OCI NV plans demerger, return to Egypt bourse

A year after de-listing from the Egyptian stock exchange, OCI NV CEO Nassef Sawiris announced on Wednesday that his company plans to offer shares in Egypt after a demerger of the company’s construction and fertilizer operations.

In 2013, following a LE7 billion tax dispute with the Morsi government, the billionaire tycoon relocated Orascom Construction Industries to the Netherlands via a buyout by OCI NV, also a Sawiris company.

Sawiris announced the demerger at a Wednesday morning conference call with investors and analysts. Previously, Sawiris explained, the group planned to keep the construction and fertilizer units together as part of OCI NV, but it is now considering a complete demerger that will allow flexibility to focus on individual growth strategies for each business.

“We believe, and the board believes, it will create value for shareholders,” Sawiris said.

He explained that shareholders in OCI NV will get shares in the construction business, and additional shares will trade on the international market as well as the Egyptian market.

He declined to comment on the nationality of the new company, citing legal complexities in separating the Dutch company into two vehicles. He also did not provide details about the investment banks handling the IPO, or the amount the company hopes to raise via selling its shares.

The IPO should take place sometime between quarters four and one, Sawiris said, promising a formal announcement once details are complete. “It will have a presence on the Cairo stock exchange,” he said. “I will participate, and the family will participate in the fundraising as well.”

Belying Sawiris’ plans to return to Egypt, the country appears to be a drag on OCI’s bottom line. Overall, OCI NV saw its profits for the first half of the year fall to US$40 million, from $56 million in the same period last year. The fall in net income came despite a three percent increase in revenue, up to $2.3 billion.

The company’s fertilizer plants were hit hard by Egypt’s energy shortage, which caused fuel supplies to be diverted away from industry. Utilization rates at the Egyptian Fertilizer Company and Egypt Basic Industries Corporation were 47.7 percent and 40.6 percent, respectively, during the second quarter of 2014.

“Natural gas supply to our Egyptian plants remains volatile,” said Sawiris. However, he said he expects the situation will improve beginning in September, as demand eases due to cooler weather, and new gas projects start to come online. The CEO said he was “cautiously optimistic” that utilization rates would improve. “It doesn’t get much worse than shutdowns in July and August,” he added.

Sawiris also professed optimism about upcoming infrastructure projects in Egypt, citing a “huge road building master plan,” as well as a joint venture with Arab Contractors to build new tunnels under the Suez Canal.

OCI also reported that it is making progress on resolving the tax dispute with Egyptian authorities that saw the firm exit the country in 2013. “This was politically motivated under the Muslim Brotherhood,” Sawiris said of the tax evasion charges.

The case has since been referred to an appeals board. “We regard this as a positive step,” Sawiris said. He expects a final resolution will follow soon after the next hearing, scheduled for September 16.