Orascom Telecom Bid Fails To Buoy Disillusioned Egypt Market

A buyout offer for Orascom Telecom Holding (ORTE.CA), Egypt’s second-largest listed company, failed to buoy a sinking Cairo stock market (Egyptian Exchange) EGX, on Monday – an indication of how negative investors have become about medium-term prospects for the market.

A Cyprus-based subsidiary of Russian billionaire Mikhail Fridman’s Altimo is making a $3.7 billion offer for all of Orascom Telecom at $0.70 (4.76 Egyptian pounds) per share, according to a statement on the exchange.

But shares in Orascom Telecom edged up just 0.2 percent to 4.38 pounds on Monday, staying well below the offer price. Egypt’s main stock index lost 0.8 percent to 5,057 points, extending year-to-date losses to 7.4 percent.

A few weeks ago, the buyout offer could have sparked major activity on the exchange. But investors now worry that the government will block such offers for economic and possibly political reasons.

The government last week said it would impose a 10 percent capital gains tax on the sale of National Societe Generale Bank shares during Qatar National Bank’s mandatory offer for them.

And the country’s largest stock Orascom Construction Industries (OCI) (OCIC.CA) – like Orascom Technology, an affiliate of the Sawiris family – is embroiled in a tax dispute with the government. At the same time, authorities have been pressuring the firm not to delist from Cairo and have delayed a buyout offer that could lead to a delisting.

Many investors have concluded the administration of President Mohamed Morsi is prepared to intervene in the stock market at any time to raise money and clip the wings of the business community. So there is doubt over whether the Orascom Telecom buyout will be completed.

“People are worried the acquisition will drag on like OCI – and the upside is not worth it if there is a capital tax,” said an Egypt-based trader, who asked not to be identified because of the political sensitivity of his remarks.

One hope for Orascom Teleco, however, is that its Russian parent Vimpelcom may soon reach an agreement with the Algerian government on operational issues surrounding Djezzy (Orascom Telecom Algeria), including the issue of SIM cards, according to Egyptian news reports. If this happens, Orascom Telecom shares could benefit, analysts say.

“If they agree with the Algerian government, OT’s share price is worth much more than Altimo’s offer,” the trader added.

Reuters