Ezz Steel seeks to simplify its ownership structure in its subsidiaries by transferring ownership of its stakes in Ezz Dekheila Steel on the Egyptian Exchange (EGX) and focusing its contribution as a financial investor only in the steel industry.
The company owns contributions to the industrial companies of Al Ezz Rolling and Al Ezz Flat Steel with a capacity of 1.9m tonnes of reduced iron and 2.8m tonnes of flat steel and rebar. The company’s stake in Ezz Rolling Mill is 100% and 47% in Ezz Flat Steel. The latter contributes to Dekheila with the remainder of the supplement figure. The transaction is carried out through the exchange of shares and raising the ownership of the latter from 55% to 55% to 78% with the completion of investment structuring.
The Board of Directors of Ezz Dekheila Steel – Alexandria approved the acquisition of 35.3m shares of Ezz Flat Steel Manufacturing Company owned by Ezz Steel, based on the fair value of the share at $10.09 per share, in return for credits used to subscribe to the capital increase of Ezz Dekheila based on the fair value of the stock of EGP 1176.85 pounds per share.
Earlier, Ezz Steel’s board of directors approved the sale of 88.92 million shares of Ezz Steel in Ezz Rolling Mills through the exchange of those shares for Ezz Dekheila Steel’s capital increase. The shares are scheduled to be sold on a swap basis for approximately 51 Ezz rolling stock shares for each of the shares of Al Dekheila’s capital increase through the use of credits resulting from Dekheila’s acquisition of the holding company shares in Ezz Rolling Mills.
The board also agreed to pay the shares of Ezz Rolling Factories Company owned by Ezz Steel Company, which will be acquired from Ezz Dekheila Company, through credits used to subscribe to the capital increase of Ezz Dekheila Steel – Alexandria.
Ezz Dekheila General Assembly agreed to increase the issued capital from EGP 1.3bn to a maximum of EGP 2.6bn. The increase, estimated at EGP 1.2bn for the old shareholders, was distributed over 12.2m shares at fair value, according to the study of the independent financial advisor, which amounted to EGP 1176.85 per share.
Dekheila obtained the approval of the Financial Regulatory Authority (FRA) to increase the capital on the bourse in favour of the old shareholders at fair value. Ezz Steel’s share in Dekheila is expected to be about two-thirds, or about 67%, while Dekheila owns close to 100% of Ezz Rolling Mill and Ezz Flat Steel.
Al Ezz Flat Steel acquired more than 35% of the total value of transactions executed in November with a value of $356.1m to lead the transactions market during the month.
Benefits of the acquisition for Ezz Dekheila
Shuaa Research portal predicted in a research note that the acquisition supports the integration process, improves operational efficiency, and enhances the market sentiment for Ezz Steel. It explained that Ezz for flat steel and Ezz for rolling mill have reached maturity and the cost of acquisition is much lower than the cost of replacement, which gives way to Ezz Steel to expand.
The merger of Ezz Dekheila and Ezz for flat steel and Ezz rolling will allow the latter to meet working capital requirements through new credit facilities and protect them from financial insolvency. It pointed out that this merger works to solve many operational problems and allows Ezz Steel to focus more on its plans and strategies, and is expected to improve the image of the company and enhance operational performance indicators.
Forecasts of Ezz Steel Research Centres during 2020
In a related context, the latest series of government’s decisions revived the shares of industrial companies on the EGX, where the basic resources sector index rose 13.2% to the level of 634 points, after Ezz Steel rose 20.7% during the same period to EGP 11.4. The decisions were to reduce natural gas prices for the industry, especially the steel industry from $7 per million British thermal units, to $5.5 per million thermal units, as well as opportunities for protection fees on pellet imports, in addition to reducing interest rates and their positive impact on the reduction of debt interest.
It is noteworthy that the unfavourable economic cycle in the steel sector globally, which led rebar prices to decline due to slowing demand due to trade wars, in addition to the adverse local conditions in the absence of protectionist measures to face imports, high natural gas prices, and bank interest, led the share to lose a significant part of its price for a year and a half since April 2018, where Ezz Steel dropped from EGP 30 to below EGP 9 during that period.
There is an apparent decline in iron ore prices globally, reversing the first half of last year, in addition to the restructuring plan of the company through the acquisition of its subsidiary Ezz Dekheila on Ezz Steel and Ezz Rolling Company. There is also an increase of Ezz Steel’s stake in Ezz Dekheila Company, which was nominated by investment banks for transformation into profitability in 2020.
Shuaa Research portal said that the basic resources sector could lead the growth of corporate profits in the EGX during the year 2020, especially the shares of Ezz Dekheila Steel and Ezz Steel, with an increase in the expected profits of EGP 1.138bn and EGP 2.148bn respectively. Shuaa expected Ezz Steel’s fair value without taking into account the new protection fees of EGP 18.4 per share.
For its part, Beltone Financial Holdings has set Ezz Steel fair value at EGP 21.3, an increase of 89% over the last trading price of the stock, with a buy recommendation. The Arab African International Securities considers improvement in the company’s debt ratios following the completion of the Ezz Steel investment restructuring plan.