Egypt Bourse Benchmark Rises 0.97% In Week Powered By OCI-Tax Deal

In a week, the Egyptian Exchange has managed to post gains of EGP 1.4 billion backed by the final settlement agreement between Orascom Construction Industries S.A.E. and Egyptian Tax Authority that ended over 10-month disputes over tax evasion claims.

The EGX was muddled by a number of recent reversal news about the official approval on the stamp tax for the bourse’s daily transactions and the termination of the pending joint venture deal between Egypt’s biggest bank EFG-Hermes and Qatar’s QInvest over the country’s regulatory deal.

The capital market has hit EGP 358.612 billion at the end of last week, compared to EGP 357.153 billion at the end of a week earlier.

Egypt’s stock exchange benchmark EGX 30 index inched up by 0.97% this week, representing an increase of 51.62 points, ending Thursday’s transactions at 5276.62 points compared to 5225 points at the end of last week.

EGX30 hit its highest point on Thursday closing at 5276.62 points, where its lowest point reported on Tuesday at 5196.48 points.

Meanwhile, the mid- and small-cap index, the EGX70 advanced by 0.66% closing at 451 points during Thursday’s session, compared to 448 points at the end of a week earlier. The price index, EGX100 rose by 0.8% concluding by 753 points during Thursday’s session, compared to 747 points at the end of a week earlier.

Also in a week, the EGX has recorded a volume of trades hit  49.5 million securities, compared to 221.8 million securities a week earlier; while the traded value reached EGP 874 million, opposed to EGP 931.9 million a week earlier.

Mohsen Adel, vice chairman of EG-Finance, said the market has gone through an instability phase with an up-swing trend by the end of last week powered by trimming the selling pressures.

Adel further stated that the Egyptian bourse has been affected by a number of variables starting by the official approval on the stamp tax at 0.001 for the daily transactions, then resolving the pending tax disputes between Egypt’s biggest publicly traded company, Orascom Construction Industries and Egyptian Tax Authority and finally turning down the long-awaited joint venture agreement between EFG-Hermes and QInvest.

“OCI’s settlement agreement has been an effective painkiller for the Egyptian bourse, contributing to flourishing the last days of trading of last week.” Adel noted

Same-Day Trading; EGX’s Revival-To-Be:

The Vice Chairman of EG-Finance explained that the re-launch of the same-day trading mechanism (T+0) will represent the return of another financial instrument necessary to add more vitality to the market.

The same-day trading mechanism which is known as T+0 will return to the Egyptian stock exchange by the first week of the coming May, the financial regulator chief Dr. Ashraf El-Sharkawy announced earlier last month.

The EGX management halted the same-day trading mechanism following the January uprising in 2011 as uncertainty swept the market.

1- OCI Finally Reconciles With Tax Authority:

OCI N.V.’s subsidiary, Orascom Construction Industries (OCIC.CA), announced on Tuesday that it will pay the Egyptian Tax Authority (ETA) ten installments during 2013- 2017 totaling EGP 7.1 billion less EGP 182 million in existing tax credits to end a dispute regarding tax claims for the years 2007 to 2010. 

During that period, OCI SAE divested its cement business through the sale of a listed subsidiary, Orascom Building Materials Holding (OBMH). The agreed amount is based on the originally disclosed tax claim by the ETA of EGP 4.7 billion including accrued interest and delay fees.

As pursuant to the settlement agreement, the payments shall start with an initial payment of EGP 2.5 billion in Q2 2013, EGP 900 million in December 2013, six equal installments of EGP 450 million and two final installments of EGP 500 million in 2017 totaling the agreed to EGP 7.1 billion.

OCI N.V. will loan its subsidiary OCI S.A.E., the Egypt listed company, the necessary funds required for the tax settlement through intercompany loans to be coordinated and channeled into the country through the Central Bank of Egypt.

The settlement amount was reached following months of challenging negotiations. In conjunction with this agreement, the ETA has determined that there was no tax evasion by the Company and is exonerating management and the Company from any wrongdoing related to the transaction.

1-a Amsterdam Listing:

With the settlement of the tax claim, OCI N.V. expects to proceed with its filing for the Mandatory Tender Offer (MTO) for the ordinary shares of OCI SAE with details to be announced in due course.

OCI N.V. Chairman Mike Bennett commented, “Having concluded this matter, OCI and its management look forward to a positive relationship with the Egyptian Government where our investments in Egypt can prosper and the Company is able to channel its resources towards growth and potential new investments.”

OCI N.V. Chief Executive Officer Nassef Sawiris commented, “As we end the prolonged period of uncertainty, the Company will now regain its focus on growth initiatives.”

The payment follows an almost year-long dispute with the Egyptian government, in which the Board and management were faced with two choices: 1) enter in to a prolonged legal battle with unpredictable outcomes; or 2) make the payment to the government, despite the unified view by the board, management and auditors KPMG that all laws and regulations were soundly applied and followed at all times.  However the Board and management concluded that a prolonged legal process would not be in the best interest of the Company’s stakeholders, including its 45,000 employees in Egypt, who represent 50% of the group’s employee base. In addition, a prolonged legal process would take up a significant part of management’s time and attention, stall our future investment and growth plans, and cause greater uncertainty for our shareholders, creditors and other stakeholders.

2-b OCI Shares Bloom After Tax Settlement

OCI gained the most in six weeks after Egypt’s biggest publicly traded company agreed to settle a tax dispute with the government, paving the way for a share transfer to Amsterdam.

Shares of Orascom Construction increased 3.1 percent, the most since March 21, to EGP 240.67 at the close in Cairo.

2-  Hermes-QInvest JV Accord Fails:

On Wednesday afternoon, EFG Hermes and QInvest, Qatar’s leading investment bank, announced that the long-stop date for the satisfaction of the conditions precedent for their joint venture agreement to proceed had been reached without receiving the necessary regulatory approvals from Egypt’s financial regulator – the Egyptian Financial Supervisory Authority (EFSA). As a result of the long stop date being reached, the joint venture agreement will automatically terminate.

The parties received the necessary financial services regulatory approvals in all other markets in which the joint venture was initially to operate including Qatar, the United Arab Emirates, Saudi Arabia, and Jordan, among others. EFG Hermes and QInvest co-operated fully with all regulators, met all of their requirements and exercised the utmost diligence in addressing any regulatory requests in a timely and comprehensive manner.
 
2-a Egypt’s Regulator: QInvest Has ‘Limited Expertise’ 

Egypt’s financial regulator – the Egyptian Financial Supervisory Authority (EFSA) announced on Thursday that it has rejected the joint venture agreement between EFG-Hermes and Qatar’s QInvest LLC due to the limited expertise of QInvest that has not undertaken any activities since inception.

EFSA stated that the bidder – QInvest does not have sufficient expertise to own the units of EFG-Hermes Holding (HRHO.CA).

EFSA further confirmed that, out of its regulatory role of maintaining safety and stability of non-banking capital markets and protecting their dealers, and in light of the limited expertise of the bidding company that has not undertaken any activities since inception, it decided that the bidder does not have sufficient expertise to own the units of EFG-Hermes Holding; one of Egypt’s biggest investment banks.