x Abu Dhabi, UAEFriday 19 January 2018

Telecom Egypt pay rise to bite into share values

Pay increases for Telecom Egypt employees will affect company's margins.

The Egyptian government's call this week to raise public-sector salaries by 15 per cent is likely to affect the share price of one of the country's telecommunications operators.

Telecom Egypt, which is 80 per cent owned by the government and holds the country's fixed-line monopoly, said on Thursday that it would also extend pay rises to its 50,000 employees and offer permanent positions to temporary staff.

The company was not obliged to match the public-sector raises but thousands of Telecom Egypt employees protested the day after the government lifted pay for civil servants.

About a quarter of the company's sales already go to employee salaries and analysts worry pay rises will harm earnings.

"The risk we see is that salaries and wages currently are the highest expense on the profit and loss statement for the company," said Karim Khadr, a telecoms analyst at Alembic HC Securities in Dubai.

Telecom Egypt did not specify the exact amount of the raises it would give but said each employee would receive between 200 Egyptian pounds (Dh125) and 500 pounds extra a month.

Based on that, the analyst estimates it will cost the company 210 million pounds a year.

"We're expecting margin pressure as the company's top line is not growing," Mr Khadr said.

Telecom Egypt employees were joined in protests across Cairo last week by workers in industries including cement, steel and textiles. The average minimum wage in the country has been unchanged at 35 pounds a month since 1984.

Telecom Egypt shares have been suspended since January 30, when the Egyptian Exchange shut after demonstrations increased in the country's capital.

The exchange is expected to reopen tomorrow but officials said they would make a final decision today.

Mr Khadr is expecting pressure on stocks across the board if the bourse opens tomorrow.

"There are strikes across all public-sector companies all over the country, and it's escalating," he said.

"The political risk is very high at the moment and so is the economic risk, as the salaries will require a sizeable chunk of the government's budget."