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Cablegate: Despite Stock Market Panic, Egypt Expects Minimal

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P 301449Z NOV 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 4345
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TREASURY FOR BRYAN BALIN AND FRANCISCO PARODI

E.O. 12958: N/A
TAGS: ECON EFIN EINV PGOV EG AE
SUBJECT: DESPITE STOCK MARKET PANIC, EGYPT EXPECTS MINIMAL
IMPACT FROM DUBAI CRISIS
1.(U) Key Points -- Egypt's stock market traded down 8% in the first trading day since the start of the Dubai debt crisis. -- Analysts see little long-term risk to Egypt's economy but note the possibility that FDI flows from the Gulf could be diminished. -- Egyptian company exposure to Dubai is minimal. -- Trade Minister Rachid downplayed negative investment impact.

2.(U) After a four-day holiday, on November 30 the Egyptian stock market opened for the first time since the Dubai debt situation became acute. After opening down 6%, at the close of trading the benchmark EGX 30 index was down by 8%. The broader EGX 70 index was down 6%.

3.(SBU) Mark Rorison, Head of Research at CI Capital, told us that Egypt's economy should expect only minimal effects from the crisis. He added that the Egyptian stock market would initially "get pummeled" as the events in the Gulf diminish global appetite for risk, but the longer term outlook is stable. Rorison also said that, though it is premature to speculate, there could be some slowing of FDI from GCC countries if the crisis expands.

4.(SBU) Mina Sadek, an analyst at Beltone Financial, a leading Egyptian investment bank, said that though the market would undoubtedly open down as a result of "panic," she did not believe that foreigners would be significant sellers of Egyptian equities. She added that her firm expected no major impact on Egyptian companies or banks as a result of Dubai debt restructuring since there is "no significant exposure" to Dubai debt. She was equally positive on Egyptian industrial companies. She said that the only real Egyptian exposure to Dubai is through the building conglomerate Orascom Construction Industries (OCI), but even that is limited. Approximately 5% of OCI's project backlog is in Dubai, and most of this is in mature projects.

5.(U) Dubai Ports (DP) World in Egypt, a subsidiary of Dubai World, has a significant investment in the port at Ain Sokhna. This port, located on the Red Sea, is the port closest to Cairo and is expected to grow substantially over the next few years. Two years ago, DP World spent $670 million to acquire a 90% stake in the Egyptian Container Holding Company (ECHO) which is the controlling shareholder in the Sokhna Port Development Company. DP World released a statement that its debt was not part of the restructuring of its parent company Dubai World. Despite this assurance, there remains a risk that DP World expansion plans may be slowed.

6.(U) Thus far, the only official statement from GOE officials on the crisis came from Egypt's Minister of Trade, Rachid M. Rachid, who said that he did not expect existing investment from Dubai and the GCC states to be impacted by this crisis, but that new investment might be less than previously expected. He also suggested that Egyptian service companies in Dubai could be hurt by a further slowdown in Dubai's overall economy.

7.(SBU) COMMENT- Egypt's equity market reaction was much as expected, as a perceived increase in regional risks has prompted profit taking and sidelined some speculative investors. Post contacts are confident for the moment that Egypt will be only mildly impacted by the crisis. The Egyptian banking sector does not have any significant exposure to Dubai paper, and Egyptian companies, particularly in the aftermath of the global economic slowdown, have fairly low levels of exposure to Dubai as well. End Comment. Tueller

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