* Deal is vote of confidence in Egypt's economy
* But stock market may lose nearly 15 pct of capitalisation
* Other blue chips may also be delisted
* Could hurt foreign fund flows into Egypt
* Little immediate prospect of IPOs to create new blue chips
By Nadia Saleem
DUBAI, Feb 13 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 fertiliser 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.
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
Since Orascom Construction currently accounts for nearly 15
percent of the Cairo market's total capitalisation 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."
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 programme 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.
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
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 loss of Orascom Construction's capitalisation 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 capitalisation, 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.