MENA-2 THURSDAY MORNING ROUND-UP

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Egypt

Government reduces budget deficit in FY2011-2012 to 8.6% on spending cuts Lecico to distribute 1:3 bonus shares Heliopolis Housing sells three land plots for EGP36.1 million Credit Agricole Egypt to discuss future of SMEs Maghraby under investigation in Damac lawsuit

Saudi Arabia

Herfy's BoD recommends 1:9 bonus share issue, SAR1.5/share cash dividend Lenders to Zain KSA push for involvement in acquisition talks, MEED reports Maaden receives USD1 billion financing for alumina refinery and bauxite mine SITC share to start trading on 28 June 2011

Kuwait Qatar Iraq

Zain Group receives remaining USD700 million from African assets sale QAFCO signs 15 ktpa aqueous ammonia supply agreement with RGPC

Korek Telecom says committed to float shares; Asiacell expresses concern over Iraqi stock market readiness

EFG Hermes Research

Lebanese Banking Sector - Adjust Fair Values on Regional Political Unrest; Remain Buyers of BLOM and Audi - 22 June 2011

Agenda
Egypt Thu 23 June >> Talaat Moustafa Group (TMG) ex-div date for 50.3 million bonus shares Saudi Arabia Sat 25 June >> Zain Saudi Arabia AGM Wed 29 June >> Dar Al Arkan AGM and EGM Sat 2 July >> Advanced Petrochemicals ex-div date for SAR1/share dividend

Egypt News
Government reduces budget deficit in FY2011-2012 to 8.6% on spending cuts Egypt has cut its budget deficit goal for the next fiscal year after reducing spending in a revised budget, decreasing the governments need to tap foreign lenders to finance its budget deficit, the Ministry of Finance (MoF) has said. The interim government plans to reduce the deficit to 8.6% of GDP in FY2011-2012 from 9.5% of GDP in the current fiscal year, the MoF said in a statement. The government had targeted in

its initial draft a deficit of 11% of GDP. The armed forces spared no effort to make some resources available for the budget so that we dont have to borrow from abroad, Finance Minister Samir Radwan said. Therefore, we wont borrow from abroad for the time being.

Total spending was reduced by 4.6% to EGP491 billion, while revenues were reduced by only 1% to EGP350 billion from what was initially budgeted. The spending cuts were mostly felt in investments, which were reduced by 16% from the initial draft to EGP47 billion, while subsidies, grants and social benefits were reduced by 4% to EGP158 billion as the government plans to improve its targeting of butane gas as well as benefit from revised contracts of natural gas exports. Despite the spending cuts, especially on investment, the government has maintained its growth forecast for FY2011-2012 at 3-3.5%. (Bloomberg, Mohamed Abu Basha) Lecico to distribute 1:3 bonus shares Lecico Egypt ([Link]) will distribute 1:3 bonus shares, the company announced in a disclosure. The exdate for the bonus shares will be on 7 July 2011. Post-bonus shares, the total number of outstanding shares will increase to 80 million shares from 60 million shares currently. (Company Disclosure) Lecico: EGP15.72, Rating: Neutral, FV: EGP15.9, MCap: USD159 million, LECI EY / [Link] Heliopolis Housing sells three land plots for EGP36.1 million Heliopolis Housing and Development Company (Heliopolis Housing) [[Link]] has sold three land plots in Heliopolis neighborhood measuring a total of 3,274 square metres (sqm) for EGP36.1 million in an auction held on 22 June 2011. Buyers will pay 25% of the land value in the first year, and the remaining amount will paid in 10 year installments with an annual interest rate of 7% per year. (Al Borsa) Heliopolis Housing: EGP19.56, Rating: Buy, FV: EGP38, MCap: USD366 million, HELI EY / [Link] Credit Agricole Egypt to discuss future of SMEs Credit Agricole Egypt (CAE) [[Link]], a subsidiary of Credit Agricole France, recently discussed the future of SME lending during a B2B conference in Egypt. CAE has been working to expand its service portfolio in order to meet the different needs of SMEs. The bank currently offers a wide range of finance solutions for SMEs services related to assets, liabilities, trade finance, capital markets, online banking, investment and foreign exchange products. CAE recently inaugurated 10 business centres to offer tailored services to all corporate clients and provide specialised banking advice to customers. The bank plans to expand these business centres by opening six more before the end of the year. (Zawya Dow Jones) CAE: EGP10.71, Rating: Neutral, FV: EGP12.4, MCap: USD517 million, CIEB EY / [Link] Maghraby under investigation in Damac lawsuit The former Minister of Housing, Utilities and Urban Development (Minister of Housing), Ahmed El Maghraby, is currently under investigation in a Damac Properties UAE (Damac) lawsuit. Maghraby is accused of squandering public funds totaling EGP6.5 billion as he failed to withdraw land previously sold in an auction to Damac after the company had not complied with the contract terms. The land plot subject in this case measures 1,500 feddans (6.3 million square metres (sqm)) and is located in New Cairo. (Al Mal)

Saudi Arabia News

Herfy's BoD recommends 1:9 bonus share issue, SAR1.5/share cash dividend Herfy Food Services' (Herfys) [[Link]] board of directors (BoD) has recommended a 1:9 bonus share issue (one bonus share for every nine held), increasing the companys paid-in capital to SAR300 million from SAR270 million, Tadawul reported, following the company's EGM. The BoD also recommended a SAR1.5/share cash dividend to be distributed for 1H2011, in line with 1H2010 and 2H2010, implying an annualised dividend yield of 3.6%. This comes in lower than our implied 1H2011DPS of SAR1.75 (SAR3.5 for FY2011).The ex-dividend date for both the bonus shares and the cash dividend will be the day following the EGM, which has yet to be announced. (Tadawul, Nada Amin, Khaled Sadek) Herfy: SAR85.50, Rating: Neutral, FV: SAR88.0, MCap: USD616 million, HERFY AB / [Link] Lenders to Zain KSA push for involvement in acquisition talks, MEED reports

Some of Zain Saudi Arabias (Zain KSAs) ([Link]) largest lenders are petitioning Kingdom Holdings and Bahrains Batelco ([Link]) to participate in the negotiations that the two companies are holding to acquire Zain Groups ([Link]) 25% stake in the operator, MEED quoted unnamed sources close to the deal as saying. The Saudi banks that have large outstanding loans to Zain KSA are concerned that the acquisition will substantially change the basis for the commitments behind the SAR9.6 billion (USD2.6 billion) outstanding Murabaha facility. As a result, they are trying to become involved in the acquisition talks early on in order to ensure that Zain Groups debt is paid down should the acquisition be completed. One of the main areas of concern is a commitment by Zain Group to pay any funding shortfalls at the level of Zain KSA. Lenders say a similar commitment from Batelco and Kingdom Holding may not be strong enough for them, MEED reported. This deal is only in place because of Zain Group. If Zain KSA is no longer a part of that, then this facility will have to be repaid or substantially renegotiated, one banker involved in the Murabaha said. We are pushing to be involved in the acquisition discussions from an early stage, because the lenders on the USD2.6 billion facility wont allow the same terms to stay in place if Zain KSA comes under new ownership, another banker said. On the other hand, MEED quoted other bankers as saying that it is too early to worry about the implications of a deal that may not go ahead. (MEED) Zain KSA: SAR6.85, Rating: Neutral, FV: SAR7.78, MCap: USD2,557 million, ZAINKSA AB / [Link] Zain Group: KWD1.04, Rating: Sell, FV: KWD0.92, MCap: USD14,847 million, ZAIN KK / [Link] Maaden receives USD1 billion financing for alumina refinery and bauxite mine The Saudi Arabian Mining Company (Maaden) [[Link]] has announced that the Public Investment Fund (PIF) has approved a loan of USD1 billion to the former to finance the alumina refinery and bauxite mine that the company is constructing in Raz Az Zawr. The total cost of the refinery and mine is estimated at USD3.6 billion, and the projects expected completion date is 2014. The company expects to finance 60% (USD2.163 billion) of the project through debt financing from the PIF, the Saudi Industrial Development Fund (SIDF) and other financial institutions. (Tadawul, Zawya Dow Jones) SITC share to start trading on 28 June 2011 Saudi Integrated Telecommunications Company (SITC), the third fixed-line licence in Saudi Arabia, will start trading on Saudis bourse on 28 June 2011, as per Tadawul disclosure. The shares will be traded under the symbol [Link], with an unrestricted price limit for the first day. Last month, the company offered a 35% stake of its capital in an initial public offering (IPO) at the price of SAR10.0/share. SITC's founders subscribed to 65 million shares of the company, while the remaining 35 million were offered in the IPO. Saudi Arabias Commerce and Industry Minister Abdullah Zainal Alireza had approved earlier the establishment of SITC, with a capital of SAR1.0 billion, the Arab News reported. (Tadawul, Arab News, Zawya Dow Jones)

Kuwait News
Zain Group receives remaining USD700 million from African assets sale Zain Group ([Link]) has received the remaining USD700 million of the original deal price to sell its African assets (excluding Sudan and Morroco) to Indias Bharti Airtel as per scheduled, the company said in a statement sent to the Kuwaiti Stock Exchange. Zain Group will use the amount to enhance its financial solvency. The amount was already recorded in 2Q2010 financial statements and hence will have no impact on 2Q2011s financials. (Company Announcement)

Zain Group: KWD1.04, Rating: Sell, FV: KWD0.92, MCap: USD14,847 million, ZAIN KK / [Link]

Qatar News
QAFCO signs 15 ktpa aqueous ammonia supply agreement with RGPC Qatar Fertiliser Company (QAFCO), a 75%-owned subsidiary of Industries Qatar (IQ) [[Link]], has signed an agreement with Ras Girtas Power Company (RGPC) to supply them with 15,000 tonnes per year (tpy) of aqueous ammonia to use in power generation in Ras Laddan. QAFCOs aqueous ammonia capacity is 60,000 tonnes per year (most of which is used internally), which is quite insignificant compared to its total ammonia capacity of c2 mtpa. (Argaam) IQ: QAR134.3, Rating: Buy, FV: QAR170, MCap: USD20,293 million, IQCD QD / [Link]

Iraq News
Korek Telecom says committed to float shares; Asiacell expresses concern over Iraqi stock market readiness Korek Telecom is committed to fulfilling a condition of its licence that stipulates that it must sell a 25% stake in the company through an initial public offering (IPO) and list on the local exchange, Zawya Dow Jones quoted Nawzad Junde, Deputy President of Korek Telecoms board of directors (BoD), as saying." According to CMC (Iraq's Communication and Media Commission), which issued the licence, operators are supposed to provision 25% of the company to be floated in the Iraqi market four years after acquiring the licence, he said. "There is no date yet agreed for the IPO. As a company we are ready to abide and fulfill all conditions of the GSM licence in full. The current situations shows that the plans are ready and maturing," Junde said. Asiacell, Qtels ([Link]) Iraqi subsidiary, said on 22 June 2011 that it is concerned that the local stock market may not be sufficiently liquid to ensure the successful sale of a 25% stake through an IPO. Asiacell has said that it is still in talks with authorities in Baghdad over the IPO. "The timing of an IPO may depend on clarifications on how to implement the requirements of the licence, the stock market rules and Iraqi company law," Asiacell said. This comes days after Zain Groups ([Link]) Iraqi subsidiary said it plans to sell 20% of the company in an IPO and list on Iraq's Stock Exchange before the end of August. (Zawya Dow Jones) Qtel: QAR149.1, Rating: Buy, FV: QAR174.5, MCap: USD7,209 million, QTEL QD / [Link] Zain Group: KWD1.04, Rating: Sell, FV: KWD0.92, MCap: USD14,847 million, ZAIN KK / [Link]

EFG Hermes Research

Lebanese Banking Sector - Adjust Fair Values on Regional Political Unrest; Remain Buyers of BLOM and Audi - 22 June 2011 Reduce FV on Higher Discount Rate, Lower Short-Term Earnings Estimates: We lower our fair value (FV) estimates for BLOM, Audi and Byblos by c18% after increasing our cost of equity assumption by 100 bps to 15.5% and lowering our short-term earnings forecasts. Our new discount rate reflects risks that the popular uprising in neighbouring Syria could result in a prolonged period of violence and unrest, with potentially negative security implications for Lebanon. Syria still exerts considerable political influence in Lebanon, and political factions, such as the March 8 bloc, currently the latter countrys ruling coalition and which includes the Hezbollah movement, are generally regarded as Syrian allies. Current Multiples Depressed; See No Triggers for Re-Rating: At an average 2011 P/E of 6.7x and P/BV of 1.1x, Lebanese banks trade at multiples close to their five-year low. We reiterate our Buy ratings on BLOM (new FV: USD10.70/share) and Audi (new FV: USD8.61/share) as our new FV estimates imply upside potentials of over 20%. We lower our rating on Byblos to Neutral from Buy as our new FV of USD1.92/share implies only 10% upside. While banks offer value from a long-term perspective, especially considering a scenario of economic reforms and sustained economic growth in the country that we do not factor into our forecasts, we believe that multiples will remain at low levels in the short term due to regional political unrest and our assumption of no major economic reforms in the near term. Expect Slow Earnings Growth in 2011: We forecast average earnings growth of 3% for banks in our coverage, a slowdown versus their strong 17% average earnings growth reported in 2010. We factor in a deceleration in loan growth to an average of 10% in 2011 versus 25% in 2010. Corporate investment and private consumption were slow in Lebanon in 1H2011, and tourism, a key sector for Lebanon, has been negatively impacted by domestic political tensions and regional developments. Although the appointment of the new government led by Prime Minister Najib Mikati in mid-June after a five month delay will provide some impetus to economic confidence, in our view, we do not expect a very strong rebound in lending volume growth in 2H2011. Our earnings forecasts also assume an increase in provisioning charges, mainly due to the allocation of collective provisions for some of the banks regional exposures (particularly Syria, which accounts for 12% of total loans for BLOM, 9% for Audi and 8% for Byblos). Furthermore, we believe that margins in Syria will be under pressure this year following the recent increase in deposit rates by the countrys central bank. (Elena Sanchez-Cabezudo)
[Note EFG Hermes is not responsible for the accuracy of news items taken from other media.]

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