VZCZCXYZ0010
RR RUEHWEB
DE RUEHEG #3470 3461644
ZNR UUUUU ZZH
R 121644Z DEC 07
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 7712
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0363
UNCLAS CAIRO 003470
SIPDIS
SIPDIS
STATE FOR NEA/ELA, NEA/RA
USAID FOR ANE/MEA MCCLOUD AND RILEY
TREASURY FOR MATHIASON AND HIRSON
COMMERCE FOR 4520/ITA/ANESA/OBERG
E.O. 12958: N/A
TAGS: PGOV ECON EG
SUBJECT: Lafarge takes a chunk of Egyptian cement
1. (U) Orascom Construction Industries (OCI) signed an agreement
December 10 to sell its Cement Group to France's Lafarge for 8.8
billion ($12.9 billion). Lafarge will also assume $2 billion of
OCI's debt, bringing the total value of the agreement to $14.9
billion. Orascom Cement, with 10 plants operating in 9 countries in
the Middle East, North Africa and Turkey, a production capacity of
35 million tons/year and annual sales of $2.6 billion, is the
largest cement producer in the Mediterranean Basin. Lafarge claims
to be the world's No. 1 cement producer.
2. (U) OCI management announced it intends to make an extraordinary
dividend payment of $11 billion (#E302/share) to shareholders in
early 2008. An additional $2 billion of the revenues from the sale
will be used to pay down OCI's overall debt. The remainder will be
invested in OCI's on-going construction projects, new infrastructure
projects and natural gas-driven industries. Nassef Sawiris, owner
of OCI, will hold 11.4% of Lafarge, making OCI one of the largest
shareholders of Lafarge. The Sawiris family will get two seats on
Lafarge's board.
3. (U) The Cairo and Alexandria Stock Exchange (CASE) took an
initial downward turn on news of the cement sale. On December 10
the benchmark CASE Index lost 2.7% on turnover of #E1,982 million
($358 million). OCI shares closed at #E521.00, a decrease of 1.9%,
on turnover of #E561.8 ($104 million), or 28% of total market
turnover. A few cement companies saw modest gains, with Misr Beni
Suef Cement (partially owned by Lafarge) increasing 1.1% to
#E121.31, Cement Qena gaining 0.7% to #P78.14, and Sinai Cement
rising 0.1% to reach #E73.21. The decline continued on December 11,
with OCI shares declining a further 6.6% on a turnover of #E250.7
million ($4.8 million), to close at #E499.12. OCI rallied
significantly on December 12, climbing 5.0% to #E525.05, trading a
total value of #E544 million ($100 million), the highest turnover in
the day's session.
4. (U) Local analysts believe OCI will move aggressively into the
natural gas sector, aiming to replicate its success in the cement
sector. Ahmed Shams El Din, a researcher at EFG-Hermes, told us OCI
most likely sold the Cement Group - its core business - in part
because of GOE plans to end energy subsidies for industry. Using
revenues from sale of the Cement Group, OCI can move into the
natural gas sector and position itself to as a key player in natural
gas and construction, the two sectors leading Egypt's current
economic growth.
5. (U) Comment: Once considered a "strategic" industry off limits
to foreign ownership, Egypt's cement sector now has a large foreign
presence. Lafarge and the Greek firm Titan own a combined 76% of
Misr Beni Suef Cement. Ciments Francais, a subsidiary of
Italcimenti, owns 54% of Suez Cement. The Orascom Cement sale
signals continued investor confidence in Egypt's economic recovery.
The Sawiris family's presence on the Lafarge board also highlights
Orascom's strategic expansion into the global economy. With Orascom
Telecom's investments in Italy's Wind Telecom and Greece's WIND
Hellas, the Lafarge deal solidifies Orascom as a major multinational
firm, no longer dependent on Egypt's economy alone.
RICCIARDONE