Investment & Trade Committee

• New Stock Listing Rules on the CASE - October 15, 2002
• Alternative investment vehicles: bonds and hedge funds - October 1st, 2002
• Tools for Trade: Export Trade Financing- March 4, 2002

New Stock Listing Rules on the CASE

The head of the Cairo & Alexandria Stock Exchanges (CASE) and the chairman of one of the market's leading investment banking and brokerage groups spoke on October 15 about the recently approved new regulations for companies to be listed on the CASE.

CASE chairman Sameh El Torgoman began by explaining that the amended listing requirements has taken five years to be approved, as few of the government officials concerned recognized that the changes would be beneficial.

Before outlining the CASE's new listing criteria, he noted that rules alone were not enough. "We have to have penalties and rules that we can impose," he said, adding, however, that in the Egyptian market "we cannot really enforce aggressive rules."

A committee will decide whether a company can be listed or not. One listed, Turgoman said, companies cannot restrict the trading of their shares.

The law still distinguishes between "official" and "unofficial" companies, although, the CASE chairman admitted, "we at the the stock exchange do not like these words." Officially listed companies have at least 30 percent of their stock traded on the stock exchange. Unofficial companies may have no stock at all traded, and are mostly listed to gain the benefit of a tax exemption, he said. "We are creating this schedule for these cases so that when they are ready they can move to the other schedule," he added.

As for disclosure rules, the stock exchange must be notified of any information that will affect share prices. "The main thing we thought about is to have healthy companies and protect the investors," Turgoman said, adding that the CASE was planning to implement corporate governance rules inspired by those of the US and European markets.

For now, the CASE requires companies to submit yearly financial statements, with an administrative penalty of £E 5,000 - plus £E 500 for the first additional day and £E 100 for each subsequent day - if statements were submitted late.

"The [local] stock market still has a long way to go, but we are working step by step towards a mature market to meet international standards," El Turgoman concluded. "The aim is to provide good companies - to make sure that those companies listed are safe to the investors. We also want to keep transparency."

EFG-Hermes Holdings chairman Mohamed Taymour then gave his perspective on the new regulations. Overall, he began, he was "proud" that proposals initiated by brokers had come to fruition. "A lot of ideas were implemented," he said, citing the formation of the listing committee and the new rules for disclosure. "However, I still have some problems."

The first of these was that the committee is "not mentioned in the law." He also objected to Article 9, which requires that a company be profitable before it can be listed - a rule that would exclude some firms with great potential, he said.

Among other more detailed concerns, Taymour said that the rules should "distinguish between companies and holding companies," to allow the latter more time to present their accounts.

In addition, he suggested that the rule requiring companies to report "every law case that is litigated" was too strict. "I think you should only have those that are crucial and could affect the company.

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Alternative investment vehicles: bonds and hedge funds - October 1, 2002

Hisham Ezz El Arab, recently appointed chairman of Commercial International Bank (CIB) and Aida Saab, managing director of UBS Middle East, spoke on October 1 at the Cairo Marriott about alternative investment vehicles.

Outlining the state of Egypt's financial institutions, Mr. Ezz El Arab noted that as of 2000, only 6.16 percent of GDP was in the bonds market, indicating that Egypt still has a long way to go compared to other emerging markets. Egypt's first treasury bills were issued in 1991, followed by the issuance of corporate bonds (by pharmaceutical company Hoechst Orient) in 1994 and then by the first treasury bonds in 1995.

The most recent event occurred in 2000, when the rollover for the 1995 treasury bonds took place, Ezz El Arab said, adding that secondary market activity is mainly in bank issues, reflecting risk, liquidity and Central Bank of Egypt (CBE) ratios.

Market development, he asserted, can only proceed when all concerned parties - the Capital Market Authority, the CBE, the Ministry of Finance, banks, insurance companies and fund, pension-fund and portfolio managers - take an active role. "The Capital Market Authority must enhance secondary market trading by reducing settlement trading costs, limiting one-day settlements both for buyer and seller and applying clean prices," he said. "The CBE, on the other hand, should open market operations and improve the structure of yield curves, while the Ministry of Finance should introduce primary dealers to create active primary and secondary markets, as well as increase transparency in government debt pricing."

Ms. Saab then gave an overview of the "GAM methodology," in which specialists (fund managers) work with generalists (asset allocators) to achieve performance. GAM, a company established in 1983 with an exclusive focus on asset management, was acquired by UBS in 1999.

The GAM methodology is cyclical in nature with client, portfolio manger, asset allocation committee and fund mangers all connected to the universe of equities, bonds, commodities and cash, she said.
Investing in funds brings access to investment talent and greater diversification. However, global diversification and, more importantly, market timing are also important, Saab said.

Alternative investments, she added, are intended to provide attractive rates of return while maintaining a low correlation with traditional asset classes. Real estate, art, antiques and diamonds, along with private equity (venture capital and leveraged buyouts) and hedge funds (single manager or multi manager) are all examples of alternative investments.

Saab highlighted the importance of such investments in a discretionary portfolio. Stability and capital preservation, with strong, risk-adjusted returns are some of the reasons that hedge funds, in particular, guarantee performance, she said.

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Tools for Trade: Export Trade Financing- March 4, 2002

AmCham's Investment & Trade Committee held a seminar on Export Trade Financing at the Conrad Hotel on March 4, in collaboration with the International Trade Center (ITC), USAID, the Credit Guarantee Corporation (CGC), and the Ministry of Foreign Trade (MoFT).

The seminar - part of a program planned for the month of March on SME (small and medium enterprise) Export Assistance - underlined the commitment of USAID, ITC, CGC and MoFT to promoting Egyptian exports and addressed the need for improvement in the area of trade finance in order to enable Egyptian entrepreneurs to face the challenges of a global market. Committee chairman Omar El Derini made opening remarks, while Dahlia Khalifa, committee co-chair, served as moderator.

The first session started with Dr. Mahmoud Mohieldin, senior advisor to the Minister of Foreign Trade, who offered the government's view on how to better finance exports. He put the lack of trade finance fourth on a list of obstacles to healthy exports, after customs and tax regulations, monetary policy and marketing problems. He said that, especially given recent foreign-exchange volatility, there was an urgent need for novel methods of export finance.

Stressing the importance of collaboration between the government, financial regulators and market participants, Mohieldin announced that the Ministry of Foreign Trade would issue an assessment in mid-April highlighting the various experiences of developed and developing nations.

Mr. Ahmed Abdel Salam Zaky, the managing director of the Credit Guarantee Company (CGC), provided insights on export promotion among SMEs, which he said constitute 98 percent of the Egyptian import-export sector. "Right now, local SMEs have a lack of information on export markets and no access to long-term export guarantees," he said. "Exporters need all possible financial support they can get from banks."

Afterwards, Export Development Bank general manager May Essam outlined the bank's objectives vis-à-vis export promotion. These include: trade finance; finance of export-oriented industries; creating a company for export guarantees; and maintaining an Export Information Center.

Currently, the two sources of finance provided by the bank are short-term financing of working capital and medium-term financing in the form of subsidized, or soft loans. These are available over an extended period of time as start-up capital for the purchase of fixed assets for export projects, at a subsidized interest rate of 8 percent.

Towards the end of the first session, Mr. C.F Cattani, the ITC's senior advisor on trade finance, described the tools available to SMEs through the ITC, including the South-South Trade Promotion Program, the Interactive Trade Map and the ITC Scorecard.

Dr. Ashraf Seif El Din, an ITC management consultant, then proceeded to outline the specific nature of Egypt's foreign-trade sector, emphasizing that export finance could not come before an improvement in economic competitiveness, at both the national and corporate levels. "The challenge is that Egyptian firms have traditionally had an inward-looking orientation," he said.

In the second session, ITC trade-finance consultant Tim Whalley discussed private-sector dealings with banks, adding that the relationship between the exporter and the financier is "a building bloc to successful trade finance." Entrepreneurs and bankers have different objectives, but they share a desire to minimize risk and make a profit, he said.

To open the third session, Mr. Cattani focused on one tool for export finance: the ITC "Credit Scorecard," a risk-analysis tool to assist credit officers (the middlemen between banks and entrepreneurs) and facilitate objective screening of trade-credit requests made by SMEs. The Scorecard helps to shape the nature of a transaction and to develop the right terms for lending. Among the factors evaluated are country risk, commercial risk, political risk and economic risk.

A question and answer session led by Dr. Jay W. Wright, chief trade advisor at USAID, gave the speakers an opportunity to listen to the audience's concerns and respond to specific inquiries about trade finance. 

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