By Sara Aggour and Alia Setouhy
Following three years of serious fluctuations, the Egyptian stock market (EGX) started to show notable improvements at the beginning of 2014. The recent changes in legislation and regulation on the capital market have prompted several companies to list on the EGX. The expected wave of initial public offerings (IPOs) – stock market launches – has not hit as expected, however, with the only significant IPO belonging to Arabian Cement.
Daily News Egypt sat down with the Egyptian Exchange’s Chairman Mohamed Omran to discuss the future of IPOs, the sectors that are expected to have a strong showing, and why he believes that the newly introduced regulations have influenced the capital market.
New legislation and regulations were passed earlier this year – was the market influenced by these new measures? Have there been any new requests to be listed on the market?
We have a very particular role. It is to place the legislative laws and regulations that aim not only to attract companies, but to guarantee more transparency and to protect investors. We aim to create a clear system. As you know, Arabian Cement recently joined the market, and I believe Nile Company is finalising the last procedures to join and launch its initial public offering. The market is not just influenced by the new regulations, but by the overall economic environment and political stability as well.
The aim of the regulation was to cope with the country’s current economic situation. For example, one regulation was to allow companies that have not made previous financial statements, to be listed on the market. What we seek to do is to publicise that we introduced new laws that weren’t available before, and inform companies who might be interested in joining the market.
So the stock market has a marketing role?
Yes, we have a role. We have previously held a summit for an initial public offering. But at the end of the day, the decision to list a company or a project is the investors’ decision not the bourse’s.
Many regard 2014 as being the year of several new IPOs. However, there have been some delays. Are they related to the economic environment in the country?
That question should be directed to investors and not the stock market. The decision to have an IPO and rely on the capital market’s financing is the investor’s and not the market’s. So whether it’s a governmental institution, private sector or joint companies, the decision is theirs. That decision also depends on their need of financing, their timing and their clear future investment plans.
You have previously stated that you would not allow companies who might harm the stock market’s reputation to be listed. What did you mean exactly?
I made that statement to say that the market has rules and regulations, and I am keen for those rules and regulations to play their key role. That role is to efficiently use the resources, help companies increase their capital, and allow the bourse to be a financing platform. However, the capital market must also protect investors [share buyers] such as these companies. I have to make sure that the companies being listed are serious. When we receive a list of the companies who are seeking to join the market, we send it to the Egyptian Financial Supervisory Authority (EFSA) to be checked. That is what I wanted to say.
So there have not been previous cases that led you to make such announcements?
No, there were no previous cases. But it was important to highlight the system we are dealing with, which can result in delays in the listing of some companies due to those governance checks. If the listing committee is not sure through its checks, follow-ups from the paperwork and EFSA approval can result in delays or preventions of companies from entering the market.
We’ve been hearing about the desire of some companies to be delisted due to the harshness of the regulations. What do you think about that?
The market has about 240 companies listed that are still operating, so I believe that answers your question. Also, the decision to be delisted is the investors’ decision and the general assemblies’.
During the first half of 2014, the capital of the listed companied increased by some 12% – what are the expectations for the second half?
The new projects that will be undertaken in the country during the coming period will lead some companies to seek financing from the capital market. The economic activity will reflect the bourse’s activity.
How do you feel the capitals gain tax affected the market so far?
I think that it has been surpassed a long time ago. If you go back to the bourse’s indexes before and after the capital gains tax, you’ll see that they have currently reached their highest since July 2008. However, generally speaking, no business likes to be taxed. It was applied as part of an economic policy made by the government and the fixation of the taxation system. Those hierarchical changes in the country’s economic policies, investment plans, subsidies system and legislative introduction will have positive outcomes that will outweigh the announcement of the taxes.
Do you have any expectation of the capital market going back to pre-January 2011 rates such as 12,000 points?
I never discuss the points expectation, and it’s not something the bourse’s chairman discusses. The important thing for the bourse’s chairman is for the market to function properly. This function is to assist companies who seek financing to find it. The role is the mobilisation of resources and best capital allocation. This is why we focus more on the availability of liquidity more than the ascendance or decadence of the indexes.
What are the important files the stock market is working on improving at the moment?
They all still relate to regulations and legislations. We seek to remove hindrance and improve work efficiency in managing the listing requests. These rules aren’t fixed and require updates every once in a while. The previous changes we made were general revision for the old regulations. In a year, maybe, we can sit down again and make some revision to examine the changes that had a significant positive impact and what we need to review. I discussed with the EFSA president the possibility of having this evaluation for the newly introduced rules.
But at the moment there is nothing specific that the bourse is working on?
We seek to see the exchange traded funds (ETF) being traded. I believe that this is a product that will be available for the end of this year. We are currently finalising the process, the first time ETF will be listed in the market.
There are also some changes that go unnoticed by the market but are believed to be very important such as the update of IT infrastructure and data centres.
There is also the topic of introducing bonds into the stock market. We are still awaiting the final detailed rules on the possibility of having government bonds available for the public. We have made broad-line agreements and objectives. The Central Bank of Egypt has a lot of priorities at its work. Once we’re done it will be announced.
We have identified how the trading will happen and how it will be placed on the trading system. We even clarified how the trading will appear and be reported on screens. What we need right now is the availability of the product itself.
Are there any negotiations with the public business sector companies to be listed?
Currently, no there is not.
Generally speaking, are there any details on the future of companies seeking to enter the market?
Without a doubt, we expect 2015 to have new entries in the stock market. Some companies are conducting studies to join the market but are still unclear about the timing.
What sectors do you expect to make a strong presence?
Infrastructure, telecommunication and real estate all seem promising.