How MOPCO Broke the EGX30 index
Thursday, December 28 was one of those trading days on the EGX that makes you go “hmmm!”
Why? MOPCO [MFPC] made it to the headlines and left many investors very confused. So let’s go over what happened.
What happened?
Thursday, December 28 was the day when the merger between MOPCO and its 99.99%-owned subsidiary the Egyptian Nitrogen Products Co. (ENPC) was going to be implemented on the EGX.
On Sunday, the stock closed at EGP 547, valuing the company at EGP 125 billion.
On Monday, trading on MOPCO’s stock was suspended for three days.
On Thursday, the stock’s open price was set at its par value of EGP 10 a share.
Some time during Thursday’s trading, the stock traded at around EGP 68 a share.
All this had some repercussions on both MOPCO’s stock and the EGX30 index which MOPCO is a constituent of.
For MOPCO
MOPCO’s market value:
Down 83%? At EGP 10 a share, MOPCO’s market value was in effect cut by 83% to EGP 21 billion.
MOPCO’s stock price:
Down 98%? At EGP 10 a share, MOPCO’s stock would be 98% below the prior closing price of EGP 547.
Or up 580%? In the early trading hours of Thursday, MOPCO was shown as jumping 580% based on a market price of EGP 68 as compared to its open price of EGP 10.
For EGX30
MOPCO’s weight:
On Sunday, MOPCO’s weight in EGX30 was 4.6% then averaged 4.5% in the following three trading days it was suspended.
On Thursday, MOPCO’s weight in the EGX30 was cut by 83% to only 0.8%.
EGX30 performance:
The index performance was misrepresentative, trading above 25,700 in the early trading hours of Thursday.
EGX30 jumped more than 5% compared to Wednesday’s close on the back of MOPCO soaring 580% based on a market price of EGP 68 as compared to its open price of EGP 10.
The big reset
To ensure the market’s stability, the Egyptian Exchange first decided to cancel some 543 trades. However, the EGX30 index was still broken, showing a 5%+ performance when in fact the top stock performer in the index was only +3%.
This led the EGX to reset Thursday’s trading on MOPCO’s stock altogether by canceling all trades, citing wide and unjustified price movements during Thursday’s trading. This meant that MOPCO’s stock performance would not impact the EGX30’s performance, which is why by the end of Thursday the index was up 1.4% at 24,691.43.
However, this was not the real issue; it was MOPCO’s open price, which should have been EGP 60.28, not EGP 10.00. Apparently, the regulation stated that the open price in such mergers has to be the stock’s par value, but we all know that the par value is not representative of the stock’s market value. This is why the EGX after Thursday's market close said it would reset trading on MOPCO starting next Sunday with an open price of EGP 60.28 with the usual +/-20% price limits.
The backstory
On Oct. 3 earlier this year, MOPCO’s board of directors unanimously approved the merger of MOPCO with ENPC based on their book value as of Dec. 31, 2022. What this means is that ENPC will no longer exist as a separate entity, but this also means there should be no change in MOPCO’s value because it already owns almost 100% of ENPC. Since this was a merger:
MOPCO’s paid-in capital was increased from EGP 2.29 billion (distributed over 229.1 million shares with a par value of EGP 10 a share) to EGP 20.8 billion (distributed over 2.08 billion shares with a par value of EGP 10 a share).
MOPCO’s shareholders were going to now own 9.07476 shares instead of each share they owned in MOPCO.
In other words, this corporate action is similar to an 8.07476-to-1 stock dividend distribution where MOPCO’s shareholders would end up with more shares but at the same market value. Mathematically, that EGP 547-a-share closing price last Sunday should have been adjusted to EGP 60.28 (which is EGP 547 divided by 9.07476). So, when MOPCO’s stock was trading at EGP 68 on Thursday, the stock was up 13%, not up 580% or down 89%. This means that at EGP 68 a share, MOPCO’s market cap would have been EGP 141 billion, 13% higher than its Sunday value.
The bottom line
Clearly, investing is not a part-time job, where you invest and then leave your investments unattended. Sometimes companies undertake certain corporate actions that may impact your investment to a great extent. Such corporate actions can range from a capital increase (that can sometimes result in you losing money if you don’t subscribe) to mergers and acquisitions (that can change the whole structure of your investment). But in the case of MOPCO, it was a merger that resulted in mispricing of the stock. Had trades not been canceled by the EGX, you could have acted upon that mispricing by either selling (if the price jumped unjustifiably) or buying more (if it tanked unjustifiably). Fortunately, the EGX reset MOPCO’s trading, so now investors can re-think their strategies on what to do on Sunday.