Egyptian revolution has negative effects on major local companies

Published August 24th, 2011 - 07:16 GMT
Protest
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The decline in profits of some of the major companies in Egypt is a new sign of the negative effects caused by the revolution on the country's economy. Analysts say that the banking and real estate sectors have been hit the hardest by the revolution and political uncertainty.

Commercial International Bank, the largest bank inEgypt, announced an 11% decline in the second quarter of this year compared to the same period of last year, achieving 443 million LE.

Talaat Moustafa Group, one of the country's largest real estate developers, reported its profits declined by 40% in the second quarter to reach 202 million LE. Palm Hills, a real estate development company, is expected to report a decline in profits in the second quarter by 45.3 million LE.

Jean Hasman, an EFG-Hermes financial group analyst says "in order to make profits, you need to provide national unity, but under current political circumstances, we faced some constructional delays. The country was in a state of stalemate during the more important events of the revolution which impeded the delivery of some installations".

At the same time, banks have been hit hard by companies' reluctance to buy equipment or borrow to expand their business in the current uncertainty. They also feel the pinch of reduced trade to and from Egypt, where commercial finance is a major part of some banks' work.

Tarik Abdul Majeed, an analyst with Nomura Bank London said that for banks, the principal negative effect was in the first quarter when the decline in loan growth was obvious through lower capital expenditures and loan applications. A deeper look at the situation of major Egyptian companies listed, reveals a more complicated picture.

Real estate companies are suffering from obstacles that extend beyond what is thought to be constructional delay. In the short term, some companies are relying on earnings from projects completed years ago, which partially counteracts the financial implications of the revolution. However, long-term stagnation in sales and weak demand for new projects may form serious obstacles in the face of future earnings.

Analysts expect slow profit growth in the upcoming year for Orascom Development Company, the largest real-estate construction company in the country. Analysts point to other worrying signs such as an increase in the number of people recovering their deposits paid during better economic periods.

Hasman reports that "there are concerns about the lack of new sales and potential problems keeping some developers from pursuing the projects they promised to create. As for Palm Hills for Development, we have some concerns about liquidity and its ability to meet its obligations to its customers". The company has recorded operating losses valued at 73 million LE in the first quarter.

Worsening the situation, executive directors of some of the largest construction companies in Egypt, including Palm Hills, were summoned to court amid allegations of the illegal granting of land by the previous government.

According to Hasman, "This is a market based on mutual trust, where you have to show confidence in both sides. The buyer has to be confident in the construction company and its role to deliver the real estate according to specifications. While the construction company has to be confident in its client's immediate payment once the construction is finished".

"While banks and construction companies have been severely damaged by the revolution, it was a relatively problem-free time for major Egyptian telecommunications companies such as Orascom telecom, Al Misriah telecom and Mobinil". Sally Jerjis, Belton financial company's analyst inCairo, said "Lots suffered from interruption of communications in the height of protests last January. However, there were no reports of the destruction of devices or equipment".

"There was a theft of cables and the destruction of infrastructure; they were also unable to preserve some of their main stations due to decreased security. However, there were no such things mentioned in their reports and even if mentioned; I don't expect it to be big".

Despite the above, new subscriptions in telecommunication services are continuing to rise despite the continuing lack of clarity concerning the structure of the new Egyptian government and the regulation of telecommunications, posing serious risks to the country's economy. (Source: www.yallafinance.com)


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