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MOPCO’s 99.9% owned subsidiary ENPC faces an arbitration case worth USD140mn

MOPCO announced this morning that Agrium has filed an arbitration case against MOPCO’s ENPC (99.9%-owned) in the International Court of Arbitration worth USD140mn (EGP2.45bn). According to the release, Agrium has filed the case to obtain compensation for failure to implement a marketing agreement signed between Agrium and ENPC. Note that Agrium notified ENPC in September of its intention to end the marketing agreement within the coming 60 days.
As a response to the arbitration case, ENPC has filed a response in relation to the arbitration case, stating the agreement was not implemented as Agrium failed to complete some of the required terms, including fully completing the construction of the export jetty. We got in touch with the company’s management for clarification, however, the company’s CEO noted that he could not comment beyond what is available in the release, so no further details are available.
If MOPCO loses, this would impact the TP by c10%: Overall, it is difficult to say what MOPCO’s chances are at this point since we have no further details, but if we assume a worst case scenario where the company is forced to pay the full USD140mn in one bullet payment, this would impact our TP negatively by 10% (14% of current market cap). Finally, we point out that realising the full arbitration cost during FY2019 could full erode our 2019 earnings estimate (EFGe: EGP2,454mn). With the stock trading today at well below our TP however, we believe that this is more than priced in at current levels and we maintain our Buy rating, although we acknowledge that in the short to medium term, the case could be a drag on the stock’s performance. (Yousef Husseini, Omar El Gharabawi, company)
Misr Fertilizers Production Company (MOPCO): EGP77.50 as of 27 Feb. 2019, Rating: Buy, TP: EGP120.00/share, MCap: USD1,016mn, MFPC EY/MFPC.CA

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