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Tuesday, 15 June 2021

An EGP share with USD dividends?

Egypt Kuwait Holding (EKH) stockholders can now apply to convert the trading currency of their shares to EGP from USD, the company announced in a bourse disclosure (pdf) yesterday. The window is open for the next three months and could be interesting to folks who have followed the compelling turnaround at EKH in recent years, but who have been turned off by the logistics of trading a stock that right now only changes hands in USD.

What’s EKH? As an investment company with holdings spanning from fertilizers and petrochemicals to natural gas distribution, manufacturing and electricity generation, the company plans to invest USD 300 mn during 2021 and 2022, USD 100 mn of which will be spent purchasing minority stakes in subsidiaries it thinks have room to grow.

How do I buy EKH today? Convince your bank to make a transfer from your USD account to your trading account at your broker. Don’t have USD? Go buy on the open market, head over to your broker, fund your account, and then start talking about the price at which you want to buy.

So, what’s happening, exactly? From today through to 14 September, EKH shareholders will be allowed to apply through their custodians to switch the currency of their shares from USD to EGP. The EGX will announce after 14 September the EGP rate at which the shares will be converted (based on the market price at the time) and set a date for the shares to start trading in the two currencies. Shares not converted into EGP will continue to trade in USD after that deadline just as they are today. You can check out EKH’s accompanying FAQ (pdf) if you want to dive into the details of how this will all work.

The idea is that making the share convertible will boost trading, making the stock — undervalued, some market observers believe, in view of the sell-side consensus — more liquid and giving EKH the chance to expand its shareholder base.

The best part, if you like the EKH story? Holders of EGP-denominated shares will still get their dividends paid in USD as they do today. EKH has distributed a dividend every year since 2007, with 10 of those dividends being in cash.

EKH has made a solid start to 2021, reporting 32% bottom line growth during 1Q, according to its earnings release (pdf) last month. The company achieved net income of USD 53 mn during the three-month period, driven by a 17% rise in revenues. EKH proved resilient through the pandemic last year, reporting a slight increase in net income to USD 153 mn in 2020.

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