MENA-2 THURSDAY MORNING ROUND-UP

 
 
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Egypt  
Finance Minister announces FY2011-2012 budget
Mubarak, sons to be tried on 3 August, judicial source says
Government to offer 15 PPP infrastructure projects in July to attract EGP100 billion in investments
Egypt to demerge Bank Misr and Banque Du Caire  
Vimpelcom expects to meet with Algerian authorities this month regarding Djezzy sale  
Mobinil network down for over four hours on 1 June  
Citadel Capital denies any acquisition offer  
 
Saudi Arabia  
Al Akaria, KEC JV signs SAR176 million contract with Al-Dar Al Arabia Co. for construction of phase I
of co-developed project
SEC, Showa Shell to build 15 MW solar plant  
SABIC Capital seeking USD2 billion loan  
Cristal Global increases global TiO2 prices  
 
EFG Hermes Research  
Telecom Egypt - 1Q2011 Results Strong, But Not Sustainable; Dividend is Still the Long-Awaited
Catalyst - Flash Note 01 June 2011  
 
Agenda  
 
Egypt  
Mon 6 June >> Orascom Construction Industries (OCI) AGM  
Mon 6 June >> Mobinil ex-date for EGP3.16 cash DPS  
 
Saudi Arabia  
Sat 25 June >> Zain Saudi Arabia AGM  
Wed 29 June >> Dar Al Arkan AGM and EGM  
 
Egypt News  
Finance Minister announces FY2011-2012 budget
Finance Minister Samir Radwan announced on 1 June 2011 details of the FY2011-2012 budget. The
highlight of the budget was a notable increase in investment spending, up 40% Y-o-Y, which will provide a
stimulus to the economy in FY2011-2012 (begins 1July 2011). Other important measures include a 5
percentage point increase in corporate and income taxes, a capital gains tax and the announcement of a
minimum wage for the public sector. The budget has yet to be approved by the Supreme Military Council
in absence of an elected Parliament. The announced budget aims to increase spending by 24.5% Y-o-Y to
EGP514.4 billion (USD86 billion) and revenues by 22.6% Y-o-Y to EGP350.4 billion (USD58.8 billion) with
the deficit widening to EGP170.7 billion (USD29 billion, 10.95% of GDP) in FY2011-2012 from EGP119
billion (8.64% of GDP) in FY2010-2011. On the revenue side, the government stated an increase in overall
revenues of 22.6% Y-o-Y to EGP233 billion. The budget also accounts for a notable increase in grants, up
102% Y-o-Y, to EGP10.5 billion (USD1.8 billion, 0.7% of GDP). No further details were released on the
revenue side.

The government has sought to partially finance the increased spending through a number of revenue-
generating measures. The measures include: i) the introduction of a new tax bracket; a 25% tax will be
levied on personal and corporate income for those who earn more than EGP10 million per year, ii) the
introduction of a 10% capital gains tax on dividends, mergers and acquisition, and revaluation of assets,
and iii) a 10% increase in the sales taxes on cigarettes. We note that companies’ profits were previously
applied a flat 20% income tax. The government estimates these revenue-generating measures will raise
EGP4.7 billion (0.3% of GDP) in additional revenues in FY2011-2012. The new measures will be applied
starting on 1 July 2011. (Al Masry Al Youm, Reuters, Bloomberg)

Mubarak, sons to be tried on 3 August, judicial source says

Former President Hosni Mubarak and his two sons, Alaa Mubarak and Gamal Mubarak, will be tried on 3
August 2011 on charges of ordering the killing of demonstrators as well as squandering public wealth,
local newspapers have reported, citing a judicial source. Their case has been referred to the North Cairo
court, Zawya Dow Jones reported. Businessman Hussein Salem, who was closely tied to Mubarak, will also
be tried on the same charges on the same day. (Al Ahram, Al Mal, Zawya Dow Jones)

Government to offer 15 PPP infrastructure projects in July to attract EGP100 billion in investments
The government is preparing to offer 15 public private partnership (PPP) infrastructure projects in July
2011, Al Alam Al Youm has reported. The government aims to attract investments worth EGP100 billion
through these offerings. These projects will include metro line infrastructure, water desalination works in
the Red Sea area, roads, hospitals and 10 airports. The airport infrastructure projects have been
presented to the Ministry of Civil Aviation in order to select the appropriate locations. These will be the
first PPP projects to have been offered in the last six months. (Al Alam Al Youm)

Egypt to demerge Bank Misr and Banque Du Caire  

Bank Misr, Egypt’s second largest public bank by assets, will demerge from Banque Du Caire, Egypt’s third
largest public bank by assets, according to Finance Minister Samir Radwan, who announced the news
during his statement regarding the country’s new budget on 1 June 2011. Earlier this week, Al Shorouk
newspaper reported that the Central Bank of Egypt (CBE) and the Ministry of Finance would convert
Banque Du Caire into a bank specialising in SME financing. Banque Du Caire has the highest market share
in SME lending and high asset quality within the segment.(Bloomberg, Al Shorouk)  

Vimpelcom expects to meet with Algerian authorities this month regarding Djezzy sale  
Russia's Vimpelcom (VIP) expects to meet this month with the Algerian government for talks on the future
of Djezzy, Orascom Telecom’s (OT) (ORTE.CA) Algerian subsidiary, the company's CEO, Alexander
Izosimov, said on 1 June 2011. "We have initiated talks with the Algerian government and are waiting for
a response," he said. "We are getting informal positive signals, and hope to hold a few meetings with the
Algerian authorities later in June." (Dow Jones Newswires)  
 
OT: EGP4.34/USD3.49, MCap: USD3,833 million, ORTE EY / ORTE.CA  
 
Mobinil network down for over four hours on 1 June  
Mobinil’s (EMOB.CA) network faced an outage lasting over four hours on 1 June 2011 in the Greater Cairo
area without any warning from the company to its customers, Al Ahram reported. The company has not
communicated to its customers any clarification regarding the reasons for the outage. (Al Ahram Portal)  
 
Mobinil: EGP145.91, Rating: Buy, FV: EGP172.0, MCap: USD2,456 million, EMPN EY / EMOB.CA  

Citadel Capital denies any acquisition offer  

Citadel Capital (CCAP.CA) has denied any acquisition offer for its shares at EGP8/share, the company said
in a regulatory filing to the Egyptian stock exchange. “Citadel Capital has not received an offer for
acquisition directly from any entity, nor has it received from its shareholders information suggesting that
a formal offer has been presented to any of them,” the statement read. Citadel Capital explained that, as
is the nature of private equity firms, the company is frequently in negotiations to divest or acquire
investments. Negotiations of this type are not always successfully completed, the statement added. The
company confirmed that in the event that the firm closes a transaction or is in advanced negotiations on
any one of those deals, it will disclose the information to the Egyptian Exchange and to its investors in a
timely manner. (Company Disclosure)  
  
Saudi Arabia News  
Al Akaria, KEC JV signs SAR176 million contract with Al-Dar Al Arabia Co. for construction of phase I
of co-developed project
Saudi Real Estate Company (Al Akaria) [4020.SE] and Knowledge Economic City (KEC) [4310.SE] announced
that their 50-50 joint venture (JV) has awarded a construction contract worth SAR176 million to Al-Dar Al
Arabia Company for the construction of 206 villas in phase I of their co-developed project, Zawya Dow
Jones reported. The project is located in KEC's Medina development. It is planned on a total land area of
586,000 square metres (sqm) and will be developed over four phases, which will host 900 villas, expected
to be completed by 2014 and requiring investments of over SAR1 billion, Sami Barom, KEC’s Chairman was
quoted as saying.

In January 2011, Al Akaria reached an agreement with KEC to co-develop a residential project in Medina.
The JV has an issued capital of SAR50 million. Phase I units will be delivered in 4Q2012, according to
previous statements made by Al Akaria and KEC. We believe that the event is positive as Al Akaria will
start to employ its abundant spare liquidity to generate additional value for its shareholders. We note,
however, that the JV is included in our current valuation for Al Akaria due to weak disclosure and the
project’s relatively small size. (Tadawul, Zawya Dow Jones, Jan Pawel Hasman, Shaza El Kady)

Al Akaria: SAR26.10, Rating: Neutral, FV: SAR27.4, Mcap: USD835 million, SRECO / 4020.SE

SEC, Showa Shell to build 15 MW solar plant  

Saudi Electricity Company (SEC) [5110.SE], Saudi Aramco and Showa Shell Sekiyu K.K. announced that
they will develop a solar plant with a maximum capacity of 15 megawatts (MW) on Farasan Island in Saudi
Arabia, 30 times larger than a project announced on 1 June 2011, Bloomberg reported. SEC will receive
power from the photovoltaic plant and will assume ownership from Showa Shell after 15 years, the
utility’s CEO, Ali Ar-Barrak, was quoted as saying. SEC agreed with Showa Shell to develop a 500-kilowatt
solar power plant on Farasan Island that would start operations in July, the Japanese refiner said in a
statement on its website. “This is only a pilot project and we will develop next a 10-15 MW plant using
the same photovoltaic technology,” Al-Barrak explained, without mentioning a timeframe for the project.
(Bloomberg)  
   
SEC: SAR14.75, Rating: Neutral, FV: SAR13.20, MCap: USD16,389 million, SECO AB / 5110.SE  
 
SABIC Capital seeking USD2 billion loan  
According to Reuters and based on several banking sources, SABIC Capital, SABIC’s (2010.SE) wholly-
owned financing arm, has mandated five banks to arrange a USD2 billion loan. The loan would be over five
years and is expected to carry a sub-50 basis points (bps) over LIBOR margin and an all-in spread of less
than 100 bps, according to the sources. Syndication on the loan is expected to close before the summer
period. (Reuters)  
   
SABIC: SAR107.00, Rating: Buy, FV: SAR133, MCap: USD85,600 million, SABIC AB / 2010.SE  
   
Cristal Global increases global TiO2 prices  
Cristal global, a 66%-owned subsidiary of the National Industrialization Company (Tasnee), will increase
its price of titanium dioxide(TiO2) in Europe, the Commonwealth of Independent States (CIS), Latin
America, Middle East, North Africa, Asia and Australia. TiO2 prices will increase by EUR350/tonne in
Europe and North Africa, USD500/tonne in the CIS, Latin America, Middle East and Asia, and
AUD500/tonne in Australia. The price changes will become effective starting in July 2011. (Argaam)  
 
EFG Hermes Research  
 
Telecom Egypt - 1Q2011 Results Strong, But Not Sustainable; Dividend is Still the Long-Awaited
Catalyst - Flash Note 01 June 2011  
Strong 1Q2011 EBITDA Margin Boosts Earnings; Reiterate Buy and FV: Telecom Egypt (TE) reported a
strong set of 1Q2011 results: EBITDA margin, the main positive highlight of the quarter, came in at 53%
versus our conservative estimate of 43.5% and Reuters’ consensus estimate of mid-40%. This, in addition
to an FX gain of EGP22 million, higher-than-expected interest income, and a provision reversal of EGP23
million, resulted in earnings coming in at EGP892 million, 54% ahead of our estimate. Overall, the results
are good, and we reiterate our Buy rating on TE and our fair value (FV) of EGP19.5/share, which provides
24% upside potential.  
 
Unchanged View and Forecasts; Seeking Higher Dividends: We conservatively keep our FY2011 forecasts
unchanged, while there could be cEGP400 million upside potential to our bottom line forecast. We
continue to view TE as a dividend play, and we continue to believe that the main catalyst for positive
share price performance is an increase in TE’s dividend. We look for an increase in the DPS to EGP1.50 in
FY2011 from EGP1.30 in FY2010, translating into a dividend yield of 9.5%. We believe that this is
supported by a high FCF yield of 17% and a need for cash from the government on a post-revolution
deficit.  
 
EBITDA Margin Not Sustainable: Cost optimisation, in our view, helped TE reduce its total costs by 32% Q-
o-Q. Total costs were 17% lower than we expected, which led to the higher-than-expected EBITDA margin.
Management confirmed that the high EBITDA margin did not include any one-off items and that it was
purely on the back of strong operational performance. We believe that the high EBITDA margin is not
sustainable for the rest of FY2011, as the impact of the 15% recently announced salary increase was only
applied on the month on March, and the full impact will appear starting in 2Q2011. (Marise Ananian, Omar
Maher)  
 
[Note – EFG Hermes is not responsible for the accuracy of news items taken from other media.]  
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fundamental analysis of the company’s future prospects, after having taken perceived risk into consideration. We have
conducted extensive research to arrive at our investment recommendations and fair value estimates for the company or
companies mentioned in this report. Although the information in this report has been obtained from sources that EFG
Hermes believes to be reliable, we do not guarantee its accuracy, and such information may be condensed or incomplete.
Readers should understand that financial projections, fair value estimates and statements regarding future prospects may
not be realized. All opinions and estimates included in this report constitute our judgment as of this date and are subject
to change without notice. This research report is prepared for general circulation and is intended for general information
purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. It is not
tailored to the specific investment objectives, financial situation or needs of any specific person that may receive this
report. We strongly advise potential investors to seek financial guidance when determining whether an investment is
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