Vodafone Egypt's stock market listing and sale of shares to Telecom Egypt may be the one piece of good news to ring out the old year, writes Niveen Wahish The listing of Vodafone Egypt on the Cairo and Alexandria Stock Exchanges was postponed twice, before finally happening with much fanfare: the ringing of the bell signalled start of trading and a press conference was organised to announce the event. Vodafone had an additional announcement to make: negotiations with Telecom Egypt had been concluded and the latter was to acquire a 25.5-per-cent stake in Vodafone Egypt. This put an end to year-old speculation over whether or not Telecom Egypt would launch a third mobile network. Akil Beshir, chairman of Telecom Egypt, speaking at the press conference on the day of the listing, explained that the decision was based on the realisation that forming a partnership with Vodafone was the better option. According to a press release issued by the National Telecommunications Regulatory Authority (NTRA), studies indicate that establishing a third mobile phone company was not feasible in light of the weak Egyptian pound. The studies estimated that the cost of establishing and operating a third network would amount to $250 million, in addition to a further LE2.5 billion in anticipated investments over five years. In the meantime, revenues will be in Egyptian pounds. By signing the agreement, Telecom Egypt pledged not to set up a GSM network until 2007. Telecom Egypt will return the licence for a third network to NTRA, and the LE1.7 billion licence fee it had paid to acquire the licence will be reimbursed. Vodafone Egypt's listing is not an Initial Public Offering (IPO), and no new shares were issued. Rather, the listing allows investors to buy existing shares which may be offered for sale by minority shareholders. These amount to some 24.4 per cent of the company shares. According to the deal with Telecom Egypt, Vodafone remains the majority shareholder with a 50.1-per cent stake. A consortium called Wataniya will be formed and owned equally by both Telecom Egypt and the Vodafone Group. Wataniya will own 51 per cent of Vodafone-Egypt. Telecom Egypt's 25.5-percent stake in Vodafone-Egypt is through its ownership of half of the consortium. Before the agreement with Telecom Egypt, the company was 67 per cent owned by Vodafone Group, 10 per cent owned by Alkan Group, five per cent owned by Banque du Caire and the remaining shares held by a number of companies and individuals. The company's paid-in capital is LE1.2 billion divided over 240 million shares. Mohamed Ali El-Hamamsi, deputy chairman of Vodafone- Egypt told Al-Ahram Weekly that the aim of the listing is to give shareholders the chance to liquidate their holdings. "The company is well established and has reached a level of maturity. Investors, who have had their shares for five years, will now have the chance to sell." The company's listing on the stock exchange was eagerly awaited by marketeers. Hassan Samir, head of trading at Prime Securities, believes the Vodafone Egypt listing is long overdue. "It is in the interest of the public to have competition on the stock market." Before the listing, the only companies in the telecom sector were MobiNil and Orascom Telecom, the latter holding shares in the former. "The presence of Vodafone provides a diversity and gives depth to the market," Samir said. Moreover, the company stands to benefit financially from its listing. According to an EFG-Hermes study prepared prior to the listing, pre-tax income equal to approximately 10 per cent of all listed companies' paid-up capital is tax deductible. That should be useful given that March 2004 marks the end of the company's five-year start-up tax holiday. However, the extent to which the listing will make a difference to the market will depend on the amount of shares that shareholders are willing to sell. According to Wael Ziada of EFG-Hermes, the bidding process will indicate share performance. On the day of the listing the company's shares were allowed to trade freely to allow the price to be determined. It closed at LE40. However, starting on the second day, the company's stock was subject to the daily five per cent limit on its price movement, as per the stock market regulations. The price will also depend on who buys the shares, explained Ziada, "institutions tend to keep their positions, unlike retail investors who may hold a share for a couple of days then sell it". Nonetheless, the EFG-Hermes study put share value at LE34. Telecom Egypt, on the other hand, according to its agreement with Vodafone Egypt, pays an average of LE23.5 per share. Anticipation of Vodafone Egypt's stock market floatation affected the performance of other telecom stocks. Many investors sold off part of their holdings in MobiNil and Orascom Telecom to free up cash to buy Vodafone Egypt shares. With Telecom Egypt stepping out of the GSM market for the next four years, the existing two companies, Vodafone- Egypt and MobiNil, will each have to pay LE1.240 billion to the National Telecommunications Regulatory Authority for upgrading their systems with the GSM 1800 spectrum. That spectrum would have been allocated to Telecom Egypt had it chosen to set up a third network. Vodafone started operating a mobile network in May 1998. Today it boasts around 2.58 million subscribers, representing a market share of 48 per cent. The Egyptian Company for Mobile Services (MobiNil) has some 2.78 million subscribers. According to the EFG-Hermes study, the target market in Egypt is about 16 per cent of the total population. This is expected to grow to 17 per cent by 2008.
