OCI May Move Shares To Amsterdam After Settling Dispute

Orascom Construction Industries's settlement of a tax dispute in Egypt will help a move backed by Microsoft Corp. (MSFT) founder Bill Gates to transfer its shares to Amsterdam, EFG-Hermes Holding SAE and VTB Capital said.

Egypt's biggest publicly traded company agreed to pay about 7 billion Egyptian pounds ($1 billion) over five years to settle the tax dispute on the sale of its cement unit to Lafarge SA (LG) in 2007, Amsterdam-based parent OCI NV said yesterday. The payments will start in May and end in 2017. OCI NV shares had the biggest increase since the company's Dutch public offering in January.

OCI attracted $2 billion in commitments from a group of investors including Cascade Investment LLC, Gates's personal investments vehicle, to help finance the move to Amsterdam, which it said would lower borrowing costs and boost its global profile. Yesterday's settlement prompted Cairo-based investment bank Pharos Holding to raise Orascom to buy from hold, saying the construction and fertilizer company would proceed with an offer to investors to buy its Cairo-listed shares or swap them with OCI NV (OCI) stock.

"The settlement is very important in that it puts a concrete figure for allowing OCI to put the tax case behind it and move on," Digvijay Singh, Dubai-based head of Middle East equity strategy at VTB Capital, said in an e-mailed response to questions. One reason for the agreement "was to do a sort of a club deal whereby they would be able to proceed with mandatory tender offer along with the settlement of tax case," he said.

Capital Gains

Orascom has been in talks with tax officials to settle a 14 billion-pound claim stemming from the 2007 sale of its unit. The company has said it didn't pay taxes on the deal because it listed the unit two months prior to the sale. Egypt doesn't have a capital gains tax.

Under the settlement, Orascom will make a 2.5 billion pound payment in mid-May and 900 million pounds in December, the company said yesterday. Six equal installments of 450 million pounds will follow before two final payments of 500 million pounds in 2017. The company said 182 million pounds of existing tax credits will be deducted from the total amount of 7.1 billion pounds.

The Egyptian Tax Authority determined that "there was no tax evasion by the company and is exonerating management and the company from any wrongdoing related to the transaction," according to OCI's statement. The board and management "concluded that a prolonged legal process would not be in the best interest of the company's stakeholders," the company said.

'Viewed Positively'

Egyptian authorities lifted a travel ban on OCI's Chief Executive Officer Nassef Sawiris and his father, Onsi, after the agreement, state-run Ahram Gate website reported yesterday, citing prosecution spokesman Mostafa Dewidar.

"A settlement is something that should be viewed positively by all parties," said Wael Ziada, Cairo-based head of research at EFG-Hermes, Egypt's biggest investment bank. "It means the company will be able to move forward with its business plan, especially the tender offer" to transfer the shares to Amsterdam, he said by phone.

OCI NV shares surged 7 percent at $30 in Amsterdam yesterday. OCI NV is a fertilizer producer, and engineering and construction contractor. The fertilizer unit owns and operates plants in the Netherlands, the U.S., Egypt and Algeria, and the company employs more than 90,000 people in 35 countries, according to the statement.

'Front-Loaded'

"The fact that they are paying over a five-year period, despite paying in a front-loaded manner, is positive," Ziada said. "There are two reasons for this: the negative prospects for the Egyptian pound and that OCI earns the bulk of its revenues in dollars."

The Egyptian pound has weakened more than 11 percent to 6.9345 a dollar since the central bank started limiting access to the U.S. currency in December to stem the worst decline in foreign reserves in at least 15 years.

Shares of Orascom Construction, which accounts for a quarter of the value of the benchmark gauge, have dropped 7.5 percent this year compared with a 4.9 percent decline in Egypt's benchmark EGX 30 Index. The Egyptian Exchange canceled all of today's trades on the stock.

Orascom has been trying to secure regulatory approval to transfer its Cairo-listed shares to NYSE Euronext Amsterdam. With the tax settlement, the company said it "expects to proceed with its filing" for a mandatory offer for the Cairo shares.

Orascom said in February that 99.9 percent of minority shareholders approved a plan giving them the option of exchanging their stakes for stock in OCI NV or selling them for 280 pounds apiece.

"As we end the prolonged period of uncertainty, the company will now regain its focus on growth initiatives," Sawiris, OCI's chief executive officer, said in the company's statement yesterday.