US embassy cable - 05CAIRO9072

UNCLAS CAIRO 009072 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ELA AND EB/CIP 
USTR FOR SAUMS/AUGEROT/MCHALE/NEUREITER 
USAID FOR ANE/MEA MCCLOUD 
COMMERCE FOR 4520/ITA/MAC/ANESA/TALAAT 
 
E.O. 12958: N/A 
TAGS: ECON, ECPS, EINT, EINV, ETRD, KGIT, EG, Telecom 
SUBJECT: INVESTOR INEXPERIENCE FUELS TELECOMS IPO BOOM 
 
REF: CAIRO 06163 
 
Sensitive but Unclassified.  Please protect accordingly. 
 
1. (U)  On November 29, the GOE began its long-awaited 
divestiture of 20% of Telecom Egypt (TE), with an initial 
public offering of 10%, or 170 million shares, on the Cairo 
and Alexandria Stock Exchange (CASE) sold to individuals, and 
the additional 10% being sold to institutions.  After several 
weeks of press speculation that the market boom was leveling 
off due to profit taking in advance of the sale - i.e., as 
investors needed liquidity to invest in TE - the IPO met with 
an immediate rush for subscriptions and became a major topic 
of conversation on the cocktail circuit.  So far, with the 
IPO to close on December 7, and with investors anticipating a 
steady rise in share value, indicators suggest that there 
have been requests for 440 million shares; experts expect the 
actual allocation to range between 30-40% of the requests. 
The private placement portion of the divesture for 
institutions, according to press, has also been 
oversubscribed by 5-10 times the available shares. 
 
2. (SBU)  Enthusiasm for the IPO certainly suggests optimism 
about Egypt's general economic prospects.  However, contacts 
in both the telecoms and financial sectors worry that some 
investor exuberance is misplaced, particularly from small and 
less sophisticated investors.  TE currently holds a monopoly 
over fixed-line communications that will expire at the end of 
2005, after which it will face marketplace competition - 
including from companies offering Voice over Internet 
Protocol (VoIP) technology, which will permit international 
calls at half the cost of inflated TE landline calls.  TE 
currently makes nearly 30% of its profit on international 
calls, and domestic calls are heavily subsidized. 
 
3. (SBU)  More experienced investors reportedly will dump 
their TE holdings soon to turn a quick profit.  Newcomers, 
thus, may lose money in a sell-off in the next few months, 
though news reports optimistically suggest that the share 
value will gain 15% immediately upon the opening of trade in 
its shares, on Dec. 14, on CASE and through Global Depository 
Receipts (GDRs) on the London Stock Exchange. 
 
4. (SBU)  Comment: At a luncheon two weeks ago, the head of 
locally-prominent EFG Hermes Holdings noted that the bull 
trend on CASE over the last few months was deceptive, as 
investment in relatively transparent companies had slowed, 
while investment in companies about which investors knew 
little had driven the market upward.  He suggested this meant 
that market newcomers were diving in without full knowledge. 
Certainly a well-known brand like TE would appeal to new 
investors.  End comment. 
 
 
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