Egypt Stock Exchange Stays Shut as Cancellation of Trades Isn't Ruled Out

The Egyptian Exchange, shut since Jan. 27 amid anti-government protests, has no legal grounds to cancel transactions that sent the EGX 100 Index tumbling on the last trading day though such a decision is possible, Chairman Khaled Seyam said.

“We’re not ruling anything out,” Seyam said in a telephone interview today. The bourse will remain closed until at least 48 hours after the nation’s banks open again for business, said Hisham Turk, the exchange’s spokesman. Lenders will stay shut for the rest of the week, state-run Nile News television reported yesterday.

Seyam’s comments follow an Al Arabiya television report earlier today that the exchange won’t annul trades that led the EGX 100 down 14 percent, the biggest one-day drop in more than two years. The exchange has delayed opening at least four times after three weeks of protests forced Hosni Mubarak to cede power to the military on Feb. 11, putting an end to his 30-year rule.

London-traded shares of Egyptian companies sank today. Global depositary receipts of Orascom Construction Industries, Egypt’s biggest publicly traded builder, and Commercial International Bank Egypt SAE, the country’s biggest publicly traded bank, both slid more than 4 percent.

‘Hurting Investors’

“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.

Individual equity holders, who accounted for 48 percent of all trading on the Egyptian Exchange last year, jammed into a meeting with bourse officials in Cairo yesterday, demanding changes in regulation and management before the market resumes operations.

The exchange had outlined rules for opening on Feb. 20. The bourse planned to 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, Turk said yesterday. 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.

“Our market is directly tied to the banks because they are our custodians,” Seyam said in the interview today. “We need to make sure they are back to normal operations because we cannot afford to start and stop again.”

Bill Sales

Egypt’s central bank moved the deadline today for some of its Treasury bill auctions as banks remained closed.

The government will auction 5.5 billion Egyptian pounds ($936 million) in 182- and 364-day bills on Feb. 21, according to the Ministry of Finance’s website. The central bank had previously said that the auctions for these bills would be carried out tomorrow. Auctions of 91- and 273-day bills will be held as scheduled on Feb. 20 in a bid to raise 4.5 billion pounds, the ministry said.

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.

U.S. Crash

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.

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.

‘Black Box’

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 with Ahmed Ezz, a member of Mubarak’s former ruling party who is under investigation for alleged corruption by the country’s public prosecutor.

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

The Market Vectors Egypt Index ETF, a U.S.-listed exchange- traded fund that holds Egyptian shares, has climbed 12 percent since Jan. 27. The fund, which changes hands throughout the day like a stock, slipped 0.7 percent today.

GDRs

GDRs of Orascom Construction Industries lost 4.6 percent to $37.70 in London and are up 0.2 percent since Jan. 27. GDRs of Commercial International Bank Egypt slid 4.6 percent to $6, bringing the loss since Jan. 27 to 4.2 percent.

The yield on Egypt’s benchmark dollar bonds due in 2020 rose 5 basis points, or 0.05 percentage point, to 6.62 percent, according to data compiled by Bloomberg.

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.

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

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