Wednesday,19 June, 2019
Current issue | Issue 1343, (4 - 10 May 2017)
Wednesday,19 June, 2019
Issue 1343, (4 - 10 May 2017)

Ahram Weekly

Going public

Multiple initial public offerings are hitting the Egyptian stock market this year, reports Sherine Abdel-Razek

Many companies are resorting to IPOs to get the finance they need
Many companies are resorting to IPOs to get the finance they need

Followers of news from Egypt’s stock market may be finding it hard to keep up with news of new initial public offerings (IPOs) these days.

An IPO is when the investors in a company decide to offer shares to the public through the stock exchange. IPO offerings in Egypt stopped during the three years following the 25 January Revolution, but began again in May 2014 with an IPO for the Arabian Cement Company.

This was followed by offerings of stakes in construction companies Emaar Misr and Orascom Construction. Both 2015 and 2016 witnessed a handful of heavyweight companies opting to sell a percentage of their equity on the local market as a means of acquiring additional financing.

Offerings over the last six months were snatched up, with one offering, that of MM Group, oversubscribed 19 times. MM Group for Industry and International Trade distributes several international brands in Egypt including Vodafone, Samsung Electronics, Jaguar, Land Rover and Ferrari.

Cheese manufacturer Obour was also oversubscribed five times.

Meanwhile, the pipeline for expected future issues is full. Head of the Egyptian stock exchange Mohamed Omran said in mid-March that 2017 could be the best year for IPOs in Egypt since 1998, adding that as many as 10 companies might tap the market throughout the year.

Raya Centre, the call-centre business affiliated to the Raya Group, started its IPO this week by floating 30 per cent of its equity to finance expansion overseas. This is the third IPO to hit the market since the beginning of 2017. Soon to join the show is real-estate developer Misr Italia.

“More companies are resorting to IPOs to get the finance they need as the banks currently apply strict rules and impose high-interest rates on lending money because they have a safer and better-yielding alternative in government treasuries,” commented Amr Al-Alfi, head of research at Mubasher Financial Services.

The revival of the local bourse and the increase in listed share prices since last year’s flotation of the currency means valuations for the new offerings are high, which is another factor that encourages companies to float stakes in the market.

While not as euphoric as the weeks following the flotation, the market is still enjoying a buoyant performance, with the average value of monthly transactions since the beginning of 2017 coming in at LE29.9 billion compared to LE18 billion and LE22 billion in 2015 and 2016, respectively.

“A series of strong offerings would help boost capital markets as the market needs to be strengthened on the supply side,” Al-Alfi said.

He pointed out that despite the post-devaluation revival on the local bourse, the size of the market is still equivalent to only 20 per cent of GDP. “This is compared to 40 per cent almost 10 years ago. The economy is growing, while the size of the market has stayed the same,” he added.

There are 270 companies listed on the Egyptian stock market, and the number of active investors is between 80,000 and 100,000.

The expected IPOs also include state-owned companies, with the oil sector’s Engineering for Petroleum and Process Industries (ENPPI) and Banque du Caire being the first to be put on the block. They would be the first public offerings of state-owned companies since 2005, when shares in Telecom Egypt, AMOC, and Sidi Kerir were offered to the public.

The IPOs are part of the government’s plan to privatise a number of successful state-owned companies and banks in a move aimed to revive the stock market and attract investors.

The plan was first revealed in January 2011 and was followed by then Central Bank of Egypt (CBE) Governor Tarek Amer’s statements that it would include floating 20 per cent of Banque du Caire and 40 per cent of the Arab-African International Bank (AAIB).

Banque du Caire has already acquired approval to list its shares on the market, with the IPO expected in the first half of 2017. ENPPI also got approval to list 24 per cent of its shares.

Last August, Petroleum Minister Tarek Al-Molla told Reuters that the Ministry of Investment would assess eight state-owned petroleum companies for their suitability for possible listing on the stock exchange.

The government owns a large number of operating companies in various industries, including Arab Contractors, Hassan Allam Holding, MIDOR, and Misr Insurance Company, as well as stakes in several banks.

“Offering profit-making public companies for sale would regain foreign investor confidence in the local market and help in attracting their funds, especially in the light of the instability in competing markets,” said Mohsen Adel, a member of the board of directors of the local bourse.

Al-Alfi seconded Adel’s opinion, adding that both Banque du Caire and ENPPI would attract high demand as the sectors they belonged to were not represented by many firms in the market.

“The Commercial International Bank is the only actively traded share in the banking sector, and the oil and gas sector is almost absent from the market, with the capital of listed companies representing only one per cent of overall market capitalisation,” he said.

“Offering shares in such sectors is very important to diversify the portfolios of investors interested in the Egyptian market,” Al-Alfi noted.

However, there are prerequisites for the success of the coming IPOs, whether private or public. “In addition to the importance of choosing a suitable time to float the shares, good marketing of the offers cannot be overlooked,” Adel said, stressing that the efficient valuation of the assets of companies to reach the proper target price is also important to investors.

Al-Alfi added that in addition to positive sentiment in the market, political stability and the availability of liquidity with investors were also important for the success of any projected IPO.

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