New Egypt exchange to help fund small-caps

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CAIRO: Egypt launched an exchange offering cash-starved smaller firms a new a way to raise capital as markets pick up, the bourse chief said.

Maged Shawky, chairman of the Egyptian Exchange, said the new Nilex platform for smaller companies, on which trading started on Thursday, also gave private equity firms a route to exit some of their investments.

Tumbling global markets and a 15 percent drop in Egypt’s benchmark index since an April high have prompted some analysts to question the merit of launching a bourse for smaller firms now.

Shawky told Reuters Insider TV: "If we just waited to define when is the proper time to start a new project or to provide a new service for our economy, I think we would have done nothing for the last three years.

"I believe when we start now and when the market picks up we will be ready, the companies will come and will be attracted to being listed," he added.

Egyptian banks have been cautious lenders after being burnt by bad loans in the 1990s. That caution has made them cash rich now and helped Egypt sail through the global credit crunch but small firms can struggle to raise loans, economists say.

Shawky said smaller firms "don’t have the real access to finance and the opportunity to grow. So we believe that (Nilex) is a good gateway for investors to access a different kind of venture capital in our market and, from the other side, it (offers) good opportunities of finance for the SMEs."

Ten firms are listed on Nilex, which has fewer disclosure requirements than the main Egyptian market to make it suitable for smaller companies with a shorter track record.

Among them, Ameco Medical Industries launched a 10 percent private placement on Thursday and is planning a further 10 percent share offering in two months.

However one Nilex member, TN Holdings for Investment, has requested a voluntary delisting.

Shawky said he saw more listings without giving numbers. "I do believe there will be … IPOs … during this year, despite the fact that it is a turbulent time." Analysts say Egypt needs more big-ticket listings with a new round of privatizations, including for state banks or other major firms, to boost the market’s overall liquidity. But they say a small-cap exchange could help build a pipeline for the main bourse.

As part of efforts to deepen capital markets, Egypt aims to set up secondary trading in government bonds, although Shawky said regulations needed amending before trading started. He said the issue was with the Finance Ministry and central bank.

He also said there was little motivation for investors to trade corporate bonds, even though a secondary market existed.

"We have a secondary market but they are not traded because they (have) a very high interest rate so they are very attractive to hold to maturity," he said.

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By Reuters
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