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GTHE minority shareholders to turn down Veon's offer to acquire assets: Pharos report
Voluntary delisting, rights issue to close financing gap in cards
Published in Daily News Egypt on 09 - 09 - 2018

A recent report issued by Pharos Research expected that Global Telecom (GTHE) minority shareholders will not accept the offer by Veon to acquire Pakistan and Bangladesh assets.
The research company said that feedback on the VEON offer from GTHE shareholders suggests that the current offer would not be approved by the required 66 seats 2-3% of minorities at this time.
VEON has confirmed that the offer remains open, yet cannot confirm that it will remain open indefinitely.
Shareholders will be aware that the offer can be withdrawn by VEON at any time after 1 September 2018.
GTH reported that there are significant debt maturities, interest payments and capital requirements in second half of 2018 and 2019 amounting to at least $500m.
The board of directors continues its review of the VEON offer and the alternative options to fund the company. Given the cash flow forecasts and debt maturities these options include the possibility of a pro-rata capital raising from existing shareholders, the report noted.
As a part of this ongoing review, GTH is to appoint Lazard Frères SAS as its International Financial Advisor with a broad remit to advise the company on all financing options in addition to Fincorp continuing as IFA.
"We are moving to less appealing options every step of the way. The first announcement is telling us that management is throwing a more negative scenario in case minorities do not accept the Veon offer," the report confirmed.
The report has suggested three scenarios for what could happen next, including minorities accept the Veon offer before its withdrawal, in order to avoid the capital increase, but with uncertainty about dividends.
"The scenario is already discounted in share price and not very appealing, since the good assets will be sold out and the possibility of a cash dividend is a question mark. Might be more appealing if a specific dividend was announced. But this was not discussed or confirmed," according to the report.
The second scenario is that Veon withdraws the offer and GTHE announces a capital increase or bridge financing from Veon.
"Shareholders are waiting for return on their original investment in the stock, rather than injecting further funds into the company. In that case, we might see Veon subscribing to the capital increase and raising its effective stake in the company, but minorities will get diluted," the report added.
The third scenario is that voluntary delisting is in the cards, which explains the flood of bad news and the pressure of share price performance.
"A voluntary delisting would mean Veon would offer minorities a price tag that is the higher of: the highest share price over the month prior to board decision to delist (EGP 4.48 for now) or the average share price over the last three months (EGP 4.28 for now)," the report stated.
Meanwhile, a separate report issued by Pharos said that Cairo Pharma (CPCI) witnessed topline sequential and annual growth of 14% and 34% respectively in fourth quarter (Q4) of both 2017 and 2018.
The report attributed the jump in company topline to Ministry of Health's decisions to raise drug prices over the past two years, increased export sales post Egyptian pound devaluation, and increased local sales with improved drug availability
"Margins dropped annually, but went up sequentially. With COGS witnessing a +49% year-over-year increase, GPM margins tightened to 30% in Q4 2017/18, but is still higher than the 26% recorded in 3Q17/18. Raw material and salaries costs contributed significantly to higher COGS (+56.2% and 12.7% -y-o-y). Sequentially, higher sales have supported margin recovery," the report added.
"Increased local and export sales as well price-cap easing would ease-off margin pressures, as we expect over our forecast horizon. Q4 2017/18 EBITDA margins are lower sequentially due to yearly BoD and employees' distributions. Both sequential and annual NPM along with Q4 2107/18 NPM fell between 12-14%," it concluded.

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