Company Update Egypt Telecom 21 December 2011 ORASCOM TELECOM DEMERGER 1 Ahmed Adel +202 3300 5100 Ext.2203 [email protected]Buy new OTH, avoid OTMT, play Mobinil for the put The demerger of Orascom Telecom (OT) into Orascom Telecom Holding (OTH) and Orascom Telecom Media & Technology Holding (OTMT) and the subsequent listing of the companies on the EGX is expected before year-end. We are buyers of the OTH post demerger, as we continue to see substantial upside, driven mainly by a favorable outcome in Algeria. Initial trading action is likely to see the new shares adjust to implied pre- suspension market values, from a book-value split (OTH up, OTMT down) and thereafter towards our respective fair values of USD3.6/GDR (EGP4.3/share) for OTH and USD0.9/GDR (EGP1.1/share) for OTMT. The demerger will impact Mobinil too, owing to the Sawiris put option. We upgraded Mobinil to buy, acknowledging the impact of the put despite a gloomy operating outlook. ► The key to OT’s fair value remains the outcome relating to its subsidiary Djezzy in Algeria. Djezzy constitutes c. 80% of OTH’s post-demerger value. OTMT, meanwhile, should trade as a proxy for Mobinil shares, as c. 70% of its fair value is from this source. The Sawiris put option over Mobinil shares should also positively influence OTMT’s shares. ► Initially, the new shares should trade immediately towards their implied pre-suspension “market values”, which, according to our valuation, imply a ratio of 80:20 (vs. 58:42 on a book value basis). The immediate moves may be rapid, although up and down circuit–breakers may see it take several days for the shares to trade normally at the new levels. Thereafter, expect a gradual move towards fair values as the fundamentals assert themselves. ► If the EFSA does not take action before end-2011 (this cannot be ruled out given the recent decision making paralysis within Egypt’s public bodies) or a new court cases delay the demerger, a contingency plan outlined under the VIP-WIND deal could be triggered, under which VIP-WIND will be required to buy OTH’s remaining assets for USD600m, plus a further USD170m conditional upon the Mobinil put option being exercised. ► We are buyers of relisted OTH, downside is limited, but see significant upside if a solution can be reached in Algeria. We continue to argue that the best outcome for OTH is for Djezzy to be allowed to operate normally again (including being permitted to repatriate dividends), and that an outright purchase of Djezzy by the Algerian government is now less likely. Based on the last locally traded share price of OT prior to suspension and our fair value estimates for OT’s other assets, the market currently implies an EV for Djezzy (100%) of USD1.6bn or just 1.5x 2012f EBITDA. OTH Recommendation BUY Opening Price on EGX (EGP) 1.73 Fair Value (EGP/share) 4.34 Upside Potential (%) 151.3 Fair Value (USD/GDR) 3.60 Reuters Code ORTE.CA/ORTEq.L Bloomberg Code ORAT EY/OTLD LI OTMT Recommendation HOLD Opening Price on EGX (EGP) 1.25 Fair Value (EGP/share) 1.10 Downside Potential (%) (12.3) Fair Value (USD/GDR) 0.91 Reuters Code na Bloomberg Code na Mobinil Recommendation BUY Market Price (EGP) 86.5 Fair Value (EGP/share) 114.7 Upside Potential (%) 32.7 Market Cap (EGPm) 8,646 Reuters Code EMOB.CA Bloomberg Code EMOB EY ORTE vs. EGX30 (rebased) Source: Bloomberg, NAEEM Research OT Closing price as of 27 November 2011 EMOB Closing price as of 20 December 2011 2 3 4 5 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 ORTE EGX30 Rebased Price (EGP)
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Buy new OTH, avoid OTMT, play Mobinil for the putmec.biz/term/uploads/TS3WW_EMOB-21-12-2011.pdf2011/12/21 · Company Update Egypt Telecom 21 December 2011 ORASCOM TELECOM DEMERGER
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The demerger of Orascom Telecom (OT) into Orascom Telecom
Holding (OTH) and Orascom Telecom Media & Technology
Holding (OTMT) and the subsequent listing of the companies
on the EGX is expected before year-end. We are buyers of the
OTH post demerger, as we continue to see substantial upside,
driven mainly by a favorable outcome in Algeria. Initial trading
action is likely to see the new shares adjust to implied pre-
suspension market values, from a book-value split (OTH up,
OTMT down) and thereafter towards our respective fair values
of USD3.6/GDR (EGP4.3/share) for OTH and USD0.9/GDR
(EGP1.1/share) for OTMT. The demerger will impact Mobinil
too, owing to the Sawiris put option. We upgraded Mobinil to
buy, acknowledging the impact of the put despite a gloomy
operating outlook.
► The key to OT’s fair value remains the outcome relating to its
subsidiary Djezzy in Algeria. Djezzy constitutes c. 80% of OTH’s
post-demerger value. OTMT, meanwhile, should trade as a
proxy for Mobinil shares, as c. 70% of its fair value is from this
source. The Sawiris put option over Mobinil shares should also
positively influence OTMT’s shares.
► Initially, the new shares should trade immediately towards their
implied pre-suspension “market values”, which, according to
our valuation, imply a ratio of 80:20 (vs. 58:42 on a book value
basis). The immediate moves may be rapid, although up and
down circuit–breakers may see it take several days for the
shares to trade normally at the new levels. Thereafter, expect a
gradual move towards fair values as the fundamentals assert
themselves.
► If the EFSA does not take action before end-2011 (this cannot
be ruled out given the recent decision making paralysis within
Egypt’s public bodies) or a new court cases delay the
demerger, a contingency plan outlined under the VIP-WIND
deal could be triggered, under which VIP-WIND will be
required to buy OTH’s remaining assets for USD600m, plus a
further USD170m conditional upon the Mobinil put option
being exercised.
► We are buyers of relisted OTH, downside is limited, but see
significant upside if a solution can be reached in Algeria. We
continue to argue that the best outcome for OTH is for Djezzy
to be allowed to operate normally again (including being
permitted to repatriate dividends), and that an outright
purchase of Djezzy by the Algerian government is now less
likely. Based on the last locally traded share price of OT prior to
suspension and our fair value estimates for OT’s other assets,
the market currently implies an EV for Djezzy (100%) of
USD1.6bn or just 1.5x 2012f EBITDA.
OTH
Recommendation BUY
Opening Price on EGX (EGP) 1.73
Fair Value (EGP/share) 4.34
Upside Potential (%) 151.3
Fair Value (USD/GDR) 3.60
Reuters Code ORTE.CA/ORTEq.L
Bloomberg Code ORAT EY/OTLD LI
OTMT
Recommendation HOLD
Opening Price on EGX (EGP) 1.25
Fair Value (EGP/share) 1.10
Downside Potential (%) (12.3)
Fair Value (USD/GDR) 0.91
Reuters Code na
Bloomberg Code na
Mobinil
Recommendation BUY
Market Price (EGP) 86.5
Fair Value (EGP/share) 114.7
Upside Potential (%) 32.7
Market Cap (EGPm) 8,646
Reuters Code EMOB.CA
Bloomberg Code EMOB EY
ORTE vs. EGX30 (rebased)
Source: Bloomberg, NAEEM Research
OT Closing price as of 27 November 2011
EMOB Closing price as of 20 December 2011
2
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4
5
Dec-1
0
Jan
-11
Feb-1
1
Mar-
11
Ap
r-11
May-1
1
Jun
-11
Jul-
11
Aug
-11
Sep
-11
Oct-
11
No
v-1
1
Dec-1
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ORTE EGX30 Rebased
Price (EGP)
2
Contents
The OT demerger ................................................................................................................................................ 3
First few days of trade ........................................................................................................................................ 4
What if the demerger was halted? .................................................................................................................... 5
Algeria – where the juice is ................................................................................................................................ 6
How do things differ for GDR holders? .......................................................................................................... 7
Process details for GDR holders ....................................................................................................................... 8
Implications for Mobinil – play the put ........................................................................................................... 8
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NAEEM assigns ratings to stocks on the following basis:
Rating Upside/Downside potential 21 December 2011 Rating distribution as of
BUY >20% 65%
ACCUMULATE >10% to 20% 23%
HOLD +10% to -10% 12%
REDUCE <-10% to -20% 0%
SELL < -20% 0%
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