A Daily News Egypt opinion poll conducted among major investment banks working in the Egyptian market has revealed that at least three companies will launch IPOs this year.
These include Taaleem Management Services, Ebtikar Holding Company for Financial Investments, and two government entities, namely e-finance and Banque du Caire.
Informed sources told Daily News Egypt that this year’s IPOs will begin with Taaleem by the end of March, and will be followed by others in the third quarter (Q3) of the year. These will be Ebtikar, then e-Finance, and finally Banque du Caire.
The IPOs would be supported by the improvement in the Egyptian Exchange (EGX), where the benchmark EGX30 has increased by 6% since 2020. It is forecasted to grow by a further 30% by the end of the year.
The expected new IPOs come after almost two years of halt. The Tenth of Ramadan for Pharmaceutical Industries and Diagnostic Reagents (Rameda) and Fawry for e-payment conducted the only IPOs in 2019, after Hassan Allam Holding and Carbon Holdings retracted their offerings.
Highly anticipated offerings, such as those by Banque du Caire and e-finance, were frozen by the government due to the turbulent market conditions. There has been much shakiness since the first wave of the novel coronavirus (COVID-19) pandemic, which left the EGX down by 22.15% in 2020.
Emerald was the only real estate investment company to list its shares on the EGX during 2020, through an offering of EGP 202m. The parent company, Odin Financial Investments, acted as a financial advisor in the offering.
In contrast, 2020 witnessed a big leap in company tendencies to finance their expansion through fixed income instruments. Securitisation bonds were the most likely to attract corporate orientations, with the volume of issues of these vehicles reaching EGP 24.1bn last year.
Sukuk made its debut in 2020, and has drawn great attention. Three major companies operating in the Egyptian market have offered sukuk worth more than EGP 5bn, with the value expected to increase significantly during 2021 to reach EGP 20bn.
Business results determine fate of IPOs
Chairperson of the Financial Regulatory Authority (FRA), Mohamed Omran, said that 2021 is an appropriate period for the public and private sectors to launch IPOs.
Omran said that Egypt is the only country in emerging markets that has been able to achieve positive growth rates. He also revealed that a foreign company has submitted a request for IPO on the EGX, which is currently being studied.
EGX Chairperson Mohamed Farid said that companies are waiting for the business results of Q4 of 2020, to determine the extent of the COVID-19 impact on their financial statements and decide on the issue of IPO. This will come especially after the change of valuations during the past year due to the pandemic.
Meanwhile, other listed companies see the possibility of offering additional stakes, such as Alexandria Container and Cargo Handling Company, Abu Qir Fertilizers, and Sidi Kerir Petrochemical Company (SIDPEC).
EGX ready for new offerings
Head of a major investment bank in Egypt said that in its current condition, the EGX is ready to receive new offerings. This is provided that these proposals are for strong and successful companies with strong financial positions and high growth opportunities.
He believes that with the repercussions of the second COVID-19 wave, companies will continue to offer their shares on the EGX. With the success of covering the first offering, this will be a strong incentive for the rest of the companies to implement their proposals.
Alongside the expectations of the start of the offerings flow during 2021, the investment bank leader said that the IPOs will not affect the large turnout witnessed by the sukuk and bond issuances during the past year. Actually, the volume of sukuk and bond issuances is expected to rise strongly during the current year, especially for listed companies and those unwilling to offer additional shares on the stock exchange.
He added that the issuing entity, its orientations, and its needs determine the type of financing required and whether it would be better to provide financing through fixed income instruments or through the EGX.
CI Capital, which owns Taaleem, intends to offer 40% of the latter company on the EGX, while Ebtikar planning to offer 25%-30%. Meanwhile, the founders of Basata Financial Holding decided to postpone the company’s IPO, which includes under its umbrella Tamweel Holding for Investment and Tamweel Group
EFG Hermes manages the two offerings, and is also responsible for managing the Banque du Caire’s IPO which has yet been set, but is expected to take place in 2021.
Investment bank directors also expected that the EGX would witness the offering of companies belonging to the Armed Forces. These would have important effects on the market by injecting new blood, including the National Company for Producing and Bottling of Natural Water (Safi).
Reports stated that the military-owned Wataniya Petroleum is also part of the IPO programme of The Sovereign Fund of Egypt (TSFE).
The IPO of Taaleem will conclude in H1 of 2021 and will have a positive impact on the advisory business through advisory gains, according to CI Capital, which owns an effective stake of 16.5%.
Meanwhile a source has exclusively told Daily News Egypt that TAQA Arabia’s IPO plans have been shelved at least for the next five quarters.
This comes on the back of weak markets and a lack of investment appetite, with the company’s IPO plans potentially stretching beyond Q1 of 2022.
Suitable time for public enterprises’ offering
Amr El-Alfy, head of Research Department at Prime Securities Brokerage, said that H1 of 2021 is suitable for resuming the offering of public enterprises.
He explained that the success of the offering depends on the type of shares, whether it will be in new sectors, or a company with a counterpart in the market. It also depends on whether the offering will be in sectors that have benefited from the closures such as technology companies or otherwise.
El-Alfy noted that the offering is in the sectors that have benefited from closures in the last period will attract the attention of investors.
The start of the government IPO programme goes back to the Ministry of Finance’s announcement of the names of 23 companies in March 2018, some of which will be listed on the EGX. These companies are also set to offer additional shares.
The government has yet to implement this programme, except by offering an additional share of the Eastern Company with 4.5% of its shares in March 2019.
EFG Hermes, the largest investment bank in the Middle East and North Africa (MENA) region, expected the EGX to achieve gains of more than 30% during 2021. This would allow it to catch up with emerging markets that recorded better performances during 2020, which makes Egyptian stocks cheaper and the most attractive among emerging markets this year.