On January 18, Orascom Construction Industries (OCI) announced it received a "Share Exchange Offer from OCI N.V., a Dutch company listed on NYSE Euronext Amsterdam, for all of OCI's outstanding Regulation S Global Depository Receipts (GDRs) in exchange for ordinary shares in OCI N.V. shares on a one-to-one basis," according to a company press release.
Some 91% of OCI's Regulation S GDRs (140 million shares) are held by the Sawiris family and Abraaj Capital, both of whom have accepted the share exchange offer.
The Dutch company also "intends to launch a mandatory tender offer (MTO) to acquire all of OCI's ordinary shares in exchange for OCI N.V. shares, or a cash alternative of LE 280 per OCI share on the same terms as the Share Exchange Offer, in compliance with chapter XII of Capital Markets Law 95 of 1992," the statement concluded. However, Egyptian regulatory authorities will have to approve the sale before the mandatory tender offer can go through.
The following day, OCI had secured $2 billion (LE 13.3 billion) from investors including Bill Gate's Cascade Investment, Southeastern Asset Management and Davis Selected Advisors to make the transaction a reality.
Although the company would be headquartered in Holland, officials say its operations within Egypt would continue. A statement from OCI said the Sawiris family, which currently owns around 55% of the construction and development firm, will retain a similar share holding in the new company.
CEO Nassef Sawiris said the move would open up capital that would benefit its Egyptian operation, which employs 45,000 employees or 50% of the firm's global base.
However, analysts say this will allow the company to bypass Egyptian tax authorities, which stymied efforts to split OCI into two companies representing its fertilizer and construction arms separately.
Analysts added that the transaction will likely deal a blow to the EGX's equity market if the company eventually delists since OCI represents around 20% of the index and boasts the largest market capitalization.
On January 25, NYSE Euronext Amsterdam announced that OCI N.V. Had been listed and commenced trading, recording a 3.4% increase on its first day of trading.
Blow to foreign investment
In January, the Central Bank of Egypt (CBE) said some $5 billion (LE 33.18 billion) in foreign investments had dried up over the last six months.
Foreign direct investment (FDI) had also taken a hit, and were down 94.1%, or about $1.75 billion (LE 11.61 billion), in 1Q2012. Stagnant European Union investments were partly to blame.
EU members invested just $1.76 billion (LE 11.68 billion) in the first quarter of the current fiscal year versus the $4.2 billion (LE 27.87 billion) previously.
The CBE is under pressure to keep Egypt's balance of payments afloat as foreign reserves continue to dwindle. The bank has spent $20 billion (LE 133.7 billion) to prop up the Egyptian pound since February 2011 and has not been able to recoup costs due to poor FDI and poor tourist numbers.
In November, the bank reported another $448 million (LE 2.97 billion) worth of losses, to put foreign reserves totals at just $15.04 billion (LE 99.78 billion).
The aggregate can cover three months of imports. New restrictions on purchasing dollars and transferring US currency outside the country likely helped prevent more mass outflows of US cash, but a rush to purchase dollars in December could mean further drains will be reported in coming months.
In related news, President Morsi appointed Hesham Ramez the new CBE chief. Former head Farouq El-Oqdah, who resigned in January amid Egypt's political and economic turmoil following the uprising two years ago, governed the CBE for nine years.
Ramez was the former CBE deputy governor in charge of foreign reserves and monetary policies.
El-Oqdah and Ramez held a joint press conference at the Presidential Palace and voiced their confidence in Egypt's recovery despite reserves being at a critical minimum level when it comes to buying necessary imports, keeping up with debt payments and continuing to support the pound.
The former CBE chief had apparently been looking to make an exit for the past year, but hung on to prevent any further instability. According to his successor, Egypt can turn the tides by resolving its myriad of political disputes that have shaken investor confidence and propagated a sense of uncertainty surrounding the nation's investment climate.
He also told media that he was not worried about the exchange rate since the bank had implemented an auctioning program to help the pound maintain value.
Rumors abound, however, that El-Oqdah was being blamed for mismanaging the reserves by the Muslim Brotherhood and that there were tensions between the CBE and Morsi's new government.
IMF loan slips further and further away
Last month, government officials said the $4.8 billion (LE 32 billion) International Monetary Fund (IMF) loan could take a few more months to clinch.
According to Prime Minister Hesham Qandil, the IMF needs to see several economic reforms before it will be able to approve the much-needed cash.
Qandil and IMF chief Christine Lagarde, had discussed the loan in detail on the sidelines of the World Economic Forum in Davos, Switzerland, as well as how Egypt could improve its chances of receiving the funds after political strife and renewed clashes over President's Mohamed Morsi's failed power grab squandered the deal.
However, authorities claimed the decision to renege on a preliminary agreement inked at the end of last year was, in fact, Egypt's as leaders decided to get more community input on the series of subsidy and tax reforms.
Although some of the subsidy program has been cut back, the new consumer taxes were postponed or cancelled almost as soon as the decree was handed down.
Qandil said some of the planned reforms would be ratified before the next round of parliamentary elections for the lower house and that could pave the way to keep the loan negotiations on track.
But Egypt Independent quoted unnamed Egyptian government sources close to the talks who said despite promises to the contrary, the IMF would prefer to wait until Egypt's new parliamentarians have been elected.
To sweeten the deal and show Egypt is serious about reform, officials are redoing parts of its social and economic reform strategy. Without giving a detailed rundown, sources told Egypt Independent that the changes would take inflation and the pound's gradual devaluation against the US dollar into account.
According to Egyptian media, this includes boosting liquidity that does not involve hiked sales taxes. Further austerity measures, selling sovereign instruments to foreign entities and government spending and subsidy cuts have been floated as possible approaches.
In January, Bloomberg confirmed reports that the government was revamping its reform plans.
According to Masood Ahmed, the IMF's Middle East and Central Asia director, the nation was in the process of seeing how some of the measures it had originally backtracked on could be implemented again to bolster stagnating government revenues, Bloomberg quoted the official as saying during an interview in Washington, DC.
He also said that officials are trying to ensure that any reforms made work hand in hand with "political imperatives" as well as provide the necessary foundations to solving Egypt's economic woes, of which there are many, including a depreciating pound and a skyrocketing budget deficit, not to mention the huge amount of public debt authorities have incurred.
Ahmed concluded by reinforcing the IMF's support of Egypt and said its over-arching goal is to boost the nation's foreign reserves and help promote the health of the foreign exchange market.
An IMF technical team is set to visit sometime this month to discuss Egypt's progress and possibly outline new terms for a loan deal.
In an interview with Daily News Egypt, former Finance Minister Samir Radwan said the loan is contingent on the government getting widespread support for its reform program and austerity measures before the proposed lower house elections.
Should officials fail to get that same support, then negotiations with the IMF could falter once again.
Pound problems
As of January, the Egyptian pound's value had dropped approximately 7% against the US dollar.
According to reports, its value is 12% lower than it was before the events and aftermath of the January 25 Revolution two years ago. In 2012, the pound also lost 8.4% versus the euro and 11% against the British pound. Analysts believe the pound will fall further this year as the dollar strengthens in Egyptian markets.
As of press time, $1 was the equivalent of LE 6.63.
Speaking on the issue last month, Prime Minister Hesham Qandil tried to reassure the public that the ongoing depreciation of the pound was actually an opportunity for investors since it promotes exports and foreign direct investment.
In December, some media reported unidentified sources as saying the IMF was unconcerned with the pound's loss in value because it was trading higher than its real value.
Trade deficit improves
Egypt's trade deficit dropped to LE 13.7 billion in October 2012 as exports and imports declined. This compares to a trade deficit of LE 20.9 billion recorded a year earlier and LE 16.5 million in September 2012.
CAPMAS statistics showed that exports declined 10.4% to LE 13.97 billion in October due to a decline in prices of merchandise including oil, textiles, furniture and medicine. Meanwhile, imports dropped 25%, which, according to CAPMAS, was due to a drop in the price of good such as wheat, maize, wood and iron.
UBE goes regional
The United Bank of Egypt (UBE), which is 99% owned by the Central Bank of Egypt (CBE), has announced plans to expand into GCC countries to meet the needs of its client base and to introduce more services for clients outside Egypt, including money transfers.
The expansion plan is based on building alliances with GCC-based banks -- including Saudi Arabia's AlBilad Bank and Al Rajhi Bank and Qatar's AlFaradan Bank -- to make up for the lack of independent UBE branches in those markets.
UBE Chairman Mohammad Ashmawi was quoted on Al Bawaba news channel as saying that the bank is planning a capital increase to make up for its recent losses.
Allianz denies Egypt exit claims
German insurer Allianz has denied rumors that it is planning to exit the Egyptian market, adding that it is actually planning to expand its operations in Egypt, which include Allianz Egypt and Allianz Life Assurance Egypt.
Allianz CEO Udo Kruger said the company is moving into a new $40 million (LE 266.3 million) building in Cairo's Fifth Settlement by the end of 2013.
Despite political instability now, Kruger is optimistic about the future in Egypt, in which Allianz has 13 sales offices, 45,000 customers and runs assets worth an estimated LE 3.3 billion and is reported to have achieved a growth of 10% to 12% in 2012.
Emirati beet factory confirmed
Emirati sugar manufacturer Al-Ghurair Group announced plans to develop an Egyptian sugar production plant using beets. The proposed development is set to produce 400,000 tons of sugar annually and comes with a price tag of $500 million (LE 3.3 billion).
The plant is set to be built on 100 feddans of land in the Abu Khalifa industrial zone in Ismailia, as agreed with its governor, and will secure 30,000 jobs.
Al-Ghurair Chairman Jamal al-Ghurair described the project as a serious investment for Egypt, whose market is both promising and versatile.
He added that Egypt became a serious contender for the plant due to its warm climate, available water resources and multiple growing seasons.
More Qatari funds for Egypt
On January 8, Qatar inked a new loan to Egypt worth $2 billion (LE 13 billion) and a grant of $500 million (LE 3.3 billion) to help the government control the current currency crisis. This brings Qatar's total contributions to Egypt to $4 billion (LE 26 billion) in deposits and $1 billion (LE 6.5 billion) in grants since the revolution.
In September 2012, Qatar had agreed to invest $8 billion (LE 52.1 billion) in gas, power and iron and steel plants at the northern entrance to the Suez Canal and $10 billion (LE 65.1 billion) for a tourist resort on the Mediterranean coast.
These have been in the works for a while, but were delayed, in part, by a disagreement between Egyptian and Qatari technicians over systems and laws.
Analysts say Qatar views Egypt as a valuable strategic asset -- a solid regional ally. Qatar has invested more that any Gulf state has in Egypt since the revolution.
False advertising
Mobinil has been accused of false advertising and has been referred to prosecutors by the Consumer Protection Agency (CPA).
CPA chief Atef Yaacoub told Ahram Online that the operator had claimed it "led Egypt's mobile phone service providers in terms of data and voice service quality," in a print advertisement in Arabic daily Al Akhbar, on December 22, 2012 in a manner that implied the claim was based on official National Telecommunications Regulation Authority (NTRA) reports. The claim was actually based on Mobinil's own calculations.
In response, on January 4, 2013, the NTRA issued a statement claiming: "The NTRA has not ranked [Egyptian mobile phone] companies in terms of [performance] indicators. Determining which network has an advantage over the other is done at the city level and per each index and not on absolute terms. No company can announce a general ranking based on our indicators."
Privatization annulled
Egypt's administrative court has rejected an appeal by the government against the suspension of the privatization contract for Shebin El-Kom Textile Company, thereby permanently annulling the sale of the publicly owned textile company.
The privatization of three previously
public-sector companies (Shebin El-Kom Textile Company, Tanta Company for Linen and Derivatives and the Steam Boilers Company) was initially cancelled by an Egyptian court in September 2011. The ruling ordered their ownership to be returned to the government after which the government appealed the ruling until its appeal was recently rejected.
The appeal for Steam Boilers Company -- currently owned by Orascom Construction Industries (OCI) -- was rejected in December 2011. Assiut Cement, which was sold to CEMEX under the previous regime was also ordered to be returned to the state.
The rejection of the appeals puts the final seal on the matter and the government is required to return the privatization proceeds and retain ownership of the companies.
© Business Today Egypt 2013