The scarcity of investments and the economic slowdown caused by the novel coronavirus (COVID-19) pandemic has reduced the options available to financial technology (fintech) companies in terms of funding their expansions. This has, in turn, prompted them to resort to equity financing during the coming period.
Equity financing helps companies raise money to fund their working and expansion capital needs via stock issuance.
Hisham Abdel Ghaffar, Managing Director of Menagurus venture capital fund, said that offering shares on the stock exchange is one of the limited options currently available for startups and new companies. This has become an important option, given the economic conditions resulting from the global health crisis.
He added that the decision to inject new investments, especially in new companies, has become a difficult one to make given the financial uncertainties.
Abdel Ghaffar said that mergers and acquisitions as a means of financing have also become an elusive option in the wake of the coronavirus pandemic. This means that offering shares on stock exchanges are the ideal option to keep on track with developments.
He believes that the strong success of Egyptian startup Fawry’s shares on the Egyptian Exchange (EGX), after 10 years of hard work, has inspired many other fintech companies to take the same step.
He also said that the flotation of shares comes as a convenient financing tool for future expansions, at a time when the sector suffers from a scarcity of investments.
Fawry had offered about 36% of its shares on the EGX for EGP 6.46 per share, bringing the share price, as of 12 October, to EGP 28.28.
Abdel Ghaffar believes that the EGX listing of Egyptian startups attracts the attention of international investors. This is because the Egyptian market is still the cheapest and best in terms of investment returns, due to the currency price differences.
Moreover, Iman Marei, a financial analyst at the Arab African Company’s Research Unit, said the fintech sector is promising and has great opportunities for growth. This is particularly as the state supports the trend towards financial inclusion, digital transformation and a cashless society.
She also said that the success of any company’s offering on the stock exchange depends on many things; the timing of offering, the market’s condition, and the company’s evaluation before the offering.
For example, Raya Holding for Financial Investments is preparing a study on the 2021 EGX flotation of a share of its subsidiary company, Aman Holding for Non-Banking Financial Services.
It is expected that the details of the offering plan will become clear after the National Bank of Egypt (NBE) deal to acquire 20%-25% share in Aman Holding is finalised.
MM Group for Trade and International Trade also plans to offer shares in its subsidiary, Ebtikar, which works in non-banking financial services.