Egypt Bourse Weighs Canceling 14% Drop in EGX 100 Amid Protests

Egyptian regulators, confronted by investors angry about stock losses and a closed exchange, said they will weigh the cancellation of transactions that led to the biggest tumble in the EGX 100 Index in more than two years.

Bourse chairman Khaled Seyam said the exchange won’t cancel Jan. 27 transactions because the move would be “illegal,” Al Arabiya television reported today.

Individual equity holders, who accounted for 48 percent of all trading on the Egyptian Exchange last year, jammed into a meeting in Cairo with bourse Vice Chairman Mohamed Farid Saleh yesterday, demanding changes in regulation and management before the market resumes operations Feb. 20. The exchange shut after the EGX 100 plunged 14 percent on Jan. 27. Al Arabiya also reported the exchange won’t open Feb. 20.

Egyptian shares have since climbed in London and the U.S. as President Hosni Mubarak bowed to protesters seeking his resignation last week and ceded power to the military after 30 years in office. Bourse officials said they are studying scrapping transactions from the last day of trading and will delay the planned opening for at least a third time. Unexpected developments could put trading off even longer, Saleh said.

“I’m surprised to hear they may be canceling some of the trades, which happened in an abnormal environment for the country but a pretty normal environment for the stock exchange,” said Sven Richter, managing director and head of frontier markets at Renaissance Asset Managers in London, which oversees more than $2 billion, including investments in Egypt. “I would prefer those trades stayed in place and that they opened the stock exchange as soon as possible. There are people waiting to invest as soon as the market opens.”

Trading Halts

The bourse yesterday said it won’t be possible to cancel the Jan. 26 session, when the EGX 100 declined 9.1 percent, as trading for that day has already been settled, whereas that of Jan. 27 hasn’t.

The Egyptian Exchange plans to open on Feb. 20 and will halt trading for 30 minutes should the EGX 100 Index, which includes all stocks in the benchmark EGX 30 Index, rise or fall more than 5 percent, said Hisham Turk, a spokesman for the bourse. The exchange will shut for the day if the gauge moves more than 10 percent, he said. The EGX 100 closed at an eight- month low of 884.79 on Jan. 27 on concern protests against Mubarak’s rule would cripple economic growth.

James Angel, associate professor of finance at McDonough School of Business at Georgetown University in Washington, said he’s never heard of an exchange invalidating three-week-old trades.

‘Risk’

U.S. exchanges canceled about 20,800 trades on May 6, when a sale of futures contracts set off a chain of selling that bled into stocks and sent the Dow Jones Industrial Average down as much as 9.2 percent, according to an account of the day by federal regulators. The annulled transactions amount to a fraction of the volume on a typical trading day. Shares of Citigroup Inc., one of the most-traded securities on U.S. bourses, changed hands at least 177,000 times yesterday, data compiled by Bloomberg show.

If the cancelation isn’t done immediately, the exchange may “wind up creating a lot of risk,” said Jamie Selway, managing director at Investment Technology Group Inc. in New York.

“If investors are driving this, there’s going to be winners and losers, making an adjudication quickly and transparently and getting it decided as quickly as you can, that’s really of paramount importance,” he said.

Investor Demands

At yesterday’s meeting in Cairo, investors argued with exchange officials, some demanding the trading suspension continue and others asking that the market open conditionally. They sought the suspension of trading of 13 companies associated with Mubarak’s regime, including Cairo-based Ezz Steel, Egypt’s biggest producer of the metal, and suggested more regulation to prevent insider trading and improve disclosure. They also called for new management at the bourse and securities regulator, the Egyptian Financial Services Authority.

In addition to Ezz Steel, investors are demanding the suspension of Ezz Aldekhela Steel Co. and Ezz Ceramics & Porcelain Tiles Co., all of which are affiliated to varying degrees with Ahmed Ezz, a high-ranking member of Mubarak’s former ruling party now facing a corruption investigation by the country’s public prosecutor. Ahmed El Maghraby, former housing minister and a shareholder of property developer Palm Hills Developments SAE, is also under investigation. Talaat Moustafa Group Holding may face fresh challenges to its biggest land acquisition after the previous government bypassed a court ruling annulling the transaction.

‘Black Box’

“The bourse is a black box that still hasn’t been opened,” said Ashraf Khairy, who added he holds 2.4 million Egyptian pounds ($408,302) in stocks and is 400,000 pounds in debt. “We cannot trust those who presided over the corruption to implement reforms.”

Global depositary receipts of Orascom Construction Industries, the Egypt’s biggest publicly traded builder, lost 2.5 percent to $38.50 at 10:02 a.m. in London and is up 2.3 percent since Jan. 27. GDRs of Commercial International Bank Egypts SAE, the country’s biggest publicly traded bank, slid 4.1 percent to $6.03, bringing the loss since Jan. 27 to 4 percent. EFG-Hermes Holding SAE, the nation’s biggest publicly traded investment bank, fell 5.1 percent to $8.45 and is down 6 percent.

The Market Vectors Egypt Index ETF, a U.S.-listed exchange- traded fund that holds Egyptian shares, has climbed 13 percent since Jan. 27. The fund, which changes hands throughout the day like a stock, dropped 2.1 percent yesterday.

Dollar Bonds

The yield on Egypt’s benchmark dollar bonds due in 2020 was little changed at 6.57 percent, according to data compiled by Bloomberg. Five-year credit-default swaps on the nation’s debt rose 4.6 basis points to 341.3 from the London close. That is down from 432.48 on Jan. 28, the day after the exchange closed. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

‘Hurting Investors’

EFG-Hermes Holding reduced its recommendation on six Egyptian companies yesterday, including Ezz Steel, on concern earnings may be hurt by the political changes.

Ezz, whose shares tumbled 19 percent to 15.93 pounds in the week ended Jan. 27, was lowered to “sell” at EFG with a 12- month price estimate of 13.9 pounds and Cairo-based Egyptian Resorts Co., a developer, was cut to “sell” with a price estimate of 1.4 pounds. Ghabbour Auto, Credit Agricole Egypt SAE, National Societe Generale Bank SAE and Paints & Chemical Industry Co. also had their recommendations reduced.

“The suspension is hurting investors more than it’s helping them, the bourse needs to face the reopening problem in order to get on with business,” said Mohsin Adel, managing director at Cairo-based Pioneer Funds, where he helps oversee 500 million Egyptian pounds.

To contact the reporters on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net; Zahra Hankir in Dubai at zhankir@bloomberg.net

To contact the editors responsible for this story: Claudia Maedler at cmaedler@bloomberg.net; Laura Zelenko at lzelenko@bloomberg.net

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