Egypt's share market may be weeks away from losing its biggest stock, which could prove to be a fresh blow to a market that is already grappling with political instability and a weak economy. Under a deal announced last month, a group of U.S. investors including Bill Gates committed to buying a $1 billion stake in Egyptian fertilizer giant OCI NV. The deal is a vote of confidence in Egypt's economy, and provides a badly needed flow of hard currency into Egypt. But it includes an offer to buy out all the Cairo-listed shares of parent firm Orascom Construction Industries (OCIC.CA). Analysts believe the result could be a delisting of Orascom Construction from the Cairo market, or at least a drastic reduction in the number of its shares that are available for trade there. Since Orascom Construction currently accounts for nearly 15 percent of the Cairo market's total capitalization of around $57 billion, its departure could sap trading activity and investor interest in the market, just as political and economic events are conspiring to do so as well. "The OCI deal is sending a gloomy picture in terms of the liquidity and market cap that will be taken off the Egypt market," said Mohamed Radwan, director of international sales at Cairo's Pharos Securities. "It's not the kind of signal you want to send to attract more foreign direct investment." OFFER Amsterdam-listed OCI NV is offering to acquire all the global depositary receipts of Orascom Construction in exchange for shares in OCI NV. GDRs are certificates representing ownership of shares, and are widely used to facilitate trade by foreign investors in emerging market stocks. In addition, OCI NV is offering to acquire all of Orascom Construction's ordinary shares, in exchange for OCI NV shares or a cash amount of 280 Egyptian pounds ($42) per share. Since that cash amount is about 9 percent higher than Orascom Construction's average share price in 2012, it looks attractive to many investors; the shares are currently trading around 266 pounds. As of Feb. 7, holders of 97.2 percent of the GDRs, representing 74.4 percent of all outstanding shares, had accepted the offer, according to the most recent data. If holders of over 95 percent of outstanding shares vote to accept, securities rules suggest Orascom Construction could be delisted, analysts say. The GDR offer will close late on Thursday. In a nod to the national sentiment of Egyptians, Orascom Construction has insisted it will not disappear completely from the Egyptian exchange. In a statement, it said it will "maintain its presence on the EGX either directly or through an Egyptian Depositary Receipts program to be launched by the Company". But given the current disarray of Egypt's capital markets, it may be difficult to arrange any large, new public offer of shares by Orascom Construction. So analysts expect the number of its shares listed in Cairo to drop sharply, or for the company to delist entirely. "Egypt is losing a blue chip - it's not a good point for the market," said Sebastien Henin, portfolio manager at Abu Dhabi investment firm The National Investor. BLUE CHIPS In the short term, OCI NV's offer could actually support prices of other stocks in Cairo, some analysts believe. That is because local investors, deprived of the opportunity to put money into Orascom Construction, may turn to other members of the handful of large, liquid blue chips, such as Commercial International Bank, Orascom Telecom and Telecom Egypt. Anticipation of this may have helped to support the blue chips' prices over the past several weeks. Telecom Egypt, for example, is up 4 percent since the end of last year, despite a string of negative economic news since then, including a sharp drop in Egypt's currency reserves. In the longer term, however, money seeking exposure to Egypt may simply go into OCI NV's U.S. dollar-denominated shares in Amsterdam, rather than taking a currency risk and investing in the Egyptian stock market. That could have a chilling effect on the market. The loss of Orascom Construction's capitalization could also hurt foreign fund flows into the Egyptian market by reducing its weight in the Morgan Stanley Capital International (MSCI) indexes used by many international fund managers. Other Egyptian stocks that analysts believe might be delisted eventually are National Societe Generale Bank, Orascom Telecom and EFG-Hermes, which have been targets of acquisitions by foreign firms looking to pick up cheap Egyptian assets. "Egypt could be dropped from the MSCI index if we don't see some rapid IPOs" to boost its capitalization, said Mohabeldeen Agena, head of technical analysis at Cairo's Beltone Financial. But until the economy strengthens considerably, there seems little prospect of initial public offers to create new blue chips. Real estate developer Amer Group Holding was the last IPO in Egypt, raising 1.15 billion Egyptian pounds with an offer in November 2010. "Unfortunately, there are no IPOs coming up. One part of the market's interest will vanish" with Orascom Construction, said Henin at The National Investor.
