsided pushed the market to its highest point this year, reaching 7,500 points close to the end of April. Unfortunately, this revival was short-lived as the Greek crisis erupted at the end of that month. News from market leader Orascom Telecom Holding (OTH) became the market's main stimulus for the rest of the year. EGX30 kept losing ground in the May to July period, as developments regarding the MTN offer to buy out OTH's Algerian arm Djezzy and the Algerian authorities' hard stance weighed on the market overall. The summer lull and Ramadan ushered in a lack of market liquidity from June through August, and this was reflected in the EGX30's negative performance during this period. Near the end of the year, the Egyptian pound declined by five per cent to a historical low. This raised concerns among foreign investors' worries, but did not affect their interest in the market, as they continued to be net buyers throughout the year. Non-Arab foreign transactions accounted for 16 to 18 per cent of the year's total, compared to 12.7 per cent in 2009 according to Egyptian Stock Exchange figures. Net foreign inflows into the market came to $5.8 billion by the end of September. The application of new listing rules throughout the year reduced the number of listed companies to 213 compared to 306 a year ago, and this was reflected in a 4.2 per cent retreat in market capitalisation to reach LE478 billion. Failed OTH signals IT HAS BEEN one of Orascom Telecom Holding's (OTH) toughest years. It inherited from 2009 a fierce dispute with French telecommunication company France Telecom (FT) for the control of Mobinil, Egypt's mobile operator with the largest number of subscribers. FT owns 36.4 per cent of Mobinil, OTH owns another 34.6 per cent, while the rest is free floated. The nine-month judicial and media war between the two firms turned into a national issue dividing public opinion as Orascom's majority owner and Executive Chairman Naguib Sawiris vowed not to cede to French pressure. In January, OTH appealed a decision by stock market regulator the Egyptian Financial Services Authority (EFSA) in December to approve FT's fourth bid to buy the minority stake in Mobinil for LE245 a share, compared to the LE273 for which that the International Court of Arbitration decided in April 2009 that FT should buy OTH's Mobinil shares. The sale was blocked in January and the two sides went back to the negotiating table to renegotiate the shareholder pact, instead of FT buying out OTH as the court fight would have called for. The deal to smooth over differences left FTH and OTH with equal voting rights and shares, but was read by many analysts as OTH abandoning many of its administrative rights in Mobinil, giving FT the upper hand. Another problem that escalated through the year was OTH's dispute with the Algerian authorities over Djezzy, OTH's Algerian arm and its cash cow. The Algerian government demanded a total of $1.07 billion in back taxes, fines and compensation for violating foreign exchange rules since October 2009, when a football match between the national Algerian and Egyptian teams triggered a political row and led to soccer fans attacking Djezzy premises in Algiers. Disgruntled by problems on the Algerian front, Sawiris sought ways to pull out of the market. But the Algerian authorities made it harder on him when it blocked a deal through which the South African group MTN would have bought Djezzy for $7.8 billion, saying it had the first option to buy the Algerian subsidiary. However, the real suspense came at the end of October, when OTH said its parent company Weather would tie the knot with Russian VimpelCom group in a $6.6 billion deal to form the world's fifth largest mobile operator, worth around $23 billion and with 174 million mobile subscribers. Sawiris said that problems concerning Djezzy are the main cause he decided to sell most of his empire with half its real worth. So far the deal has not been finalised, as the Algerian authorities are refusing to negotiate with VimpelCom, and are considering the nationalisation of Djezzy. Big merger scrapped WHEN push came to shove, the merger plan announced at the end of 2009 to form Egypt's largest investment firm, with combined assets of LE29.2 billion, never materialised. The two companies, Pioneers and Beltone, announced in early July that they had failed to agree on a strategy for the merged firm. Market observers meanwhile offered a long list of possible causes for the failure of the deal to materialise, starting with differences on the structure of the new board and allegations of misconduct that Pioneers faced the year before and ended up levying a fine of LE10 million on three members of the company board in March. Pioneers has a wide retail distribution network, with smaller research and investment banking operations. When the merger was initially announced, analysts said that the tie-up would have done Pioneers a big favour, given Beltone's institutional client base. No Vodafone-TE marriage EGYPT'S fixed line monopoly Telecom Egypt (TE) expressed interest in increasing its 45 per cent stake in Vodafone's Egypt (VFE) unit as a means to raise its exposure in a growing and increasingly competitive market for mobile services, which has been eating into its fixed-line revenues. However, the 80 per cent state owned TE issued a statement two weeks later, saying that following informal talks, the two parties have agreed that it is in the best interest of VFE that the current ownership structure should remain in place. In 2009 and the first half of 2010, TE wrote off inactive customers, bringing its total subscriber base down from 11.7 million at the end of 2009 to 9.93 million at the end September 2010. EFG betting on banks EFG-HERMES, Egypt's largest investment bank, sold its stake in Banque Audi, Lebanon's largest lender by assets, for $913 million after lengthy discussions between the two businesses revealed that following the events of 2008, the possibility of combining the two institutions in the near future would be difficult. The two parties had been holding talks for more than two years to explore the prospects of a merger. The transaction leads to an unconsolidated capital gain of $260 million for EFG-Hermes based on the price EFG-Hermes paid when it bought the stake in 2006. However, less than six months later EFG-Hermes concluded a $542 million deal with Credit Libanais SAL, for a 65 per cent stake of the Beirut-based bank. The deal also includes a call option over an additional 25 per cent interest in the bank. The privately-owned Credit Libanais controls about five per cent of the Lebanese market, where it serves around 280,000 clients and has total customer deposits of over $5 billion. A junior CASE ON 3 JUNE, former head of the Cairo and Alexandria Stock Exchange (CASE) Maged Shawqi rang the opening bell, kick-starting the first day of trading in the region's first bourse for small- and medium-sized enterprises. While the baby bourse started with only ten companies listed , it ended the year with 16 members. Nilex, has fewer disclosure requirements than the main Egyptian Stock Exchange, making it more suitable for smaller companies with a shorter-lived track record. Just three weeks after the exchange started, the regulator decided to raise the ceiling of listed companies' capital from LE25 million to LE50 million, to attract more investors. The lowest capital requirement to join the bourse is currently LE500,000. Changing guards DEPUTY Chairman of the Egyptian Financial Supervisory Authority (EFSA) Khaled Serri Siyam took over on 15 July as the new Stock Exchange head. He replaced Maged Shawqi, whose tenure had lasted for five years. The main reason for the change was the negative feeling Shawqi stirred among investors due to his earlier strict decision to delist 29 companies due to their failure to meet regulatory requirements of bourse listing. Investors in these companies, mainly small caps, protested several times at the gates of the bourse downtown Cairo headquarters against Shawqi's decision, which had led to their multi-million dollar losses. IPOs snatched THE MARKET witnessed the listing of two companies through initial public offerings (IPOs) in 2010. While market liquidity is relatively limited, the two IPOs attracted much attention, considering they involve two heavyweights in their sectors and both are actively priced at less than LE5 per share. IPOs have been absent from the local market since mid-2008 when Palm Hills and Maridive oil services put their shares on the bloc, after which the financial crisis made it hard for companies to rely on the local bourse to raise money. In June, Juhayna, the local dairy goods and fruit juice maker, raised LE1 billion through a public share offering worth LE192 million, that ended up oversubscribed by 6.8 times, and a private placement with a total value of LE808 million with buying orders exceeding the offered stake by 1.75 times. The aim of the offering is to allow Juhayna to enter new investments in dairy production and to plug the current gap between the size of its production and its land reclamation projects, according to Juhayna CEO Safwan Thabet. The decision to become listed in the market stirred much doubt until the last minute, when a fire destroyed one of Juhayna's six factories in 6 October governorate in Giza, with losses mounting to LE300 million. The firm is Egypt's leader in the packaged dairy goods sector, with 65 per cent of the market share. Juhayna Food Industries comprises six firms working in making and packaging milk, dairy products and juices, as well as agricultural development. Amer Group's share offer came in November and was warmly received despite the fact that the market was not in a bearish mood. The capital increase of LE1.1 billion took place through the issuing of 500 million new shares, 20 per cent of which was offered to the public, while the rest was allocated to high net worth investors in a private placement. The group's IPO was oversubscribed by 5.8 times and the private placement by three times, with shares sold at LE2.8 each. Amer Group sells holiday homes on Egypt's coasts and elsewhere. One of its projects is Golf Porto, covering 2.2 million square metres in the mountainous Ain Al-Sokhna area by the Red Sea. The group also owns hotels, restaurants, malls, a catering firm, a utilities company and numerous other businesses. Madinaty again TALAAT Mustafa Group's (TMG) housing project Madinaty was the focus of a number of court cases widely viewed as an attempt by activists and judiciary bodies to safeguard the rights of ordinary citizens on one hand and promote government business interests on the other. TMG's flagship Madinaty project involving the construction of homes, schools, shops, hotels and a golf course is being built on 8,000 feddans of land. Following a suit filed by architect and real estate developer Hamdy El-Fakharani, a lower administrative court ruled last June that the 2005 contract between the New Urban Communities Authority (NUCA) and TMG to sell the land did not include an open auction, a necessary procedure when selling lands according to a 1998 law. Both NUCA and TMG appealed the decision at the High Administrative Court, which in turn set up a committee to study the deal's legality. The commission filed its report recommending the contract be scrapped. In September, the Administrative Court upheld this decision. The government scrapped the original contract and said it would return the land to the company under a new deal on the same terms. The government said it would sign this deal based on "its right to act in the national interest". Just as in the original, the new contract stipulates that the government will obtain its share of the value in the form of seven percent of the project's completed housing units, on the condition that any new contract must not value the land at less than LE9.98 billion, equivalent to around LE297 per metre. This was the land's fair price at the time f sale, according to government estimates. The verdicts kick-started a series of similar cases against a number of real estate developers for acquiring state lands by direct order rather than by auction. A Cabinet statement issued last month said the government will modify some legal provisions in the next parliamentary round in order to exempt certain state bodies and individuals from the public auctions law. The statement added that the prime minister's office already had the right to allocate state land directly to a chosen buyer. Maxing out Eurobonds EGYPT tapped the Eurobond market for the second time in nine years with a $1.5 billion issue that comprised two tranches which were highly subscribed with overall buying orders mounting to $12 billion. The first tranche includes a 10-year $1 billion worth of bonds with an interest rate of 5.75 per cent compared with the 6.95 per cent imposed on the 30 year bond tranche of $500 million. Analysts attributed the strong demand to the attractive price relative to Egypt's credit rating of BB+/Ba2, which is one notch below investment grade. The 30 year tranche is Egypt's first ever with a such duration. "We plan to test the outer limits of maturities. We are testing 20 to 30 years," Finance Minister Youssef Boutros Ghali told Reuters in March before the issue was offered. Egypt has previously resorted to the bond market twice. The first time was in 2001 with an issue of $1 billion that is maturing next year. It also has LE6 billion Egyptian of global notes maturing in 2012.
