Investment & Capital Market Committee
Overview of new M&A law
On March 28, a joint meeting was held by the Investment & Capital Market and Legal Affairs committees with guest speaker Hani Sarie El Din, chairman of the Capital Market Authority (CMA), who gave a presentation entitled “The new merger, governance and acquisition regulations.”
Sarie El Din provided an overview of new Chapter 12 legislation concerning mergers and acquisitions (M&A). He noted that 2006 marked a record volume of global M&A activity, amounting to $3.4 trillion. He went on to discuss the general provisions of Chapter 12 legislation, the obligations imposed upon interested parties and the commitments during the pre-offering period.
The legislation’s objectives include prohibiting price manipulation, market distortion, insider deals and avoiding conflicts of interest, as well as protecting the interests of the parties involved. Chapter 12 also promotes equal opportunity by allowing for adequate information and time for shareholders to evaluate public tender offers.
Sarie El Din also noted that individuals applying to be included in the Registry of Financial Advisers must first be licensed to provide promotional and underwriting activities by any of the following: the CMA, an Egyptian bank, branches of foreign banks licensed by the Central Bank of Egypt, or foreign investment banks licensed by any regulatory body that belongs to the International Organization of Securities Commissions (IOSCO). Auditors already registered with the CMA may apply directly for registration. Additional requirements include 10 years of experience as a principal officer in charge of financial advisory activities, three successful transactions in the past five years, five years’ experience as a compliance officer, and a minimum of three executives engaged in financial advisory must be included in the registry.
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Panel explores finance opportunities in oil and gas industry
Panelists examined the challenges and opportunities facing the oil and gas industry during a joint committee meeting, entitled “The Egyptian private sector investment in oil and gas,” hosted by AmCham’s Investment & Capital Market and Energy committees at the Grand Hyatt Hotel on February 28.
Rod Eichler, chair of the Energy Committee, introduced the panelists, who included Salah Hafez, a geophysicist at the Natural Petroleum Company, Tawfik Diab, managing director of PICO Petroleum, Hisham El Khazindar, managing director of Citadel Capital, and Khaled Abubakr, co-chair of the Energy Committee, who spoke on behalf of Ahmed Dakroury, TAQA’s executive director.
Eichler encouraged the panelists to provide not only highlights of the challenges and opportunities they face, but also to discuss the level of government and local authority support their companies receive. Panelists pointed out the financing obstacles facing smaller companies and the infrastructure challenges that the industry as a whole must overcome. They also provided a historical overview concerning the price of oil and discussed how the sector’s supply and demand markets have changed over time.
A common, recurring theme during the discussion was the nature of risk. With regard to small companies in particular, risk presents both a financing and development challenge. However, according to some panelists, the decline of huge fields has created a space in the market calling for compensation by many small discoveries, a need which many smaller companies are beginning to fill. In Egypt, people believed that the market had reached a state of saturation, but there are now believed to be many undiscovered reserves. And with an increase in technology and data, smaller companies are better able to pursue these reserves.
El Khazindar closed the discussion with some forward-looking points concerning Egypt’s evolving capabilities in the banking sector. He said his sector, despite some reservations, is developing a more comprehensive knowledge base in regard to lending for oil and gas companies, which should help smaller companies acquire the capital necessary to expand.
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Update on capital market reform
Hani Sarie Eldin, chairman of the Capital Market Authority (CMA), discussed capital market reforms and developments at a meeting on January 22 of the Investment & Capital Market Committee entitled “The Capital Market Authority: vision for 2007.”
Sarie Eldin began by discussing the developments in the authority’s reform plan, launched in September 2005 and covering the period 2005 to 2008. The strategy should improve the CMA’s efficiency as a regulator by spelling out the authority’s mandate: to reduce non-commercial risk, protect the interest of investors and establish market transparency.
Reform began in 2005 with a reorganization of the CMA by hiring 40 new employees, conducting new training and achieving integration between departments. The CMA also introduced a new salary scheme and incentives for its employees.
Sarie Eldin said the CMA plans to institute changes in the information technology and information management systems this year. He said another priority will be establishing a risk management department, with the help of outside experts.
With respect to brokerage firm reforms, the CMA has issued new membership rules. A new capital adequacy rule will also be issued soon, which will examine a firm’s obligations and liquidity. Sarie Eldin said that reform is a bottom-up process, arising from market players.
The lack of licensing regime has also adversely affected the market, Sarie Eldin said. To that end, an agreement was signed with the London Institute of Securities & Investments so that by the end of 2009 an individual must be licensed to carry out any capital market activity.
The CMA has focused thus far on reforms in the secondary market, but plans to turn its attention next to the primary market, which should reduce volatility and increase liquidity.
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The Egyptian stock market: up or down?
AmCham’s Investment & Capital Market Committee held a breakfast and panel discussion entitled “The Egyptian stock market: up or down?” on November 12 at the Grand Hyatt Hotel. The panelists were Aladdin Saba, chairman of Beltone Financial; Hassan Heikal, co-chairman and CEO of EFG Hermes; Hussein Choucri, chairman of HC Securities & Investments; and Neveen El Tahri, chairperson of Delta Securities.
The focus of the discussion was the stability and prospects of the Egyptian stock market. The panelists highlighted the importance of both Egyptian and foreign investors, and they discussed the effect the new cabinet has had on the economy. They also spoke about interest rates and the growth in corporate earnings.
One of the panelists’ major concerns was that long-term stock valuations were not based on technical analysis, leaving the market open to large fluctuations. This is problematic given regional political instability, as the market is highly susceptible to external shocks. The panelists also pointed out several domestic problems that make investing in Egypt less desirable. Poor education and judicial systems pose a challenge to investment, as does political unrest and weak governance, they said. The impact of Central Bank policies, the role of privatization and the scarcity of information in Egypt were also discussed.
The panelists then gave their forecasts for the Egyptian capital market. One panelist said that in the short term the capital market is looking good, while in the long run the above-mentioned drawbacks will haunt the market if not resolved soon. Another said that in short term the market will witness some volatility and in the long term it will ultimately go up. Despite these differences, the panelists agreed that Egypt had exceeded all expectations and that the Egyptian economy is on track.
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