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Fever of block trades takes over stock market. What is really happening there?

This month and especially the end of December of this year 2010 was marked on the Tunis Stock Exchange by a buying frenzy of control blocks, with at least one operation recorded almost every week. Not less than 17 equity block trades of listed companies (almost 2 trades per day) were announced. These trades totaled a purchase amount of more than 48,386,749 TD.

The last block trade was carried out on the AMS (Les Ateliers Mécaniques du Sahel) and involved 330,525 shares at a price of 12.500 TD for a total amount of 4 131 562.5 TD. The most popular share has been that of the BH ((Banque de l’Habitat which prepares its merger with STB) and has recorded no fewer than four block trades for a total of almost 9 MTD followed by ENNAKL (Volkswagen dealer and owned by Princess Holding of Sakhr El Materi, which carried out 3 block operations for a total of 460,800 TD. This, in addition to “Star,” with two block trades, the most expensive shares in the market for a total of more than 3,714,028 DT. The largest trades in number of shares purchased were the two operations conducted on Somocer of Lotfi Abdennadher. With almost 5.5 million shares that changed hands, the two operations have been those which have broken the record in amount with 10,394,224 with TD.

Note also the realization of a block trade on the share Carthage Cement on 1.052 million shares at a price of 3.2 DT (3,366,400 TD), 150,000 shares of the International Leasing Company at a price of 29.380 dinars (4,407,000 TD), 700,000 shares of Carthage Cement at a price of 3.200 dinars (2,240,000 TD) and 61,200 shares of Banque Internationale Arabe de Tunisie at a price of  78.520 Dinars (4,805,424 TD) and a little time earlier, during this same month of December, 230,000 shares of Poulina for a total amount of 2,185,000 TD.

Between restructuring, window dressing and smoothing of the year, the revision is necessary.

The importance of figures, both in number of transactions compared to the rest of the year and in amounts that change hands at the Tunis Stock Exchange, leads to the question of why this fever of block trades just before the end of a year, that of 2010, which signs also and especially the end of an era in the stock exchange?

Although it may hamper future IPOs of public and private companies such as Tunisie Télécom [and finance pros exclude it, particularly because of the small size of punters who are afraid of taxation], the new legislation regarding the tax on the value added realized at the stock market will be the main feature of 2011 on the Tunis Stock Exchange and the current year should be the last of the exemption from value added. Would the purchase before 2011 for tax exemption be behind this frenzy of buying equity blocks?

Certainly not, according to more than one source. Our stock market sources tell us for instance that stock trades of Somocer are driven by the needs of restructuring among the shareholders themselves of the Tunisian ceramist. Block trades help, in this case, setting sales or purchase price, while allowing at the same time to be protected against the possibility of the taking of these shares by a party outside the company. Block trade becomes in that case unfair, first because it is made , as in the case of the Star, at a price (174 TD) less than the market demand (190 TD we are told from market sources ). Would it not then be appropriate to review the regulation of blocks trades?

But block trades are not made for that. According to our industry sources, they have also less avowed reasons than what our source called a “window dressing.” More than one company does it, just before the end of the fiscal year, to transform the potential or realized capital gains and also losses to pay less tax. They still do it to perform what is known as a “smoothing of the year.” This practice helps compensate the operation by capital gains and pay less tax by capital losses. This remains the covert legal aspect and this imposes again a thorough revision of the regulations that govern block trades. The new size of the stock market to be introduced, first, by Tunisia Télécom and then by other companies like CTN (Compagnie Tunisienne de Navigation) or SNDP (Societe Nationale de Distribution du Petrole), would almost impose it.

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