Rana Mamdouh _ The Financial Regulatory Authority (FRA) has approved the disclosure report of Electro Cable Egypt Company, paving the way to proceed with the procedures for calling the Extraordinary General Assembly to consider increasing the company's issued and paid-up capital from EGP 662.708 million to EGP 1.312.708 billion.
The FRA stated in its announcement sent to the Egyptian Exchange (EGX) today that the increase amounting to EGP 650 million is distributed over 3.25 billion shares, at a nominal value of EGP 0.20 per share, while maintaining the priority subscription rights for existing shareholders.
6 Observations Resulting from the Examination of the Disclosure Report and Feasibility Study
The Authority noted that upon examining the disclosure report and the feasibility study submitted regarding the increase, 6 observations were identified, including that the company has changed the intended uses of the increase proceeds to be directed towards paying off a part of the company's existing bank credit facilities, whose balance amounts to approximately EGP 3.4 billion, according to the separate financial statements for the financial period ended June 30 last, equivalent to about 2.3 times total shareholders' equity.
It explained that this came after excluding the expansionary assumptions contained in the study due to the insufficiency of supporting documents and the failure to provide approved sources supporting the assumptions of sales growth and the evolution of raw material prices until 2031.
Marked Decline in Operational Performance
A marked decline in operational performance was also revealed, as the gross profit of Electrical Cables decreased by approximately 83.6%, despite sales dropping from about EGP 2.81 billion to EGP 2.01 billion, representing a decrease of approximately 28.5%.
Significant Drop in Gross Profit Margin
Furthermore, the gross profit margin dropped from approximately 21.8% to 5%. This decline is much larger than the drop in sales, indicating a fundamental deterioration in the relationship between revenues and cost of sales, according to the periodic separate income statement and the comparison between the first half of 2026 and the first half of 2025.
Operational Safety Margin Has Become Limited
The observations included that the operating profit reached approximately EGP 45 million in the first half of 2026, compared to about EGP 546.5 million in the corresponding period of 2025, according to the figures appearing in the separate financial statements, representing a decline in operating profit of approximately 91.8%. The operating profit margin also dropped from nearly 19.5% to approximately 2.2%. Consequently, the operational safety margin has become limited, meaning that any further drop in sales or increase in costs could erode the operating profit or turn it into a loss, which may affect the continuity of previous profit levels in light of debt service estimates.
Financing Burdens of Approximately EGP 426.7 Million During the First Half of 2026
The fourth observation included that the periodic separate income statement shows financing burdens of approximately EGP 426.7 million during the first half of 2026, compared to about EGP 534.2 million during the first half of 2025.
Despite the 20% decrease in financing burdens, this reduction was not sufficient to offset the sharp decline in operating profit, meaning that the financing burden coverage ratio in the first half of 2025 stood at 1.02x, dropping to 0.11x in the first half of 2026.
Declining Ability to Cover Financing Burdens in the First Half of 2026
A decline in the capacity to cover financing burdens was observed in the first half of 2026, as operating profit covers only a limited portion of financing expenses despite the decrease in financing expenses compared to the comparative period. This means that operational activity alone does not generate sufficient profits to cover the cost of financing during the period, negatively impacting the evaluation of the uses of the capital increase proceeds.
It clarified that this is because using the proceeds to settle part of the facilities may reduce future financing burdens, but it does not necessarily address the weak operating profit margin, as positive operational and investment cash flows are not sufficient to offset net financing cash outflows, leading to a decrease in the cash balance during the period.
It noted that Electro Cable Egypt had achieved net losses of approximately EGP 51 million and EGP 201 million according to the separate and consolidated financial statements for the financial period ended June 30 last, respectively, as the separate and consolidated income statements for the mentioned period included profits resulting from the sale of fixed assets amounting to approximately EGP 312 million, resulting from the company's sale of a plot of land during the financial period.
Had the profits realized from the land sale transaction been excluded—considering it a transaction outside the company's ordinary course of business—the company's net loss for the financial period ended June 30 last would have reached approximately EGP 363 million in the separate financial statements, and EGP 513 million in the consolidated financial statements.
The Authority Emphasizes Observing 5 Items, Most Notably Including a Independent Item in the General Assembly's Agenda Regarding the Use of the Increase Proceeds
Taking the foregoing into consideration, the Authority emphasized that Electro Cable Company must ensure that the agenda of the Extraordinary General Assembly includes an independent item regarding the use of the increase proceeds, stating that the purpose is to settle a part of the existing bank credit facilities, clarifying the details of the targeted facilities for settlement, the implementation method, and the financial impact of those facilities on the company.
It also stressed the necessity of making the detailed and updated feasibility study—including its assumptions, valuation methodology, risks, and expected financial impacts of utilizing the increase proceeds—available through approved disclosure methods on the Egyptian Exchange, and in sufficient time prior to the convening of the Extraordinary General Assembly.
Furthermore, it stressed the commitment of principal shareholders and their related parties to subscribe to their full priority rights allocated to them in the capital increase, and not to dispose of or waive these rights to others, with the company taking the necessary measures to prove this commitment and ensure its implementation.
It pointed out the need to ensure that Electrical Cables is committed to subjecting any amendment to the plan for utilizing the increase proceeds to the prior approval of the Authority based on a revised feasibility study, as a fundamental and prior condition before initiating the procedures for calling the Extraordinary General Assembly.
It also stressed updating the expected credit loss study and stating its impact on the company's financial statements for the financial year ended December 31 last, in accordance with Egyptian Accounting Standards, in addition to studying the provisions related to subsidiaries, observing the requirements of Egyptian Accounting Standard No. (28), and disclosing the financial impact resulting from the results of those studies.
}
