Egypt Move to Ease Profit Repatriation Extends Share Rally

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  • Central bank eases restrictions on lenders selling dollars
  • Move meant to address a primary concern of foreign investors

Egypt’s central bank allowed lenders to sell dollars to clients seeking to repatriate profits, further easing currency restrictions in an effort to bring back foreign investors and revive the economy. Stocks surged.

Banks were given the green light to sell 50 percent of excess foreign currency after meeting the needs of priority importers, according to seven bankers who said they received verbal instructions from the regulator on Monday. Central bank officials weren’t available for comment when contacted by Bloomberg.

Foreign investors have cited difficulties in profit repatriation as a major reason for avoiding North Africa’s biggest economy since the 2011 uprising that ousted longtime ruler Hosni Mubarak. This month, FTSE Russell threatened to change its treatment of Egyptian stocks as a result of the difficulties reported by its clients. Measures would include not adding newly listed companies to its country index, with a final decision due to be announced on Wednesday.

"It’s very good news for stocks, because there were a lot of investors that were stuck and couldn’t get their money out over the past five or six years," said Simon Kitchen, an equity strategist at Cairo-based EFG-Hermes Holding, Egypt’s biggest publicly traded investment bank. "This shows a measure of normalization returning to the FX market."

Lenders were instructed to sell the remaining 50 percent of excess foreign currency in the interbank market, according to the bankers, who asked not to be identified because they aren’t allowed to disclose the information publicly. Guidelines also allow banks to refinance temporary overdrafts, the bankers said.

The benchmark EGX 30 Index climbed the most among more than 90 gauges tracked by Bloomberg on Wednesday, adding 2.6 percent at the close in Cairo. It has rallied 34 percent since the pound was floated on Nov. 3, compared with a 3 percent decline for the MSCI Emerging Markets Index. Non-Arab foreign investors boosted their holdings by 3.8 billion pounds ($212 million), according to bourse data compiled by Bloomberg.

The pound weakened 0.2 percent to 17.9474 per dollar as of 4:11 p.m. in Cairo, according to prices compiled by Bloomberg.

Overseas investors have started returning to Egyptian markets since the pound float. Foreign holdings in government debt grew to between $700 million and $900 million over the past few weeks from $50 million in July, officials have said.

Kitchen recommends buying industrial companies -- including Ezz Steel, the nation’s biggest manufacturer of the metal -- on expectation that returns on equity will recover with greater availability of dollars and natural gas. Ezz Steel posted a 2015 loss equivalent to a 11 percent of shareholder equity, according to data compiled by Bloomberg. The shares have soared 63 percent since the pound was freed, leading gains on the benchmark index.