Steel magnate Ahmed Ezz quit the board of Ezz Steel and its Ezz Dekheila Steel unit as he fights graft charges from prison, and has been replaced by managing director Paul Chekaiban, the company said on Tuesday.

Ezz, a top official in ousted Egyptian president Hosni Mubarak's party, is charged with illegally taking control of subsidiary Ezz Dekheila Steel which then supplied parent company Ezz with steel at reduced prices.

Ezz has also resigned from the board of Ezz Dekheila Steel.

A judicial source said Ezz was also charged with monopolising Egypt's steel market.

Ezz said in a letter sent to media from jail that the charges against him were unfounded and a fair trial will prove his innocence.

The company's shares have tumbled 56 percent this year as a crisis in the property industry saps demand for its products and investors speculate that the charges against Ezz may damage the company's business or force him to sell his holdings.

Ezz Steel said in March it did not expect the corruption probe targeting Ahmed Ezz to impact its operations.

"His departure from the board is positive, although it doesn't really change anything fundamental," said Beltone analyst Omar Taha.

Taha says the slump in Ezz Steel stock this year does not reflect the business outlook for the top player in one of Egypt's most vital industries.

"Investors might be scared that the government is irrational in clamping down on corruption," said Taha. "At the end of the day, this is a company that has most of its book in tangible assets so there is tangible value to the name."

Ezz Steel shares initially rose on Tuesday after the company said Ahmed Ezz resigned as chairman of Ezz Dekheila Steel to be replaced by Farouk Ibrahim, but were down 1.5 percent by 1113 GMT. Analysts said the stock was held back by a decision to remove Ezz Steel from an MSCI equity index.

Chekaiban has been a managing director of Ezz Steel since 2005. – Reuters