Egyptian PACHIN climbs on anchor investor talk
PACHIN, the paint and chemicals group, has been one of the market's strongest stocks last week after rumors that an anchor investor might take a stake in the company.
PACHIN stock rose 17 percent to EL23.53 on Tuesday before closing slightly down on Wednesday in profit-taking. On Thursday morning the stock seemed to be continuing its rise.
More than 26 percent of the company is traded in Global Depository Receipts in London; the remainder is traded in Cairo or is owned by foreign funds and investors. The government still owns 46.3 percent of the company.
PACHIN depends on the construction industry for revenue: its architectural paints are used for housing, while its industrial products are used in more complicated infrastructure projects. Both of these areas, like the whole building sector, have been hit hard by Egypt's liquidity squeeze and the recession.
A lack of modern mortgage legislation has compounded this, but a new law will shortly be debated in parliament, which should make mortgage financing more accessible to the public.
Yet, PACHIN is in good shape. Despite problems in collecting debts from clients, it is extremely cash rich - it had over EL350 million (US $100 million) in cash and short-term investments last year. It also has a quarter of the market, and has just finished building a new plant that will be tax-free for 10 years.
Why then would PACHIN require an anchor investor? For the same reason that those Egyptian cement companies with foreign links are surviving the slump better than those without such ties.
A foreign partner can bring expertise and business contacts, as well as money. The Egyptian consumer is also more likely to trust a brand that has foreign know-how behind it, and brand-building is crucial in a recession, especially in a low technology industry that is easy to enter.
PACHIN has two important decisions ahead of it. It must first decide what to do with its cash. It has three options: it can invest in the stock and fixed-income markets, it can buy a smaller competitor, or the company's management can buy back stock.
One analyst said that considering the poor state of the market and PACHIN's recent expansion, a buyback, which would support the company's shares, was most likely.
PACHIN's second task is to find the best partner. The right anchor investor will give PACHIN exclusive access to a segment, or segments, of the market.
The same analyst pointed to European and Japanese companies with existing contracts for car paints as possible investors. – (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)