Dubai debt announcement shocks markets at least for a little while
While whispers of a potential default by Dubai had been circulating for months, markets were still shocked when the emirate's investment arm announced in November that it could not repay a $3.5 billion (LE 19 billion) bond.
As the problems at Dubai World mounted the company later sought to restructure $26 billion (LE 142 billion) in debt stock exchanges across the world dropped. With local shares taking a beating, Minister of Investment Mahmoud Mohieldin attempted to reassure local investors, saying the Egyptian banking sector had little exposure to Dubai.
Mohieldin said only HSBC (HSBC.CA, bt100 number 19) and the Arab African International Bank had provided credit to UAE-based companies, with the loans forming less than 2% of the firm's lending portfolios. That helped assuage jittery investors; the EGX 30 erased an 8% drop in just over a week.
Meanwhile, the Ministry of Trade and Industry continued its crackdown on unsafe food and shoddy consumer goods. Officials announced the confiscation of 18 tons of food and thousands of medical devices, clothes, spare car parts and leather products. The Standards and Quality Authority also closed seven unauthorized electronics repair shops.
Minister of Trade and Industry Rachid Mohamed Rachid also said Egypt was close to establishing product quality standards that will give local manufacturers easier access to the French market.
The Exchanges
A new committee chaired by EGX Vice Chairman Mohamed Mustafa Omran has been created to oversee the struggling Nilex. According to Mohieldin, the committee's mandate is to develop the small-to-mid cap exchange and streamline procedures.
The byword for other local markets was "Dubai." The EGX 30 index had a sharp, significant drop as a result of the emirate's crisis. Otherwise the index was stable, hovering between 6,100 and 6,400 points with the only other significant drop coming at the height of soccer-related feud between Egypt and Algeria.
Towards the end of the reporting period, it gained almost 400 points on news that France Telecom (FT) had been given the green light to acquire 100% of Mobinil (EMOB.CA, bt100 number 8) shares from Orascom Telecom (ORTE.CA, bt100 number 1) and the open market.
The EGX 70, on the other hand, ended the reporting period down. The Dubai crisis caused the index to lose 6% on November 30, but it had returned to earlier levels by December 3. It fell again, though, hitting an all-period low of 648 on December 10.
The EGX 100 also headed downwards, though less sharply than the EGX 70. Similarly to the EGX 70, the index dropped 6.3% as a result of news of the Dubai crisis. In the days following the Dubai announcement, the index continued to lose composure, dropping to 1,053 points before rising towards the end of the period.
Risk aversion appeared to be the underlying factor driving stocks during the reporting period. While businesses hope to emerge from the downturn in 2010, investors are betting on the bigger, and probably more stable, stocks rather than taking risks with smaller companies.
Telecom
The Egyptian Financial Supervisory Authority (EFSA) announced that after rejecting three previous acquisition attempts, it has granted France Telecom (along with its subsidiary Orange) the right to acquire 100% of Mobinil's shares. OT is currently contesting the decision.
The latest tender sees FT offering OT LE 273 per share for its approximately 35% stake in the mobile operator, with other shareholders offered LE 245 per share. EFSA had rejected previous FT offers on the basis that the price offered for free float shares was too low. However, in its latest decision EFSA agreed with FT's argument that shares in Egyptian Company for Mobile Services, Mobinil's holding company, were worth more due to the holding company's retained earnings and the fact that it charges management fees.
Mobinil shares, which over the past reporting period hovered just under the LE 200 mark, rose after the EFSA decision, ending the period at LE 245. OT shares proved a little more volatile, but trended upward, moving between LE 25 and LE 32, still significantly below mid-October highs of almost LE 40.
Telecom stocks as a whole were down at the start of the period with the index dropping from 566 to 508 over four trading sessions.
Banking
The Dubai crisis also wreaked havoc with banking sector stock prices. The period between November 25 and December 3 experienced the strongest volatility. The index started the period at 1,262, dropping almost 7% on November 30 to 1,172 before rising over the subsequent three sessions to 1,320 -- up almost 12.6%.
The remainder of the period proved less eventful: The index fell to 1,246, but the upward spike that blessed EGX 30 and the telecom sector did not materialize, with banking remaining wedged between 1,267 and 1,294 points.
The Arab African International Bank (AAIB, ABBK.CA) announced that its credit portfolio in the United Arab Emirates includes a $54 million (LE 297 million) marketed loan and $9.8 million (LE 53.9 million) in bonds to Dubai's troubled state-run property developer, Nakheel. The bank also made a $35 million (LE 193 million) marketed loan to Dubai World in addition to minor loans in the retail, communication and investment sectors. Commercial International Bank (CIB, COMI.CA, bt100 number 15), another lender rumored to have a stake in the debt-laden emirate, has denied that it has any credit portfolio in Nakheel or Dubai World.
Barclay's Bank (CBIB.CA, bt100 number 38) announced that its first nine-month profits for 2009 topped LE 173 million, up from LE 140 million during the same period in 2008. Piraeus Bank (PREG.CA) announced that its year-to-October profits were LE 6.6 million, down from LE 6.8 million in 2008. Faisal Islamic Bank (FAIT.CA or FAITA.CA) was the biggest gainer, announcing nine-month profits topping LE 119.78 million after reporting zero net profits 12 months prior.
Financial Services
The industry most affected by developments in Dubai was the financial services sector (excluding banks), which experienced strong fluctuations throughout the reporting period.
The sharpest drop occurred on November 30, when the index fell 10.7% (the EGX 30 dropped 8%); it never mounted a sustained comeback.
The biggest financial sector news was the announcement that Pioneers Holding would acquire Beltone Financial in a deal worth around LE 777 million. The deal, which took the form of a stock swap with Beltone retaining 17% ownership, did not impress the index, which continued fluctuating as investors remained unsure over whether to wait or trade in old Beltone stocks.
Construction
Stock prices in the construction sector are usually a key indicator of how well the economy is performing. The overall index headed upward this reporting period, ending a downward trend that began in late October. The index did fluctuate, though, on its way to ending the period at 1,581 points, up from 1,444 at the start.
The Dubai crisis broke a three-day upward trend that began November 22, forcing the index down 8.4% (the EGX dropped 8%) to 1,339 during a single session. However, the recovery over the following three sessions was remarkable -- the index jumped 13.8% to 1,534. That said, the surge seen in the banking and telecom sectors was much less pronounced in construction, with the index increasing from 1,501 to 1,581 at the end of the reporting period on December 15.
In terms of company news, Orascom Construction (OCI, OCIC.CA, bt100 number 3) announced that it has signed a joint venture agreement with Hassan Allam Sons Construction Company to build a drinking water processing station and pipeline to serve Sixth of October City. The contract is valued at LE 2.2 billion with OCI providing 50% of the contractual value. The project is expected to take 36 months to complete. OCI also announced that its fertilizer operation signed an agreement with Brazilian FITCO International to expand the companies' strategic cooperation. The latter is a fertilizer trading company specializing in the South American market.
Suez Cement (SUCE.CA, bt100 number 11) announced that its subsidiary Suez Limestone will establish a state-of-the-art limestone processing facility in Suez. The new facility is scheduled to be completed by 2011 and to post a total output of 500,000 tons annually. The cost of the facility has yet to be announced.
Overall, listed construction companies have been laying low. The constant fear of legislative backlash related to price fixing and anti-trust violations will only add to the volatility of this sector in 2010, despite sound operations by listed companies.
Real Estate
The real estate sector is closely linked to international markets; the most lucrative projects here target wealthy international customers from the Gulf, the United States and Europe, along with high net worth local clientele. Accordingly, the sector performance is distinctly divided into two parts, pre-Dubai crisis and post-Dubai crisis.
When the Dubai news hit, the index dropped 8.6%. The recovery started after four trading sessions, though the index failed to reach the pre-crisis level. Tentativeness caused the sector to fall again by 4.3% during December 9 trading, just as other sectors were regaining momentum.
In company news, Madinet Nasr Housing (MNHD.CA, bt100 number 77) announced that it chalked up LE 25 million in profits during 3Q2009, compared with LE 31.8 million in 3Q08. SODIC (OCDI.CA, bt100 number 87) reported nine-month net profits for 2009 topping LE 30 million, compared with LE 10.7 million in 2008.
Heliopolis Housing (HELI.CA, bt100 number 83) announced that it is still attempting to recover 5.1 million square meters of land that it says has been unlawfully occupied, most of which lies in its prime new housing project, New Heliopolis. The company also announced that it acquired 160,523 treasury stocks at prices ranging from LE 33.5 to LE 44.5 per share.
Listed real estate companies have halted most new projects, pointing to lower-than-usual funds for investment and significantly reduced demand, especially after the fallout from the Dubai crisis saw prices on premium residential units fall.
Economy Bytes
Fitch Ratings announced that Egypt's long-term foreign currency issuer default rating (IDR) is BB+ and the long-term local currency IDR is BBB-, with a stable outlook. The short-term foreign currency IDR and country ceiling were set at B and BB+, respectively.
The CBE announced that net international reserves reached $34 billion (LE 188 billion) in November, compared to $34 billion (LE 187 billion) during October 2009.
Global Market Watch
We look at how the US, EU and Asian stock exchanges are performing
Dow Jones Industrial Average:
This is the most widely followed indicator by economists. It was established in 1928 and comprises 30 blue-chip stocks that are the leaders in their respective industries. The values of this index are the price-weighted average of these 30 stocks.
FTSE 100:
This UK index is made up of the stocks of the top 100 companies by market capitalization. Its values are capitalization-weighted. It was established in 1984 and is one of the most highly regarded indices in Europe.
Nikkei 225 Stock Average:
This is Japan's prime stock index. It is made up of the top 225 Japanese companies listed in the First Section of the Tokyo Stock Exchange. Those 225 companies are selected based on a price-weighted average. The stock was established in 1949.
By Tamer Hafez
© Business Today Egypt 2010
