MENA-2 SUNDAY MORNING ROUND-UP

Egypt
US to forgive one third of Egypts debt over 3 years World Bank approves loan to support sanitation in rural areas CBE cancels EGP6 billion in T-bill auctions Poultry prices expected to remain stable through Ramadan Ezz Steel keeps ex-mill prices unchanged at EGP4,650/tonne in July TE losses for 5M2011 reach EGP85.6 million Court postpones ERC land case

Saudi Arabia
SABIC raises local urea and DAP prices for July Zain KSA 2011 revenue to exceed SAR8 billion; subscribers to reach 15 million in 2015, says CEO Maaden secures USD1 billion in commercial financing For phase II of aluminium project TCC to establish new cement mill, to distribute SAR0.9/share interim cash dividend for 1H2011

Jordan
Protesters call for dissolution of Lower House, dismissal of government Jordan appoints new interior minister in reshuffle

Lebanon
Nasrallah blasts STL, rejects arrest warrants

Morocco
King triumphs in reform vote

Qatar
QAFCO signs new 200 ktpa ammonia supply agreement with South Africas Omnia Group

EFG Hermes Research

MENA Chemicals Sector Note - 2Q2011 Preview: China's Destocking Healthy, Valuations Attractive - 30 June 2011

Egypt News
US to forgive one third of Egypts debt over 3 years The United States (US) has agreed to cancel one-third of Egypt's debts over the course of three years, the state news agency, MENA, quoted Finance Minister Samir Radwan as saying. Egypt owes the US about USD3 billion; instead of repaying the debt, Egypt will be allowed to use the funds to finance a number of development projects that are still under discussion, Radwan said. US President Barack Obama announced in May that the US planned to relieve about USD1 billion in Egyptian debt and guarantee another USD1 billion in borrowing by Egypt to support its economy. (Reuters) World Bank approves loan to support sanitation in rural areas The World Bank (WB) approved on 2 July 2011 a USD200 million loan to support Egypts Second Integrated Sanitation and Sewerage Infrastructure Project across four governorates; two in the Delta Region and two in Upper Egypt. The main objective is to provide some 1.2 million people in the governorates of Menoufia, Sharkeya, Assiut and Sohag with better access to sanitation and sewerage services through the construction of wastewater infrastructure systems in 19 village clusters. The project is to be implemented jointly by the National Organisation for Potable Water and Sanitary Drainage, the Holding Company for Water and Waste Water and its four subsidiaries. (Ahram Online) CBE cancels EGP6 billion in T-bill auctions

The Central Bank of Egypt (CBE) has cancelled auctions for 182-day and 364-day treasury bills (T-bills) worth EGP6 billion (USD1 billion), it said on 29 June 2011. The bank gave no reason for the cancellation, which is not alltogether uncommon. Treasury dealers said that they believe the CBE may have considered the rates as demanded by banks as too high. "They didn't come in the range (the central bank wanted)," one dealer said. (Ahram Online)

Poultry prices expected to remain stable through Ramadan Poultry prices are expected to continue to remain stable from now through Ramadan at EGP11.50/kilo for live bird (farm price) versus cEGP16.0 during the same period last year, Al Mal quoted Abdel-Aziz El-Sayed, Head of the Poultry Division at the Cairo Chamber of Commerce, as saying. Price stability will be supported by an increase in local supply as several producers have increased capacities. The decline in the cost of one chick is expected to offset the recently-witnessed increase in feed prices, El-Sayed added. Two factors that may affect prices include cases of avian flu or other biological risks, and a drop in security that would disrupt farm production, manufacturing and transport. Local production is expected to rise to 2.0-2.1 million birds per day from 1.8 million currently. Poultry imports have on a decline since the beginning of the year, and are not expected to rise significantly given the increase in local production. On a separate note, El-Sayed added that the Division has requested that tariffs on imports be raised to 40% from 30% currently. (Al Mal)

Ezz Steel keeps ex-mill prices unchanged at EGP4,650/tonne in July Ezz Steel (ESRS.CA) announced on 1 July 2011 that it is keeping its ex-mill prices for long steel in July unchanged from last month at EGP4,650/tonne (before sales tax), after having increased them by EGP300 over the last two months. This comes in line with our expectation as we do not expect to see any significant price hikes this year, and is only slightly above our long steel price estimate of EGP4,600/tonne for 3Q2011. If current prices are maintained until the year-end, the EPS impact would be significant (a more than 30% increase compared to our current estimate of EGP0.14/share), given Al Ezz Dekheilas (EZDKs) [IRAX.CA] high operating leverage, but would still be down 60% Y-o-Y. Based on these prices we expect EZDK (DRI-based) will generate gross margins on long steel of c14% (compared to an estimated 18% in 2010 and 22% in 2009), while ESR/ERM (scrap-based) will see gross margins of around 3% (close to their 2010 GPM and compared to 8% in 2009). We think that the company should be largely unaffected by the increase in 2Q2011 iron-ore contracts as low operating rates in 1Q2011 will have likely allowed for significant iron ore inventories to build up (and be used in production in following quarters). We reiterate our view that 2011 will be weak operationally in terms of both volumes, which have been adversely affected by the slowdown in construction activity, and margins. Political pressures facing the company have not prevented it from increasing prices, evidenced by price increases in May and June. The weakness of local steel demand seems to be the deciding factor for whether or not raw material price increases are passed on and can be absorbed by the market, in our view. (Company Announcement, Rita Guindy, Ahmed Shams el Din) Ezz Steel: EGP10.61, Rating: Buy, FV: EGP12.1, MCap: USD966 million, ESRS EY / ESRS.CA EZDK: EGP647, Rating: Neutral, FV: EGP693, MCap: USD1,449 million, IRAX EY / IRAX.CA TE losses for 5M2011 reach EGP85.6 million Telecom Egypt (TE) [ETEL.CA] announced in a release that total losses for 5M2011 relating to fixed-assets damages and cable thefts reached EGP85.6 million. The breakdown is as follows: i) 1Q2011: the company incurred losses related to fixed assets (damages, theft, fire) of EGP30 million, and losses of EGP32.8 million related to the replacement of copper and fibre cables (damages, thefts); and ii) April and May 2011: copper and fibre cable losses (thefts, damages) of EGP22.8 million. (Company Disclosure) TE: EGP14.9, Rating: Buy, FV: EGP19.5, MCap: USD4,269 million, TELE EY / ETEL.CA Court postpones ERC land case An administrative court has postponed Egyptian Resorts Companys (ERCs) [EGTS.CA] case related to its Sahl Hasheesh contract to 12 September 2011, as the court is awaiting a report being prepared by a panel of experts, Al Mal reported. (Al Mal) ERC: EGP1.19, Rating: Sell, FV: EGP0.90, MCap: USD209 million, EGTS EY / EGTS.CA

Saudi Arabia News

SABIC raises local urea and DAP prices for July SABIC (2010.SE) announced that it has increased local urea prices for July to SAR1,755/tonne (USD468/tonne), a SAR285/tonne increase relative to June prices. SABIC has also raised its diammonium phosphate (DAP) prices marginally to SAR2,580/tonne (USD688/tonne). The current spot price for urea exported from the GCC region is SAR1,969/tonne (USD525/tonne). (Argaam) SABIC: SAR106.00, Rating: Buy, FV: SAR133, MCap: USD84,800 million, SABIC AB / 2010.SE Zain KSA 2011 revenue to exceed SAR8 billion; subscribers to reach 15 million in 2015, says CEO Zain Saudi Arabia (Zain KSA) [7030.SE] plans to see 2011 revenue exceed SAR8 billion, the companys CEO, Saad Al Barrak, was quoted as saying in Asharq Al Awsat. This is slightly above our SAR7.9 billion forecast for the year. The CEO also indicated that subscribers would reach 15 million by 2015 versus our forecast of 11.3 million active subscribers (we usually estimate that around 80% of Zain KSAs total subscribers are active in our forecasts). Based on our calculations, the CEOs forecast for active subscribers would be c12 million, still higher than our expectation. Al Barrak confirmed that the company will keep its brand name (Zain) even if the Batelco/Kingdom Holding sale stake occurs as Zain KSA has a contract with Zain Group to use the brand name for 10 years. (Asharq Al-Awsat, Marise Ananian) Zain KSA: SAR6.9, Rating: Neutral, FV: SAR7.8, MCap: USD2,576 million, EEC AB / 7030.SE Maaden secures USD1 billion in commercial financing For phase II of aluminium project The Saudi Arabian Mining Company (Maaden) [1211.SE] announced on 2 July 2011 to the Saudi stock exchange that it has secured USD1 billion in commercial bank financing for phase II of its aluminium joint venture (JV) with U.S.based Alcoa Inc. (AA). The loan period is 16 years, to be paid in 21 semi-annual installments starting from June 30, 2017, Maaden said. The company did not name the lenders, nor disclose any other of the loans terms. Last month, Maaden said that it had received a USD1 billion loan from the Saudi government's Public Investment Fund (PIF) to help finance the project, which is 74.9-owned by Maaden and 25.1%-owned by Alcoa. It is comprised of a bauxite mine and an alumina refinery project, worth about USD3.6 billion. This represents the second phase of the USD10.8 billion fully-integrated aluminium complex that Maaden is developing with Alcoa, which will include an integrated alumina refinery, aluminium smelter and rolling mill at Ras Azzour. Maaden has said that 60% of the total cost of phase II will be financed by the PIF, Saudi Industrial Development Fund, and other financial institutions and commercial banks. The remaining USD1.44 billion will be financed by the projects partners, Maaden and Alcoa, on a pro-rata basis. (Tadawul, Zawya Dow Jones) TCC to establish new cement mill, to distribute SAR0.9/share interim cash dividend for 1H2011 Tabuk Cement Company (TCC) signed on 2 July 2011 an EUR42.1 million (SAR218.7 million) agreement with Germanys Polysius to establish a new cement mill, the company announced. The new mill is expected to operate in 20 months time, TCC added, and to add 4,000 tonnes of cement/day (75% of current capacity). On a separate note, the companys board of directors (BoD) approved the distribution of a SAR0.9/share cash dividend for 1H2011, implying a 3.7% dividend yield. (Tadawul)

Jordan News
Protesters call for dissolution of Lower House, dismissal of government Opposition parties on 1 July 2011 called for the dissolution of the Lower House and the dismissal of the current government in light of the vindication of Prime Minister Marouf Bakhit in a major corruption case. During a march in downtown Amman after Friday prayers, over a thousand protesters held placards condemning Parliament and accusing the government of corruption. Islamist-leaning activists joined compatriots from leftist parties and independent figures as they chanted for freedom and called for the formation of a national salvation government capable of rooting out corruption. On 27 June 2011, a majority of MPs voted against the impeachment of Bakhit in connection with the casino case, as well as against the indictment of former Tourism Minister Osama Dabbas on corruption charges. Four MPs have resigned in protest against the "unfair management" of the governments House session on 27 June, while 54 MPs announced that they would boycott upcoming meetings. (Reuters)

Jordan appoints new interior minister in reshuffle

Jordanian Prime Minister Marouf al-Bakhit announced a cabinet reshuffle on 2 July 2011 following the resignations of three ministers in a corruption scandal, as well as draft laws that place curbs on press freedoms, officials said. The move, affecting seven portfolios, left the finance and foreign ministers in place, replaced the interior minister, and maintained an overall government lineup dominated by right-wing politicians and tribal loyalists. The reshuffle was forced by the resignations in May of the ministers of health and justice after a wealthy businessman convicted of corruption, was allowed to leave the country to be treated for what doctors said was a lifethreatening ailment. Proposals by Bakhit's government to restrict vocal online media also pushed Information Minister Taher Adwan to resign in June. The reshuffle named Mazen al-Saket, who used to head the civil service, as the new interior minister, and Abdullah Abu Ruman, a senior ministry official, as the new information minister. (The Jordan Times)

Lebanon News
Nasrallah blasts STL, rejects arrest warrants Hezbollah chief Hasan Nasrallah said on 2 July 2011 that four members of his group indicted by the UN court probing the assassination of statesman Rafik Hariri have been unjustly accused. Nasrallah reiterated that the resistance of his group would not cooperate with the tribunal, which he blasted as having links with Western intelligence agencies. Nasrallah said that the four men indicted on 29 June 2011 are victims of a corrupt and biased court aimed at tarnishing the image of "the anti-Israeli resistance." The Hezbollah chief, who has previously warned that his group would cut off the hands of anyone who tried to apprehend members of his group if indicted by the court, said the four would never be arrested, but would be tried in absentia. A delegation from the Special Tribunal for Lebanon (STL) on 29 June 2011 handed Lebanons state prosecutor an indictment and arrest warrants for four suspects. Lebanon has 30 days to implement the arrest warrants. Nasrallah made use of the occasion to reiterate earlier statements that the international court was a U.S.-Israeli project and had several objectives, most importantly sowing civil strife between the different Muslim sects in the country. The most dangerous objective of the court is to instigate strife, a civil war or a Sunni-Shiite conflict in Lebanon, Nasrallah said, adding that he would not allow the indictment to drag the country into unrest. There will not be sectarian strife in Lebanon, or between Sunnis and Shiites, the Hezbollah chief said, accusing some Christians in the rival March 14 coalition of harbouring dreams of such a scenario. (The Daily Star)

Morocco News
King triumphs in reform vote Morocco's King Mohammed scored a landslide victory during the countrys referendum on 1 July 2011 that saw citizens vote on a new constitution that he has proposed to placate "Arab Spring" protestors. Voters defied critics, who have stated that the new constitution does little to curb the Kings powers. Preliminary results showed that 98.5% of voters approved the text, Interior Minister Taib Cherkaoui said in a statement, citing the count from 94% of polling booths. With turnout estimated at nearly 73%, the result will likely be seen as a vote of confidence in the King. Protesters vowed on 2 July 2011 to pursue demonstrations after King Mohammed scored an avalanche referendum victory on constitutional changes they say do nothing to ease his tight grip on power. "Tomorrow we will see how people react," Najib Chawki, one of the coordinators of the leaderless "February 20" street movement said. Protests staged one week ago drew tens of thousands to the streets of Moroccos capital, Rabat, the countrys economic hub, Casablanca, and the port town of Tangiers. The new constitution explicitly grants executive powers to the government, but retains the King at the helm of the cabinet, army, religious authorities and the judiciary. The new constitution preserves a range of privileges for the monarch, such as his right to dissolve parliament, although not unilaterally as is the case now. It falls far short of the demands of Moroccos protest movement, which includes a mix of Islamists and secular left-wingers who want a parliamentary monarchy where the King's powers would be kept in check by elected lawmakers. (Reuters)

Qatar News
QAFCO signs new 200 ktpa ammonia supply agreement with South Africas Omnia Group Qatar Fertiliser Company (QAFCO), a 75%-owned subsidiary of Industries Qatar [IQCD.QA] is set to increase its presence in the South African market after having signed a new agreement to supply more than 200,000 tonnes of ammonia per annum (ktpa) for five years, with the option of another five years, to South Africas Omnia Group (Pty) Ltd. The agreement was signed on 29 June 2011 by Qafcos CEO, Khalifa Abdulla Al Sowaidi, who stated that the South African market was one of the companys most important and strategic market. With the new

agreement, QAFCO has further strengthened its presence in the country to covering 100% of the South African market, according to al Sowaidi. (ThePeninsula) IQ: QAR136.2, Rating: Buy, FV: QAR170, MCap: USD20,580 million, IQCD QD / IQCD.QA

EFG Hermes Research

MENA Chemicals Sector Note - 2Q2011 Preview: China's Destocking Healthy, Valuations Attractive - 30 June 2011 Chemical Commodities Prices Fall as China Demand Slows: Chinas demand peaked in 1Q2011, while imports have fallen strongly since April 2011, driven by high inventory and tighter monetary measures that limited speculative buying activities. This has led to strong price corrections across the ethylene value chain. Destocking Healthy, Prices Should Bottom-Out Near Current Levels: Apparent PE demand in China declined by c1% Y-o-Y in 4M2011, while plastics film production increased 8% Y-o-Y and shopping bags exports rose 2% Y-o-Y over the same period. This suggests that weaker demand was largely led by inventory adjustments, which should support operating rates in 2H2011, in our view. We expect that prices will bottom-out near current levels on cost pressures for naphtha-based crackers in Asia, as well as due to scheduled maintenance in China in 3Q2011. Fertilisers Gain the Most in 2Q2011; Outlook Remains Strong: Urea and ammonia prices have continued their upward trend since 1Q2011 on strong demand, tight supplies, and uncertainty over Chinese exports during the low tariff window (1 July 31 October). The benchmark urea price during China's off peak season (RMB2,100, or USD325/tonne) implies that the effective tax rate could be well above 7% given the spot level (USD525/tonne). This poses significant upside risks to prices. Tactical Trades Ahead of 2Q2011 Results: We expect a lacklustre performance for petrochemicals in 2Q2011 due to weaker margins, while we expect strong margin expansion for fertiliser stocks in 2Q2011. We expect to see the strongest earnings growth Q-o-Q at SAFCO (on higher urea prices), Sipchem (higher acetyls prices), and Sahara (driven by the start of its Al Waha PP plant). We expect that SAFCOs 1H2011 cash dividends will positively surprise the market. Valuations and Top Picks: IQ, Yansab, SABIC: Current valuations overestimate risks of higher feedstock costs in Saudi Arabia, but underestimate the likelihood of a cyclical upturn over the ethylene value chain post-2011, in our view. We prefer stocks with: i) low risks to feedstock costs, ii) high operating leverage, and iii) capacity growth. IQ, Yansab and SABIC are our top picks. (Ahmed Shams El Din, Yousef Husseini, Rita Guindy)
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