EGX 30 Rises 0.71% In Week, IMF Talks Still Muddling On
In a week, the Egyptian Exchange has incurred losses of EGP 128 million driven by the profit-taking transactions adopted all over the week after gaining profits of EGP 12 billion a week earlier.
The capital market has hit EGP 360.896 billion at the end of last week, compared to EGP 361.024 billion at the end of a week earlier.
Egypt’s stock exchange benchmark EGX 30 index inched up by 0.71% this week, representing an increase of 36.96 points, ending Thursday’s transactions at 5268.43 points compared to 5231.47 points at the end of last week.
EGX30 hit its highest point on Sunday closing at 5300.28 points, where its lowest point reported on Wednesday at 5259.07 points.
Meanwhile, the mid- and small-cap index, the EGX70 tumbled by 0.78% closing at 450 points during Thursday’s session, compared to 454 points at the end of a week earlier. The price index, EGX100 rose by 0.55% concluding by 751.8 points during Thursday’s session, compared to 756 points at the end of a week earlier.
Also in a week, the EGX has recorded a volume of trades hit 347.3 million securities, compared to 477 million securities a week earlier; while the traded value reached EGP 1.72 billion, opposed to EGP 1.5 billion a week earlier.
This week has witnessed multiples events, notably Orascom Construction Industries’ announcement about reaching a final settlement agreement with the Egyptian Tax Authority within the current week.
The Egyptian Exchange (EGX) has ended Sunday’s session posting gains of EGP 3 billion powered by investors’ optimisms towards OCI’s final settlement agreement with the Tax authority.
OCI’s Long-Awaited Tax Settlement:
Omar Derwaza – Head of Investor Relations at Orascom Construction Industries – announced on Sunday that the ongoing negotiations between OCI and the Egyptian Tax Authority are likely to conclude very soon, expecting that the two parties are going to reach a final settlement agreement within the current week.
Derwaza declined to give a comment when he was asked about the value and the schedule of the installments OCI pledged to pay off. He said OCI is going to disclose within days all the details of the anticipatory agreement with the Tax Authority.
On Saturday afternoon, sources close to the ongoing negotiations told Amwal Al Ghad that Orascom Construction Industries (OCIC.CA) is offering to pay off US$ 350 million as a first installment to reconcile with Egypt’s Tax Authority over taxes dues worth EGP 7.1 billion.
For the remaining sums, they will be paid over a number of years to be defined in coordination between the company and the Tax Authority, sources said.
The sources further added that OCI has refused to pay the EGP 7.1 billion as one tranche due to reasons related to default on payments besides the lack of a sufficient liquidity for the current phase.
Amwal Al Ghad has quoted the Tax Authority Chief Mamdouh Omar by saying the negotiations with the OCI are still ongoing, asserting that the reconciliation option is very attainable at any moment. Omar has denied that the ETA’s negotiations with OCI have reached a deadlock.
The anticipatory settlement agreement comes after 7-month tax disputes over EGP 14 billion tax evasion claims against OCI erupted by selling Orascom Building Materials to French Lafarge for EGP 68.6 billion in 2007.
Stamp Tax On EGX Expels Investments:
On Monday, another serious statement made by a senior member in the Salafist El-Nour Party saying the stamp tax imposed on the EGX’s daily transactions is going to expel any upcoming investments in the market.
Eng. Salah Abdel Maboud, a leading member of the Salafi Nour Party, said the stamp tax on the EGX will turn the Egyptian market less competitive and attractive than other market in the region.
” The stamp tax on the Egyptian bourse’s daily selling and buying transactions will reversely affect the country’s investment climate and will likely discourage investors who will shy away from trading.”
It is worth noting that the El-Nour’ Upper House representatives has abstained to vote for the EGX stamp tax draft. Abdel Maboud has referred the government’s stamp tax draft as lacking transparency.
Cypriot Offer For Orascom Telecom Wins FSA Approvals:
Another big event, the Egyptian market has witnessed during last week is the approval made by the Egyptian financial regulator on Tuesday on the Cypriot tender offer to buy up to 100% or Orascom Telecom Holding.
On Tuesday, Egyptian Financial Supervisory Authority (EFSA) has approved the Cypriot tender offer to buy up to 100% of Orascom Telecom Holding (OTH) (ORTE.CA) at a price of US$0.70 per share.
Accordingly, the Cypriot Baskendal Ltd has made on Tuesday an announcement about its tender offer to buy Orascom Telecom’s shares, stating that it will start as of the next day, Wednesday, April 17th, buying 100% for OTH’s shares. The buying period will extend till close of trading on Monday, May 27.
Baskendal Ltd is a subsidiary wholly owned by Altimo – owner of 47.85% stake in VimpelCom Limited (the parent company of Orascom Telecom).
Later on Tuesday, ther Russian billionaire Mikhail Fridman’s Altimo confirmed that a subsidiary has offered to buy 100 percent of Egypt’s Orascom Telecom (ORTE.CA), while part-owner VimpelCom will not tender its shares in the offer.
Cairo-based Orascom Telecom, a heavyweight on the Egyptian Exchange, is controlled by Russia’s VimpelCom, which together with subsidiaries owns 51.92 percent. Altimo owns 47.85 percent of VimpelCom.
Hermes-QInvest Pending Alliance Awaiting Premeir’s Pledges To Come True:
The Egyptian market alongside the investors on Tuesday were on full alert and apprehension after Egypt’s Prime Minister Hisham Kandil, had vowed Hermes-QInvest takeover deal’s completion procedures would be before the end of this week.
The Prime Minister said, in an reply to a question from a number of Qatari businessmen during his visit to Doha last Wednesday, the EFG-Hermes (HRHO.CA)’s strategic alliance with Qatari QInvest will come into effect within the week at most.
Powered by the prime minister’s announcement, the EFG-Hermes’ stocks jumped 6 percent, hit 5-week high on QInvest merger hopes on Tuesday.
Later on Tuesday, EFG-Hermes (HRHO.CA), the Middle East’s largest investment bank, said on Tuesday it has not received notification from Egypt’s financial regulator of clearance for its merger with QInvest of Qatar.
An EFG spokesman told Reuters: “EFG Hermes Holding has not been informed of any development and accordingly we have published a disclosure to the EGX (Cairo stock exchange) this morning confirming that we didn’t receive a “no objection” response on the deal till date.”
A spokesman for the Egyptian Financial Supervisory Authority said he had no immediate comment.
The deal is politically sensitive in Egypt because both of EFG’s chief executives, Hassan Heikal and Yasser El Mallawany, are on trial, along with the two sons of ousted President Hosni Mubarak, on allegations of illegal share dealings in relation to a 2007 transaction.
Egypt received a pledge of another $3 billion in financial support from Qatar during Kandil’s visit. The emirate’s prime minister said there were no strings attached to the aid, which will be in the form of Qatari purchases of Egyptian government bonds.
On April 7th, EFG-Hermes noted in a release that it was still waiting for approval from Egyptian regulators for a deal with Qatari investment company QInvest, which lapses on May 3 unless cleared by then.
EFG also stated that it had received regulatory approval in various countries for the deal, under which it would initially inject its core business into a joint venture 60 percent controlled by QInvest.
EFG has said the joint venture, signed last May, will fall through unless it receives regulatory approval by May 3.
“If EFG does not receive a ‘no objection’ from the (Egyptian Financial Supervisory) Authority in the coming days, it will be difficult to implement the joint venture agreement,” the Egyptian company said.
Egypt-Turkey Joint Trading Project; Coming Soon
Last Wednesday, EGX vice chairman announced that the anticipatory bourse alliance project between the Egyptian and Turkish stock exchanges will come into effect next September,
Judge Khaled El-Nashar, EGX’s Vice Chairman, stated that the tie-up project between the EGX and Istanbul Stock Exchange (ISE) will be launched next September following the completion of building up the infrastructure of the direct trading process between the two bourses.
El-Nashar further said to the state-news agency MENA, most of the requirements necessary for the bourse alliance project have been finalized except for some challenges the EGX and ISE managements are currently working on.
The EGX and ISE are trying to solve the obstacle of having different timing of trading. As for the Turkish bourse, the trading sessions are divided into two shifts; one session run on the morning and another on the evening. The two bourses are also working on solving another challenge of having different official and weekly vacations.
El-Nashar also noted that it has been agreed that the joint trading between the EGX and ISE shall start by a number of 60 firms half and half. It has also been cleared that the 30 listed firms in the Egyptian bourse shall be enlisted in the benchmark EGX30’s category.
Egypt’s anticipatory alliance with the Istanbul Stock Exchange will allow investors in the two countries to trade on each other’s markets. Under the proposal, which has followed signing a memorandum of understanding signed by the two exchanges last June, Turkish investors would be able to trade directly on the Egyptian bourse through Turkish brokerages and vice versa.
Egypt Seen Muddling Through Without IMF:
According to a recent analysis released by Reuters, Egypt may struggle on for the rest of the year without an IMF loan, enduring a summer of fuel shortages and power cuts rather than risk an explosion of unrest by implementing subsidy cuts and tax increases before parliamentary elections.
An International Monetary Fund mission left Cairo on Tuesday after 12 days of talks without an agreement on a proposed $4.8 billion loan needed to ease a deepening economic crisis in the most populous Arab state.
Both sides reported progress and said talks would continue, but diplomats and analysts said a weak, dysfunctional government, lacking economic expertise, seemed unable to commit to even the relatively modest reforms sought by the global lender. Toxic domestic politics make any deal fraught.
Planning Minister Ashraf Al-Arabi said the negotiations had been difficult and focused notably on measures to compensate the poor for higher energy prices when fuel subsidies are cut.
He predicted an agreement either when Egyptian ministers attend this week’s IMF/World Bank meetings in Washington, or sometime in May if the IMF delegation returns.
Veteran economic policymakers and market analysts are more skeptical.
“They go through the motions of pretending they are serious about an IMF deal, but actually they are not,” former finance minister Samir Radwan told Reuters.
“You don’t have anybody of weight among the economic ministers, I’m afraid to say,” he said in a telephone interview. “There is no serious expertise except for the central bank governor, who is keeping the show on the road.”
Egypt reached an initial agreement with the Fund last November but Islamist President Mohamed Morsi suspended it less than three weeks later, rescinding sales tax increases amid political violence over the extent of his powers.
Radwan, who served for 10 months after the 2011 uprising that ousted former President Hosni Mubarak, negotiated a $3.2 billion IMF loan on minimal conditions, but the ruling military council, unwilling to submit to foreign influence, vetoed it.
He said Egypt badly needed the IMF money now to stabilize the economy, hit by dwindling foreign reserves and plummeting tourism and investment, and to restore investors’ confidence – a view broadly shared by economists.
However, $5 billion in stopgap finance from Qatar and Libya secured last week, and the prospect of more from Arab friends and possibly from emerging BRICS nations – without the irksome conditions that come with IMF cash – have removed the sense of urgency.
Morsi is off to Russia next on Friday to seek oil, gas, wheat and grain silos on concessionary terms and possibly a $2 billion loan, according to a Moscow-based source.
The government has been rationing fuel and wheat imports to save scarce currency reserves, causing long queues for diesel at filling stations and pushing up food and smuggled fuel prices.
“Even in the absence of an IMF deal, we maintain our view that Egypt can probably continue to muddle through while avoiding an external or fiscal crisis at least until the end of the year, probably longer,” Citibank economists said in a note.
Diplomats and Egyptian politicians who met IMF mission chief Andreas Bauer said he was frustrated by a lack of precise plans from the government for fiscal and economic reform, and the lack of local ownership of subsidy reform programs.
In the last few chaotic weeks, ministers have announced then scrapped plans to tax stock dividends and investment gains from takeovers, scaled back the scope of planned sales tax increases and raised the prospect of delaying the introduction of rationing of subsidized fuel using smart cards.
Energy Minister Osama Kamal told Reuters on Monday that fuel subsidies would cost Egypt more than 120 billion Egyptian pounds ($17.4 billion) this year, above previous estimates and a huge strain on the budget deficit.
Budget figures sent to parliament on Monday for the fiscal year starting in July were based on assumptions for real economic growth of more than double the government’s official 4 percent forecast, itself seen by economists as over-optimistic.
The Qatari and Libyan injections should for a while stabilize foreign currency reserves, which had fallen from $36 billion at the time of the revolution to just $13.4 billion in March. The black market dollar price has already cooled.
One Western diplomat said it may take another 18 months of short-term trial and error before Egypt reaches a IMF deal.
RECONCILIATION?
People who have met Morsi this month say he was at least toying with the idea of political accommodation with opposition parties based on naming a more inclusive, competent government and replacing a public prosecutor reviled by liberals.
The alternative, advocated by hardliners in the dominant Muslim Brotherhood, is to tough it out until the elections in the belief that his Freedom and Justice Party will prevail as it did in the first votes after the revolution.
The IMF team met a full range of government and opposition parties from the Islamist far right to the Nasserite left in an effort to build a consensus in support of reforms of costly fuel and food subsidies and a fairer tax system.
Failure to clinch an IMF deal makes political reconciliation less likely, especially as the Brotherhood keeps accusing the opposition and the independent media of stoking violence and undermining the legitimacy of the elected president.
Opinion polls show Morsi’s approval rating has slipped to around 47 percent from 70 percent when he took office in July, with supporters leaning more towards ultra-conservative Salafist parties than to the secular and leftist opposition.
Even in the Brotherhood, there is criticism of the cabinet led by colorless Prime Minister Hisham Kandil, a water engineer.
“They could have been much smarter in what they offered the IMF,” Gehad Haddad, a spokesman for the Brotherhood, told Reuters, adding that the government had not done its homework.
Proposals for subsidy reform that had leaked out were not appropriate for a post-revolutionary state, he said.
Planning Minister Arabi said the government would introduce cash payments targeted at poor households from July to offset electricity and gas price rises.
But Hania Sholkamy, an anthropologist specializing in subsidy reform and poverty reduction, questioned whether the government had the tools to run a successful program.
“Seventy percent of households will be hurt by liberalizing electricity and gas prices from July. Seventy percent are around the upper poverty line and have already become poorer because of food and fuel price inflation,” she said.
“My worry is that the authorities will go for a program out of political expediency but it will be beset by corruption, poor implementation and inflation,” Sholkamy said.
Salafist El-Nour: Egypt-IMF Final Agreement Is ‘Far-Fetched’
Furthermore on Thursday, the Salafist El-Nour Party senior member Eng. Salah Abdel Maboud said the Egyptian government will not manage to reach a final agreement within the upcoming period with the International Monetary Fund’s mission, the salafist El-Nour party senior member said on Thursday.
Abdel Maboud explained that after the party had met with the IMF mission, the latter has showed its unwillingness to approve on Egypt’s long-awaited US$ 4.8 billion loan.
Abdel Maboud also told ‘Amwal Al Ghad’ that the IMF is procrastinating over giving the loan to the extent the Egyptian government has become forced to abide by all the conditions set by the International lender without prior discussion.
Commenting on the Egyptian Planning Minister Ashraf Al-Araby’s statements that the IMF loan does not require legislative approval, Abdel Maboud said the Shura Council (Egypt’s Upper House) is the country’s sole legislative entity. Hence, the Shura Council insists on reviewing the IMF agreement before making it come into force.
