MENA-2 SUNDAY MORNING ROUND-UP

Egypt
Egypt says Israeli response to deaths insufficient Cabinet to approve energy subsidy restructuring plan within next few weeks Army acquits two activists after public outcry SIDPEC approves USD14 million payment to Egyptian Company for Ethylene and Derivatives EIPICO workers on strike; outlets and factory shut down until further notice Valuation of OTMT to be completed with one month, AlBorsa quotes Abo Doma as saying Mobinil has no information regarding Sawiris stake sale to FT Abu Qir Fertilisers FY2010-2011 net income rises 15% Y-o-Y to EGP1,345.7 million

Saudi Arabia
Dar Al Arkan pays USD24.2 million in periodic coupon distribution to Sukuk IV holders

Jordan
Foreign reserves at comfortable levels, Central Bank Governor says Jordan to launch credit information bureau

EFG Hermes Research

Egyptian Resorts Company (ERC) - 2Q2011 Results: In the Red, but Income Statement Numbers Irrelevant for Now - Flash Note 18 August 2011

Agenda
Egypt Sat 27 August >> Al Ezz Dekheila (EZDK) AGM Tue 6 September >> Orascom Construction Industries (OCI) 2Q2011 results

Egypt News
Egypt says Israeli response to deaths insufficient Egypt has welcomed a joint investigation with Israel regarding the killing of five Egyptian security personnel during an Israeli border operation. However, Egypt said on 20 August that Israels response to the killings has thus far been insufficient given the gravity of the situation. Egypt said on 19 August that it would recall its ambassador from Israel, insisting that the killing of five Egyptian security personnel while Israeli forces were pursuing gunmen across the border was a breach of its 1979 peace treaty with the Jewish state. Egypt's Foreign Ministry later called in the Israeli Charge D'affaires, delivered a protest, and demanded a joint investigation into the deaths. Israeli Defence Minister Ehud Barak said thatIsrael regretted the deaths, which followed attacks on its border area that resulting in the deaths of eight people and sparked the most serious crisis in ties with Egypt since longtime ruler Hosni Mubarak's overthrow in February. Barak also said that he has instructed the Israeli army to conduct a joint investigation with Egypt. The Egyptian cabinet, with army generals in attendance, has been holding crisis meetings daily since Friday after thousands of Egyptians protested in front of the Israeli embassy in Cairo overnight, burning Israeli flags, tearing down metal barriers and demanding the expulsion of the Israeli envoy. Hundreds of Egyptians continue to protest outside of the embassy. One protester burned the Israeli flag and replaced it with the Egyptian one, a Reuters witness reported. (Reuters)

Cabinet to approve energy subsidy restructuring plan within next few weeks The Egyptian cabinet will approve within weeks a plan to rationalise the countrys energy subsidies, which are budgeted at EGP95 billion in the current FY2011-2012, Al Ahram has reported. The plan consists of four main points that aim to allow subsides to reach the most needy. The first point includes the distribution of butane gas cylinders through coupons, with potential savings for the government of EGP4-5 billion. Second, the government will work on extending natural gas pipelines to bakeries and brick factories to avoid consumption of diesel fuel, which is more expensive. Third, the government will continue with its plan to extend natural gas pipelines to households to limit their dependence on the more costly butane cylinder. Finally, the government will re-price natural gas contracts for energy-intensive industries, especially cement, steel and ceramics. (Al Ahram) Army acquits two activists after public outcry Egypt's army acquitted two activists who were charged with insulting the military and inciting violence, armed forces said on 18 August, following criticism from rights groups regarding the subjection of civilians to military trials. Military prosecutors had questioned Asmaa Mahfouz of the 6 April Movement and referred her to a military court after she allegedly called military generals a "council of dogs." She warned that armed groups could arise if the judiciary failed to deliver justice swiftly to those on trial for corruption. Louai Nagati, another activist, was arrested for disturbing public order during protests in late July. He was also ordered to face trial in a military court. (Reuters)

SIDPEC approves USD14 million payment to Egyptian Company for Ethylene and Derivatives SIDPECs (SKPC.CA) board of directors (BoD) approved on 18 August the payment of the companys share (20%) in the capital increase of the newly-established Egyptian Company for Ethylene and Derivatives. This includes USD14 million (20% of the USD70 million increase). This would bring the Egyptian Company for Ethylene and Derivatives total capital to USD100 million. The company, which was established in cooperation with the Holding Company for Petrochemicals and Egyptian Gas Company GASCO, will cost EGP8 billion, of which 65% will be financed by loans and 35% by equity. The project will produce, 460,000 tonnes of ethylene and 300,000 tonnes of polyethylene per annum. (Company Disclosure)

Sidpec: EGP13.76, Rating: Neutral, FV: EGP16, MCap: USD1,210 million, SKPC. EY / SKPC.CA

EIPICO workers on strike; outlets and factory shut down until further notice Nearly 2,500 workers at the Egyptian International Pharmaceutical Industries Company (EIPICO)[PHAR.CA] went on strike starting on 16 August in front of the company's factory in 10th of Ramadan City, Al Masry Al Youm reported. The workers are demanding: i) the termination of the employee fund, ii) that EIPICO pays out the remaining portion of employees profit share that has accumulated since 2003, iii) an increase in the number of vacation days per annum by seven days, in line with other local factories in the industry, and iv) firing corrupt individuals within the company. Management closed-off the company premises as well as the factory to avoid vandalism until further notice, Osama Rostom, EIPICOs Vice President, was quoted as saying. Rostom commented on some of the strikers demands, stating that the employee fund is not under management's jurisdiction, and is run by a board elected by employees themselves. The basis for the demand for cancellation is the suspicion of fraudulent behavior on behalf of the fund's board. The article quoted Rostom as saying that management will convene later on to discuss the issues at hand. While we have no further details regarding the strike, we believe that an extended shut down will disrupt production and affect 3Q2011 results, which we had previously expected would show some recovery versus 2Q2011s weak bottom line. (Al Masry Al Youm, Nada Amin, Wafaa Baddour) EIPICO: EGP35.0, Rating: Buy, FV: EGP44.3, MCap: USD465 million, PHAR EY / PHAR.CA Valuation of OTMT to be completed with one month, AlBorsa quotes Abo Doma as saying The valuation of Orascom Telecommunications Media and Technology (OTMT), Orascom Telecoms (OTs) [ORTE.CA] new entity post-split, will be completed within one month as one of the final steps to the actual splitting of the company, Alborsa newspaper quoted OTs Executive Vice President, Asia & Africa, and CEO, Ahmed

Abo Doma, as saying. OT has completed all of the documents requested by the Egyptian Financial Supervisory Authority (EFSA) to approve the split. Abo Doma added that the EFSAs delayed approval is due to continuing review of information. Abo Doma also said that OT began new talks to resolve the Djezzy problem and is expected to find positive solutions soon. Wind Telecommunication is about to receive three seats in Vimpelcoms board of directors (BoD), he added. (Al Borsa Newspaper) OT: EGP3.39/USD2.76, MCap: USD2,979 million, ORTE EY / ORTE.CA Mobinil has no information regarding Sawiris stake sale to FT Mobinil (EMOB.CA) has sent a statement to the Egyptian stock exchange clarifying that it has no information regarding the alleged sale by Naguib Sawiris of his stake in Mobinil to France Telecom (FT) for EGP160/share. It has not received any notification from either Sawiris or FT.Reuters quoted Sawiris last week as saying that he has no plans to sell shares in Mobinil. (Company Statement) Mobinil: EGP102.09, Rating: Buy, FV: EGP138.9, MCap: USD1,710 million, EMPN EY / EMOB.CA Abu Qir Fertilisers FY2010-2011 net income rises 15% Y-o-Y to EGP1,345.7 million Abu Qir Fertilisers (ABUK.CA) has released FY2010-2011 financials showing net income for the year of EGP1,345.7 million (EPS: EGP26.7/share), up 15% Y-o-Y. Net income for 4Q2010-2011 (ending June 2011) fell 19% Q-o-Q to EGP355.3 million (EPS: EGP7/share). Abu Qirs board of directors (BoD) has proposed the distribution of EGP22/share in cash dividends for the year, which implies a payout ratio of 82% and represents a dividend yield of 9% over the closing price of 17 August 2011. Additionally, the BoD has proposed a bonus share issue (two shares for every three shares held), also subject to shareholder approval, according to MistNews. (MistNews)

Saudi Arabia News

Dar Al Arkan pays USD24.2 million in periodic coupon distribution to Sukuk IV holders Dar Al Arkan (4300.SE) has paid USD24.2 million in periodic coupon distribution to its Sukuk IV holders. This amount was due as a semiannual payment for its Sukuk IV issuance, which matures in 2015. (Zawya Dow Jones) Dar Al Arkan: SAR6.25, Rating: Buy, FV: SAR16.8, MCap: USD1,799 million, ALARKAN / 4300.SE

Jordan News
Foreign reserves at comfortable levels, Central Bank Governor says The Kingdoms foreign currency reserves are quite comfortable and sufficient enough to cover foreign trade for around seven months, Central Bank of Jordan (CBJ) Governor Fares Sharaf has said. The countrys foreign reserves have been declining since the beginning of the year due to rising oil prices as well as the loss of relatively cheap Egyptian natural gas, which forced Jordan to resort to the more costly alternative of fuel oil. (The Jordan Times)

Jordan to launch credit information bureau Jordans Credit Information bureau will begin operations at the beginning of 2012, according to the Central Bank Governor Faris Sharaf. Sharaf has indicated that the Central Bank of Jordan, in cooperation with local banks, is looking for a strategic partner to help manage credit information services. (Bloomberg)

EFG Hermes Research

Egyptian Resorts Company (ERC) - 2Q2011 Results: In the Red, but Income Statement Numbers Irrelevant for Now - Flash Note 18 August 2011 Negative Gross Profit Margin on Services, Impairments Drive Net Loss: Egyptian Resorts Company (ERC) reported a negative gross margin of 17% in 2Q2011 at the utilities segment level, down from a positive 13% in 1Q2011 and a negative 4% in 2Q2010. Total gross profit margin reached 19% in 2Q2011, supported by high-margin land revenues. The company also booked impairments to receivables of EGP4.6 million in 2Q2011, which pushed earnings into negative territory. Net losses amounted to EGP2 million in 2Q2011. We note that in the absence of significant land sales we assign little importance to ERCs quarterly income statement numbers.

Top Line Supported by Minimal Land Revenues in Sawari: ERC closed 2Q2011 with no new land sales and revenues generated solely by its utilities business, minimal land revenue recognised from its Sawari project, and accrued revenue and interest on collected instalments from historical sales. Total revenues in 2Q2011 of EGP12.3 million were almost unchanged from 1Q2011 versus our EGP7.0 million forecast. Land revenues of EGP4.1 million generated by Sawari sales were not part of our projections. Accrued revenues of EGP1.8 million were almost in line with our EGP2 million estimate. Services and utilities revenues in 2Q2011 came in at EGP5.9 million, slightly above our EGP5 million forecast. Balance Sheet Remains Liquid: The cash balance stood at EGP223 million and total receivables at EGP373 million. The only sizable commitments on the companys books amounted to EGP228 million in land purchase liabilities due to the Tourism Development Authority (TDA) for Phase III, and EGP113 million as a development commitment for historical land sales. Maintain FV and Rating; Upside Risk if ERC Repurchases Phase III Land: We maintain our Sell recommendation and our fair value (FV) of EGP0.90/share. Our FV carries some upside risk should ERC restore its Phase III land on favourable terms. Our FV stood at EGP1.40/sqm before the withdrawal of Phase III and was based on the old purchase price of cUSD1.50/sqm. We note that according to historical news reports, the TDA offered to return the land to ERC at a price of USD8.75/sqm. We see the new land valuation as excessive and unaffordable, even in light of the companys strong balance sheet. We believe that the final payment terms proposal should be the main determinant of ERCs decision to repurchase the plot. (Jan Pawel Hasman, Shaza El Kady)
[Note EFG Hermes is not responsible for the accuracy of news items taken from other media.] __________________________________________________________________________________________________________ _______ Our investment recommendations take into account both risk and expected return. We base our fair value estimate on a fundamental analysis of the companys 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 appropriate to their needs. No part of this document may be reproduced without the written permission of EFG Hermes.