Egypt gears up for resumption of government IPOs

The anticipated resumption of IPOs by Egyptian state companies has started to take shape after multiple delays over the past years, even with uncertainties over how such listings will fare amid unfavourable conditions still looming.

The ambitious government IPO programme kicked off two years ago following a $12bn funding agreement with the IMF, signed in 2016. Proceeding with the IPO programme was reiterated by the stand-by agreement Egypt signed with the IMF in 2020, as a step to “deepen structural reforms” as penned by the Fund.

Although Egypt has met requirements to receive the multi-tranche IMF loans, such as the 2016 devaluation of the Egyptian pound and gradual removal of subsidies, the country is yet to fully embark on the IPO programme that aims to float over 20 stakes of state firms from various sectors on the Egyptian Exchange (EGX).

In July 2017, the government declared oil company ENPPI as a frontrunner for the privatisation initiative’s maiden offering before backing out. It was Egypt’s tobacco monopoly, Eastern Company, that led the way by listing a 4.5% stake in March 2019.

Cairo is now seeking to revive the IPO programme with the hope that it will reinvigorate the stock market and end two-years of erratic performance amid a lack of liquidity and portfolio investment outflow exacerbated by the pandemic.

Third quarter

Signs of economic recovery, including global vaccination, appear to be breathing life into the IPO programme. At a conference earlier in April, public enterprise minister Hesham Tawfik said the programme is scheduled to resume in the third quarter of 2021.

Sherif Nabawy, Director of International Markets at NAEEM Holding, says the third quarter should indeed be the best possible time slot for public firm offerings to be launched this year.

While the government is holding out hope that the ongoing coronavirus inoculations will have paid dividends by then, trepidation surrounding the Grand Renaissance Ethiopian Dam (GERD) dispute needs to be dealt with in Q3, Nabawy says.

In a protracted stalemate, downstream countries Egypt and Sudan are at loggerheads with Ethiopia over its vehement refusal to sign a binding agreement on the operation of the mega hydropower dam and its second filling, slated for July.

Fears abound that the status-quo could foment regional unrest, a prospect that has taken a heavy toll on the EGX, of which the benchmark index last week hit its lowest closing level since June 2020. Yet the pernicious impact will end “once there has been a decisive solution”, Nabawy tells The Africa Report.

“The status of not knowing what will happen [next] is the worst for the market,” he adds. “But even if something violent or significant happens,” it would deal a major blow, but then it would be over, ultimately paving the way for calmer waters.

2021 has thus far witnessed only one IPO of private company Taaleem Management Services. The next scheduled IPO of Macro Group Pharmaceuticals was put off this week (11 – 15 April), with the private firm voicing a desire to study the market’s capability of absorbing consecutive offerings.

Three state companies

Minister Tawfik said two or three of the state firms — whose offerings are usually more appealing to investors than private companies — were slated to go public in the third quarter this year; however he refused to elaborate on the prospective listings or even identify the firms.

Despite that, in the past few months, Tawfik had named two newly established public state firms that are preparing to make their EGX debut this year: Ghazl El-Mahalla Football Company and Hadisolb’s New Mining Co.

• Ghazl El-Mahalla Football Company is owned by Misr Spinning and Weaving Company. With a 20-year usufruct deal for the football stadium and other facilities of the top-tier football club, Ghazl El-Mahalla’s planned LE100m ($6.3m) IPO listing will be the first-ever Egyptian offering in the field of sports.
• Hadisolb’s New Mining Co was a demerged unit of the parent company that will be listed as part of a liquidation plan, holding LE500m ($32m) in authorised capital and LE195.4m ($12.4m) in issued capital.
• More importantly, e-finance — the leading state fintech firm that has vigorously been involved in implementing a national plan to digitise government services nationwide — has also been tipped to be floated this year.

While sounding an optimistic note on any potential offerings of state firms, ahead of expected interest rate cuts this year and government awareness campaigns to attract new EGX investors, Nabawy says e-finance has by far the most significant potential, citing a global interest in the fintech sector.

e-finance chair Ibrahim Sarhan says given how the company is set to wrap up IPO procedures in June, the offering is not likely to materialise before the third or even fourth quarter.

“The most important thing is that the valuation is done,” Sarhan tells The Africa Report, without disclosing any details. “Near the end of the procedures, the stakeholders” will determine the size of the stake that will be listed, he adds.

More delays?

Sarhan, nonetheless, says the e-finance IPO has yet to get clearance, with a government committee set to confirm which companies will be floated this year with a specific timeframe.

Meanwhile, the IPO of Banque du Caire — Egypt’s third largest state bank — which plans to float up to 40% stake, was put off indefinitely last year following the arrival of the pandemic. And today, it remains in limbo.

Speaking to The Africa Report, Banque du Caire vice chairman Hazem Hegazy says the bank’s listing plan remains shelved. “There is nothing even on the horizon,” he says when asked about the possibility of reviving it.

The Banque du Caire offering, touted as EGX’s biggest ever, was expected to raise up to $500m. But with the pandemic, “it’s still postponed without a definitive date,” Hegazy reiterates.

The pandemic and geopolitical tensions aside, perennial shortcomings weighing down the market must be addressed first before the government considers resuming the IPO programme, says Khaled Darwish, head of portfolio management at CI Capital Holding.

Private sector needs more government help

“The government must help the private sector,” Darwish tells The Africa Report. “All countries help the private sector by offering gas discounts, reduced electricity costs” in order to boost its competitiveness.

“The [Egyptian government] has killed the cement sector, the steel sector went bye-bye and all industrial sectors are non-operational … the government must help [these sectors]” after five years of negligence with unfulfilled promises to offer such incentives, he says.

Egypt’s 2021/2022 draft budget, which is currently being discussed in parliament, allocates up to LE10bn ($638m) for electricity and natural gas subsidies in the industrial sector.

“Today in Saudi Arabia, the market is at a historical high, Dubai is at a historical high and we are just waiting … Foreigners ceased to invest in Egypt,” Darwish says.

“The Egyptian market [is witnessing] its lowest level of foreigners in history … it has to get better and be supported by robust laws in order to attract foreigners.”

The government has been saying “it wants to sell [stakes in public companies] for three or four years, but it won’t be able to do so” under the current circumstances irrespective of the suggested companies, Darwish says.

Bottom line

Once the requisite reforms have come into effect, they will instantly reflect on the market. Otherwise, EGX will not see further state IPOs, adds Darwish, citing a popular Egyptian proverb: ‘An appealing market, not appealing goods.’