DESPITE STOCK MARKET PANIC, EGYPT EXPECTS MINIMAL

UNCLAS CAIRO 002212

SENSITIVE
SIPDIS

DEPT FOR NEA/ELA
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