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ON THE BLOCK
Telecoms stay off block
Except for the cement sector, the last 11 months have been stagnant
for Egypt’s privatization program. Thanks to the poor showing
of the Egyptian stock market, many initial public offerings (IPOs)
were either postponed or transformed into offers to strategic investors,
rather than free floats on the stock exchange.
The International Monetary Fund (IMF) said on November 7 that Egypt,
especially after the events of September 11, “was faced with
the challenge of spurring stronger economic growth without depending
on discretionary spending.” IMF economists added specifically
that the government would need to reinvigorate the stalled privatization
program.
The long-awaited IPO of 20 percent of the state-owned Telecom Egypt
(TE) was aborted last October when the government decided it would
instead offer 15 percent of TE to a strategic investor. But the
government again changed course, later preferring an IPO over a
sale to a single investor, due presumably to the political sensitivity
involved in selling important national monopolies to foreign entities.
However, the numerous delays can only adversely affect the company’s
revenue, as it already faces fierce competition in the local phone
market with the rapid expansion of private local GSM rivals MobiNil
and Click-Vodafone.
Anchor investors can bring vital cash and technological know-how
to starving public companies, said Ola Attia, director and monitoring
specialist at Carana Corporation, a contractor for the USAID-funded
privatization program. This mix of money and technical expertise,
he said, “maximizes the likelihood of a company’s long-run
success. Compared to IPOs and sales to employee shareholder associations,
past sales to anchor investors have been more likely to result in
new investment and company revitalization.”
TE has only just bought its GSM license – Egypt’s third
– from the Telecoms Regulatory Authority, for which it paid
a fee of almost £E 2 billion. The mobile-phone company plans
to come on line as of December 2002, after the exclusivity period
given to the two competing service providers expires, but as for
its IPO, no dates have been forthcoming.
On the other hand, already private Click-Vodafone too has announced
– at the beginning of this year – that it planned to launch
an IPO in the second half of 2001, which also never materialized.
The high-powered investment banks that lined up to bid for the management
of the issue included Morgan Stanley-Dean Witter, Credit Suisse
First Boston, Merrill Lynch and Goldman Sachs – an indication
of the offerings credibility. “The IPO was postponed for this
year,” explained Lamia Kamel, public-relations specialist at
Click-Vodafone, “and a new timetable has not yet been decided
upon.”
Investors and market analysts have been looking forward to the
issue, as it would help to rejuvenate the flagging stock market
by increasing market capitalization, and would boost trade activity
and volumes. “Given the current market conditions of the Egyptian
bourse and the bad conditions facing global telecoms, no IPOs seem
to be on the horizon for telecoms,” said Amr El-Alfy, assistant
manager of the research department at CIBC.
Besides telecoms, the government had also announced that the first
tranches of certain power distribution companies would be floated
on the stock exchange from October 2001 – this did not take
place either.
The Prime IPO, or PIPO, index, which broadly measures the fluctuations
in value of privatized government concerns, fell by 3.9 percent
during the first three months of 2001. But this decline in the prices
of privatized stocks does not mean they fell merely because they
were privatized. “Rather,” said Ibrahim Karam, investment
manager at Prime, “they were affected by market performance
– it is not a matter of privatization but of macroeconomics.”
EMAN WAHBY
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