Egypt's largest cement company Suez Cement may have trouble drumming up interest for its planned sale of a minority stake to a foreign strategic investor, analysts said.
“A strategic investor interested in buying a stake in Suez Cement will want a controlling stake, especially if it's a multinational,” Heba al-Tawil, a cement sector analyst at EFG-Hermes, told Reuters.
Suez Cement plans to issue 10.1 million new shares, for 15.8%, and allow a strategic investor to buy another 5.9 million shares in the stock market, bringing the potential overall stake to 25%, some analysts said.
“In all the privatisations in the cement sector like Amriyah Cement and Alexandria Cement , which took place in 1999, the strategic investor gained a controlling stake,” Tawil said. A source close to Suez Cement said the aim in seeking a multinational investor is to tap into global expertise and bring a healthy injection of direct foreign investment.
Suez Cement shareholders approved the capital increase at the weekend and restricted subscription to international cement companies with no presence in the Egyptian market. “Whether the potential 25% stake is attractive depends on the strategic investor and its expansion purposes,” said Salma Taha, a cement sector analyst at Fleming CIIC.
“It is a good first step…for a foreign investor who seeks a presence in the Egyptian market, and they could find opportunities later to expand,” said Amr Abol-Enein, co-head of equity research at HC Securities. He cited as advantages the competitive prices of Egyptian cement on the world market and Suez's position as market leader. The government has in the past shown reluctance to let individual foreign companies gain a big share in the industry. “The government does not want too much foreign investor control over the cement sector, which is seen as a strategic sector, with Suez Cement seen as the national flagship,” said Abol-Enein.
Tawil said Suez Cement's best chance to lure a strategic investor would be for the controlling parties to agree to sell enough shares within a year or so to give the investor control. She said shareholders with a combined stake of about 51%, however, had agreed at the weekend meeting not to relinquish their shares to a strategic investor.
Penrod Investments Limited, a subsidary of Portugal's Cimpor, Britain's Blue Circle Industries and Mexico-based Cemex are among the foreign cement companies active in Egypt.
This article was first published by Reuters on 27 February 2001.