MENA-2 SUNDAY MORNING ROUND-UP
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Egypt
Court sentences former finance minister to 30 years jail in absentia
Bourse chairman criticises new tax
Ministry of Finance may manage Banque du Caire; Banque du Caire to specialise in SME lending
No fees should be collected from new steel and cement licences, Egypt Fatwa Committee says
NUCA withdraws 46,000 sqm of land from SODIC
OT demerger expected at beginning of 3Q2011, spokeswoman says
OT’s Telecel sells Namibian unit for USD60 million
Saudi Arabia
Saudi Arabia PMI eases to five-month low of 62.6 in May
Saudi cement companies to discuss fuel supply issues on 11 June
SABIC raises urea prices; maintains DAP prices for June
Ma’aden signs first DAP sales contract
Petro Rabigh to restart facilities
Morocco
Government denies groups ‘report of protest death
EFG Hermes Research
MENA Strategy Note: Short-Term Outlook Challenging; Reduce Risk - 05 June 2011
Agenda
Egypt
Mon 6 June >> Orascom Construction Industries (OCI) AGM
Mon 6 June >> Mobinil ex-date for EGP3.16 cash DPS
Saudi Arabia
Sat 25 June >> Zain Saudi Arabia AGM
Wed 29 June >> Dar Al Arkan AGM and EGM
Egypt News
Court sentences former finance minister to 30 years jail in absentia
An Egyptian court convicted former Finance Minister Youssef Boutros-Ghali in absentia on 4 June 2011 to
30 years in prison for squandering public funds and abusing other funds, a court source said. The court
also ordered him to return EGP30 million (USD5.05 million) and to pay an additional EGP30 million in
fines, the source said. (Reuters)
Bourse chairman criticises new tax
The chairman of the Egyptian stock exchange has criticised a new capital gains tax announced by the
cabinet on 1 June 2011. "I see that the imposition of the tax is very harmful to the market at such a time
and could be applied at another time," Mohamed Abdel Salam told reporters. "Everyone should know that
the tax decision is not final and that the exchange will send a memo to the cabinet," he said. "A meeting
was held today [2 June 2011] between the prime minister and businessmen to discuss the capital gains tax
decision. (Reuters)
Ministry of Finance may manage Banque du Caire; Banque du Caire to specialise in SME lending
The Central Bank of Egypt, the Ministry of Finance (MoF) and Banque Misr are studying the possible
management of Banque du Caire by the MoF. The MoF plans to have Banque du Caire specialise in small
and medium enterprise (SME) lending. Banque du Caire is Egypt’s third largest state-owned bank by assets
and has a loans to deposit ratio of 34.6% as at May 2011, with deposits of EGP40.5 billion. SME lending
represent EGP1.45 billion out of the bank’s EGP14 billion loan portfolio. (Al Mal)
No fees should be collected from new steel and cement licences, Egypt Fatwa Committee says
Egypt’s Fatwa Committee has decided that the government should not collect fees for new steel and
cement licences, al-Akhbar reported. The Industrial Development Authority (IDA) had given a four-month-
period for four steel licences to pay the fees, which companies were unable to do because of the
revolution that began on 25 January 2011. The IDA had passed on the companies’ cases to the Fatwa
Committee, which decided that the government had no right to impose fees on steel and cement licences
in the first place. However, director of Egypt’s Metallurgical Industries’ Chamber, Khalil Kandil, has said
that the chamber has not yet received any official statements from the committee. (Al-Akhbar)
NUCA withdraws 46,000 sqm of land from SODIC
The New Urban Communities Authority (NUCA) has withdrawn 11 feddans (46,200 square metres (sqm)) of
land from Sixth of October for Development and Investment Company (SODIC) [[Link]], Al Masry Al
Youm reported, citing unidentified NUCA sources. The sources added that NUCA withdrew the land plot
from the company because SODIC was not complying with the construction timeframe stated in its
contract with the authority. According to our knowledge, the land in question belongs to Phase IV of
SODIC’s Allegria project, which hosts c90 units. (Al Masry Al Youm)
SODIC: EGP65.59, MCap: USD401 million, OCDI EY / [Link]
OT demerger expected at beginning of 3Q2011, spokeswoman says
Orascom Telecom’s (OT’s) [[Link]] demerger into two companies will occur at the beginning 3Q2011,
Zawya Dow Jones reported. "We are currently in the process of incorporating Orascom Telecom Media and
Technology (OTMT) and finalising the demerger process with the Egyptian Financial Supervisory Authority
(EFSA)," an OT spokeswoman told Zawya Dow Jones in an email. "Given that this is the first time this
procedure takes place in the local market we are working with EFSA on all the details. We will
communicate exact details including timeline in due course, but we envisage for the demerger to take
place sometime at the beginning of the third quarter," the spokeswoman said. (Zawya Dow Jones)
OT: EGP4.22/USD3.49, Mcap: USD3,660 million, ORTE EY / [Link]
OT’s Telecel sells Namibian unit for USD60 million
Orascom Telecom (OT) [[Link]] has announced that its fully-owned subsidiary, Telecel Globe, has
finalised an agreement to sell Powercom, Telecel's subsidiary in Namibia, to Investec and Nedbank. The
consideration for the sale consists of all of Powercom’s liabilities (about USD60 million). The sale is
pending regulatory approval. (Company Release)
OT: EGP4.22/USD3.49, Mcap: USD3,660 million, ORTE EY / [Link]
Saudi Arabia News
Saudi Arabia PMI eases to five-month low of 62.6 in May
Saudi Arabia’s Purchasing Managers Index (PMI) for May showed that the non-oil private sector remained
robust, although weakening to a five-month low. The overall index reading remained above the 60-level
at 62.6 in May, slightly from 62.7 in April. A figure above 50 suggests that the economy is expanding.
Highlighting the strong outlook for the economy, the survey showed new export orders rising to 58.3 in
May, their highest level in a year. Additionally, the employment index rose to an 18-month high of 57.4,
driven by good current business conditions and expectations of high demand in the near future.
Meanwhile, purchase price inflation picked up to a series high in May as companies increased salaries and
wages to reward employees for good performance and compensate them for rising living costs.
The latest figures are in line with our overall outlook for the economy. We expect to see a continued
strengthening in output growth in 2011. Continued private and public sector hiring as well as increased
government spending will also support private consumption, in our view, despite a rise in inflation, with
producer price inflation a bigger domestic concern than consumer price inflation. (Reuters, Monica Malik)
Saudi cement companies to discuss fuel supply issues on 11 June
Saudi cement companies will meet on 11 June 2011 to discuss the latest industry developments, Argaam
has reported. Aramco has recently stated that it would like the Saudi government to stop issuing new
cement licences. According to Aramco, 11 out of 14 Saudi cement plants have requested additional fuel
from Aramco for expansion purposes following the government’s plans to spend USD66.7 billion on housing
projects. The companies will also discuss fuel supply problems that some of them have recently faced.
(Argaam)
SABIC raises urea prices; maintains DAP prices for June
SABIC ([Link]) has announced that it increased local urea prices in June 2011 to SAR1,470/tonne
(USD392/tonne), a SAR165/tonne increase relative to May prices. SABIC has also kept its diammonium
phosphate (DAP) prices at SAR2,543/tonne (USD623/tonne) unchanged from May prices. The current spot
price for urea exported from the GCC region is SAR1,594/tonne (USD425/tonne). (Argaam)
SABIC: SAR107.00, Rating: Buy, FV: SAR133, MCap: USD85,600 million, SABIC AB / [Link]
Ma’aden signs first DAP sales contract
According to industry sources, as reported by Fertilizer Week, the Saudi Arabian Mining Company
(Ma’aden) [[Link]] has signed its first sales contract for diammonium phosphate (DAP). The contract was
signed between Ma’aden and India’s Zuari for the delivery of 200,000 tonnes of DAP between August 2011
and March 2012. According to the sources, the DAP will be sold for USD612/tonne CFR, which translates to
around USD590-597 FOB. (Argaam)
Petro Rabigh to restart facilities
The Rabigh Refining and Petrochemical Company (Petro Rabigh) [[Link]] announced that it has restarted
its utilities units at its facility in Rabigh on 31 May 2011 and that it will slowly begin restarting the
remainder of the complex thereafter. The company shutdown the entire complex in April for scheduled
turnaround maintenance. According to the announcement, the company plans to restart the crude
distillation unit on 7 June 2011, the ethane cracker and some other units by the end of June, and the high
olefins cracking unit (HOFCC) by mid-July 2011. The net effect of the shutdown should be lower sales in
2Q2011 and a decrease in polypropylene (PP) sales during the first two weeks of 3Q2011, according to the
announcement. (Tadawul)
Morocco News
Government denies groups ‘report of protest death
A Moroccan man wounded by security forces at a pro-democracy demonstration died of his injuries on 2
June 2011, Moroccan opposition groups have reported. The government has said that the man's death was
unrelated to the street protest. Al Adl wal-Ihsane (Justice and Charity Group), Morocco's largest Islamic
opposition group, as well as the February 20 movement, which is leading street demonstrations that are
calling for more representative government, have said that Kamal Amari died from wounds sustained
during the 29 May 2011 clash in Safi, 200 miles (300 kilometres (km)) south of Rabat. An Interior Ministry
source has told Reuters that the authorities have categorically denied that the man's death was related to
the protest, one of several demonstrations that took place in Moroccan towns that day.
To date dozens of injuries but no deaths have been reported as a result of street demonstrations that
have taken place at weekly intervals in the north African Kingdom in recent months, inspired by uprisings
elsewhere in the Arab world. The protests in recent weeks have seen a tougher response from security
forces in contrast to an earlier hands-off approach to the demonstrations for major constitutional change.
(Reuters)
EFG Hermes Research
MENA Strategy Note: Short-Term Outlook Challenging; Reduce Risk - 05 June 2011
Shift to Defensive Names; Focus on Capital Preservation: We rotate into more defensive names and focus
attention on capital preservation. MENA equities rallied 17% between early March and end-April, and have
been range bound over the month of May. With valuation multiples now looking relatively richer, coupled
with a lack of meaningful near-term triggers, we believe that the short term outlook for equities is
difficult. This could be compounded by a slowdown in trading activity over summer, in our view.
MENA Top 20 List: Add Juhayna, UNB, DSI, Dana Gas: We add Juhayna and Union National Bank (UNB), to
the MENA Top 20 List as key defensive plays. These stocks replace Ezz Steel and Abu Dhabi Commercial
Bank (ADCB), both of which have rallied well since their inclusion in the list and are now close to fair
value. We also add Drake & Scull (DSI) as a cheap, high quality play on the investment expenditure
theme, replacing DP World and modestly reducing our UAE exposure. We also introduce Dana Gas as a
non-conventional defensive play given that downside risk from current levels is limited, in our view. We
remove Qatar National Bank (QNB) in order to reduce exposure to Qatar in anticipation of short-term
weakness.
More Cautious on MSCI EM Review; Downgrade Qatar to Neutral: The potential for an MSCI emerging
market (EM) upgrade is now less likely for both Qatar and the UAE, in our opinion, although on a relative
basis we believe that the UAE is better positioned for an upgrade. With the Qatar market likely to witness
negative pressure over the short term, we downgrade our stance to Neutral from Overweight. However,
we are of the view that any weakness will present investors with attractive entry opportunities from a
longer-term perspective. We remain Overweight on the UAE on cheap multiples and an earnings
turnaround, but we reduce the market’s weight in our MENA Top 20 List.
Lower Benefit for Qatar, UAE in the Event of an MSCI EM Upgrade: In the event that Qatar and/or the UAE
are upgraded to EM status in MSCI’s market classification review on 21 June 2011, we believe that the
positive impact will be lower than our initial expectations. Incorporating the impact of unchanged foreign
ownership limits in Qatar and the lack of delivery-versus-payment implementation in NASDAQ Dubai, we
estimate that Qatar could account for 0.32% of the MSCI EM Index versus 0.62% previously, while the UAE
could account for 0.20% versus 0.23% previously. (Fahd Iqbal, Simon Kitchen)
[Note – EFG Hermes is not responsible for the accuracy of news items taken from other media.]
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fundamental analysis of the company’s future prospects, after having taken perceived risk into consideration. We have
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