OCI suffers as chief hit with travel ban

Shares in fertiliser and construction group Orascom Construction Industries (OCI) fell 3.6 per cent on Monday, following news that Egyptian authorities had imposed a travel ban on its chief executive in connection with a tax investigation.

The sell-off in Eqypt’s largest listed company by market capitalisation dragged the EGX 30 benchmark index down 2.3 per cent – the Egyptian market’s biggest one-fay fall in three months.

Egyptian state news agency MENA said on Sunday night that Nassef Sawiris, the chief executive of OCI, and his father Onsi, the company’s former chairman, were subject to a travel ban imposed by the prosecutor-general over a tax case.

Both men are outside the country, but the ban means they could be arrested if they return as their names have been placed on an arrivals watch list.

MENA said the measure was part of an investigation into allegations they evaded $2.1bn in taxes from the sale in 2007 of the company’s cement arm to Lafarge of France.

However, in a statement on Monday, OCI said it has received no formal notification of a travel ban.

OCI also said the authorities were claiming $799m in tax and not the $2.1bn mentioned by the state news agency.

“To date, the company has received no additional claim with any different tax liability related to the sale,” said the company.

Hani Sarieddin, a lawyer for OCI, was also quoted by al Ahram, the main state newspaper, as saying that negotiations with the authorities over the tax dispute were under way and that “there was nothing suggesting a dead end in the negotiations”.

OCI had sold its cement subsidiary Orascom Building Material Holding to Lafarge through a stock exchange transaction. The sale included cement plants in Egypt, Algeria, Pakistan, Turkey and Spain which had been brought together under a specially-created vehicle that was listed on the Cairo Stock Exchange shortly before the sale to Lafarge.

OCI said in its statement that it has no tax liability as Egyptian legislation exempts from taxes all capital gains resulting from the sale of shares listed on the stock exchange.

“The company is confident of its tax position and is confident that it did not violate any laws pertaining to the sale,” said OCI.

Analysts noted that the Egyptian authorities first raised the tax issue in 2012, several years after the sale to Lafarge. They also pointed out that share transactions on the stock exchange remain tax exempt.

“This adds to the overall picture that at this moment in time Egypt is not an investor friendly place,” said Angus Blair, who heads the Cairo-based Signet Institute, a business think-tank. “This is the message which this situation is sending out.”

OCI has been in the process of transferring its primary listing to Holland where its subsidiary OCI NV has been trading since January on the NYSE Euronext. The company launched a program under which holders of its global depositary receipts were able to exchange them for shares in the new vehicle.

But on Monday, the Egyptian regulator introduced a new rule limiting the proportion of a company’s shares that can be converted to globally-traded GDRs to one-third.