By Mostafa Saqr, Mahmoud Al-Qasas, Sara Aggour
The stock market in Egypt has begun to show signs of revitalisation after a long stagnation and serious fluctuations during the past three years. The Daily News Egypt sat down with the CEO of EFG Hermes Karim Awad to discuss the future of the market, the company’s plan for Initial Public Offerings (IPOs) – stock market launches – in 2014 and 2015 and to discuss whether the company has any hierarchical changes planned after the acquisition attempts throughout the past years.
Can you give us a brief on the upcoming conference you’ll be holding in London?
One of our roles as a leading investment bank in the Arab world is to market to the companies that are listed in the stock market in the Arab world. We try to hold two conferences each year; one in March and the other in September. The conferences are attended by a number of investors from all over the world, as well as a number of listed companies. We started holding this London conference four years ago and this year’s will be the biggest so far. It will be attended by 71 companies from all over the Arab world and 117 financial institutions and investors seeking opportunities in those companies. Around 26 companies will be participating from Egypt. What is slightly different this year is that we have companies that will study opportunities to list on the stock market with investors during the coming period. We believe that the IPO market is starting to revive in the region and in Egypt. We have a number of companies that we plan to list on the market during the coming period.
Several rumours have been floating around about real estate company Emaar?
We are actually doing something different with Emaar and we also have to remember that it’s in Dubai. We are operating as part of the syndicate that I am preparing for Emmar’s IPO in Emirate and this is possible the biggest IPO in the Emirates’ history. We are working with six other banks; four of them are international, while two are commercial Emirati banks, and we are the only bank that is just regional. This is one of the things that showcase the development of our work in the Emirates.
What about Egypt?
We have around six IPOs that will occur during the coming period. There sectors vary from the food industries, to services, to medical sectors. They offer some differences to what is available on the market.
When can we expect to see the first IPOs?
Probably within the coming eight or nine months. There’s a possibility that we can see one before the end of this year.
Which sector will have the first IPO?
It will be the food industry. Its value will probably be for $100m. But to be clear it can be either by the end of this year or by early 2015.
What are the likely amounts of those six IPOs?
They will vary from $70m or $80m in the smallest IPOs to around $300m for the largest IPO.
You might face questions about the health of the Egyptian economy, regarding energy for example, what will your answers to those questions be?
People who are going to the conference are not targeting direct investment but rather they are portfolio investors. They invest in listed companies, so their interest is not really related to the energy problem. It is a vital issue for someone who is investing directly because he would like to guarantee, if he is building a factory or establishing a new project, that he has available energy. People who are going are rather more interested in the development economic situation in Egypt. In my opinion, they believe that some indicators have shown some improvements. To any outsider, the steps taken to rationalise the energy subsidies were a decision in the right direction. Also, the added value tax would be viewed as a step in the right direction if applied correctly. The rationalisation of electricity subsidies over the coming five years is also a good sign. His [the investor’s] interest will be more related to the company, its transactions, how the economy influences the company, and how to evaluate the company’s future. To the investor, political stability is more important than the given details about the political operation in Egypt.
Do you plan investing in new and renewable energy?
One of the good signs that were visible to us was the focus on putting a new feed-in tariff for new and renewable energy. This is one of the main obstacles that faced anyone who wanted to establish a project in this field. I believe that if this tariff was placed in a good way that is rewarding to the private sector, several investors will be interested in it and not just us. Many have been preparing for this chance. We believe that if we have a chance we’ll take part in it.
Despite the changes in the listing regulations, the number of companies that held IPOs in the market was limited. Why is that?
Listing regulation can present some obstacles but all companies are trying to cope with them. Honestly, we have a regulator [EFSA] that listens and attempts to solve all problems as long as they are within the framework that was placed. All the six companies that we’re dealing with know these regulations and are working around them. They believe that if some of those regulations changed that would be easier for them but at the same time can adapt to them.
When do you believe we can return to the 12,000 points in the stock market?
What the market suffers from is the scarcity of paper. There are not enough IPO papers for people to trade. People are in search for new stories and new shares. Beware that during the last four years, Egypt has only witnessed three major IPOs – Juhayna, Amer, and Arabian Cement. This is a very small number compared to the volume of the Egyptian market. At the same time, big companies that have a high market value delisted from the market.
What are the sectors that can join the market to allow for such growth?
I believe it’s not just about the sector but about the company itself. Some new sectors are still not represented in the market. Some sectors remain absent from the market, such as the medical sector. The pharmaceutical sector is still not highly represented as well as the food industry.
What are the three procedures that you believe will allow us to attract strong foreign direct investment in the country during 2014/2015?
A solution to the energy crisis and to find a country that has a good infrastructure. It is obvious that it’s a problem that the government understands and knows how to deal with. In my opinion, other issues that require a fast solution, is [paying] the owed money to the foreign petroleum partners and providing them with enough incentive to increase the production capacity of petroleum products. The third thing is the need to assure the investor. Many have gained profit in Egypt but the three years [have been tougher]. One of the good steps that has happened is the investment law issued that prevents any third party challenging an agreement. I also believe that there should be some level of protection for government employees. We all make mistakes and people make decisions based on the current given information.
EFG Hermes has previously announced that it will cease its non-core activities. What is your strategy for the future?
In 2013, the share price dropped to around EGP 5 and we believe that this was low compared to the company’s value. We had a responsibility towards our shareholders and we sought to increase the share price. In May 2013, we announced a decision to decrease our expenditures. We decided to exit some of our investments, so last year we sold some real estate and building and some investment in funds. By the beginning of this year, we decided to have our buy-back. We returned some EGP 420m to our shareholders. We still have some investments, which to us were not core, and one of them was SODIC. Our position was a bit tough because we had 19% – this is neither a major share nor is it a small one that can be sold in the market. We looked for a specific investor who wanted to acquire those shares and I believe we took the right decision. We kept some of the shares because we believed that we’ll make profit on them. In March, we realised that we had accomplished all that we planned for. We saw that the market was moving in the right direction so we decided to move into the financing area, whether it is for small and medium enterprises companies or individuals. We also decided to strengthen our positions in our Emirati, Saudi and Kuwaiti markets. Now, we are number one company [financial brokerage company]in Kuwait, one of the biggest five in the Emirates, Jordon, and Oman. So examining the revenues that come from our markets outside Egypt, we realised they have increased.
What are your plans in the financing area? Does in involve acquisitions or new establishments?
What are the company’s plans for managed assets?
We manage some $3.2bn through some funds that are managed regionally and in Egypt. This is the biggest figure for managed assets in the Arab world. We have several funds – around three – that we’ll launch in Egypt during the coming four or five months. We also have some funds to be launched in the Emirates and Saudi Arabia in the upcoming period.
During the past period, several acquisition offers were made for Hermes. Do you have any plans to change the company’s hierarchical structures to protect the company for acquisition deals?
[We don’t have plans to do that] at all. In the end, the entity that was established as EFG Hermes during the past 20 years is hard to be remade. This is because it’s a well-known bank in the whole region and we are present in six Arab countries. This puts us under the spotlight for anyone who wants to expand in the area of investment banks. As management, we seek to raise the value for our investors. If someone offers the real value for our shareholders, it’ll then be their right to either sell or not. We have no fears and if someone offers a good price you can’t refuse it. When engineer [Naguib] Sawiris made an initial offer we welcomed that because he’s internationally known to investors and would add value. Now we’re focusing on the strategic plans we have. The share value is the main factor that will drive shareholders to sell. Around 35% to 40%, from the total 9.5% acquisition shares needed, we purchased by EFG Hermes’s clients.