GDR cancelation: GTH has invited its shareholders to convene in two EGMs on Monday 6 February 2017 to vote on the proposed cancellation of the company’s GDR programme. The first EGM is restricted to GDR shareholders and the second is open for all shareholders (both GDR and local shares), and both EGMs will vote on the same agenda items, including the cancelation of the GDR programme and all GDR-related contracts. Pending shareholder approval, the cancelation is expected to occur around 8 March 2017. In its press release, GTH mentioned that the decision to cancel the program was due to: i) its low trading liquidity (just under USD1mn/day according to GTH) that did not allow investors to trade the stock in meaningful volumes; and ii) to reduce the costs and the regulatory/administrative burden on GTH. The company said no material impact on its performance is expected from the GDR cancelation.   Share buyback & capital reduction: Moreover, the company announced a 10% treasury share buyback targeting c524.6mn shares (worth cEGP4.1bn) at a price of EGP7.90/share that is meant to “support” the cancelation of the GDR programme and the reduction of the company’s capital, as well as to boost shareholder value, according to GTH. This will be funded through a mix of: i) a one-year bridge loan of up to USD200mn that will be obtained from local and international banks and guaranteed by both Telecom Ventures Limited (TVL, a 100%-owned subsidiary of GTH and possibly the SPV that controls Banglalink in Bangladesh) and International Wireless Communications Pakistan Limited (IWCL, a 100%-owned subsidiary of GTH and possibly the SPV that controls Mobilink in Pakistan); and ii) the company’s existing cash. Pending the approval of the Egyptian Financial Supervisory Authority (EFSA), the buyback will start on 19 January 2017 and will end on 16 February 2017 at 2:30 pm Cairo time. Treasury shares will be canceled and the company’s capital will be reduced after an EGM scheduled on 9 March 2017 and pending shareholders’ approval. GDRs will not be allowed to participate in the share buyback; however, if GDR holders wish to participate, they must withdraw the local shares from the depositary (Bank of New York Mellon) and offer those shares in the buyback.   Our view: the proposal undervalues GTH shares; sit it out and wait for the next round: We list below several concerns that we have on the outcome of the proposed GDR cancelation and share buyback. In short, our recommendation to investors is to not participate in the share buyback given the unattractive price and to wait for a better offer in the future. In our view, GTH’s parent company, VIP, will eventually decide to buy out minority shares (for the reasons listed in the memo we sent out last week, below) and the offer price at that point will likely be more attractive than the one proposed in the share buyback, especially if investor participation is low. The risk to our call is if GTH decides to undertake a voluntary delisting, in which case it would likely offer investors a modest price (the highest of 3-months average or 1-month average historical prices) rather than an attractive tender offer price. We reiterate our Buy rating on the stock.   - Concern #1: Valuation, valuation, valuation: The proposed share buyback price of EGP7.90/share compares poorly to our TP of EGP10.48/share or USD2.93/GDR (25% discount), as well as to Bloomberg’s consensus EGP-equivalent TP of USD2.59/GDR (18% discount) and its consensus TP of EGP8.18/share (3% discount).   - Concern #2: Downward pressure on share price: The cancelation of the GDR program may pose an issue to some investors who may have restrictions on owning Egypt-listed stocks. Our figures indicate that c74% of GTH’s capital is in the form of GDRs and this figure includes VimpelCom’s (VIP) c52% stake, meaning that GTH’s free float of c48% is split as follows: c22% in GDRs and c26% in local shares. Therefore, the cancelation may result in a significant sell-off in the stock for those not willing/able to hold local shares, which will result in a depressed share price in the short-to-medium term. We do not see the share buyback as sufficient to help maintain valuations stable after the cancelation.   - Concern #3: Loophole in CMA law: As per the Egyptian capital markets law, there is no restriction on the frequency of share buybacks that a company can undertake (the restriction is on the size of the buyback, at 10%). If GTH opts to repeat the share buyback program again in the future with financing from its parent shareholder or bank debt, this would effectively constitute a cheaper alternative to a tender offer, which investors have been waiting for since the failed MTO in mid-2013.   - Concern #4: Being stuck with local shares if EGM rejects GDR cancelation: GTH said that if it does not obtain the required EGM approval to cancel the GDR listing, GDR holders who have withdrawn their shares from the depositary will be prohibited, pursuant to Egyptian law and regulations, from depositing some or all of their shares back into the GDR program with the depositary in exchange for GDRs. (Omar Maher, Company)   Global Telecom Holding: USD2.04 / EGP7.71 as of 15 January 2017, Rating: Buy, TP: USD2.93 per GDR / EGP10.48 per share, MCap: USD2,140mn, GLTD LI / GLTDQ.L