CEO and Managing Director of NI Capital Holding Mohamed Metwally reviewed the company’s expansion plan in 2022 and his expectation for the government offerings programme during the year in addition to the most prominent challenges facing the Egyptian market at the present time.
What are the most prominent features of the expansion plan of NI Capital in 2022?
The company plans to expand non-bank financing activity by establishing a consumer finance company in partnership with other financial institutions through Tamweely Microfinance — of which NI Capital owns a 30% stake — provided that the establishment of the company is completed before the end of the year.
The company also aims to implement another deal to invest in the media technology sector through Ergo, a company owned by Ayadi Investment Company.
The main strategy of NI Capital in 2022 will not depend on adding new activities as much as focusing on growth in the volume of business of the sectors where it currently operates, namely financial advisory, securities brokerage, management of investment funds, portfolios, and direct investment.
What is the volume of the assets managed in the investment funds and portfolios sector, and what is the target volume by the end of 2022?
The volume of the company’s assets exceeded EGP 5.5bn by the end of 2021, and the size of these assets is expected to grow to EGP 8bn by the end of 2022.
The company also plans to launch a new fund that will invest in fixed income instruments throughout the year.
Moving to the direct investment sector, what is the size of the assets currently under management in the sector and the target size by the end of 2022?
The volume of the company’s investments in the direct investment sector is currently estimated to be EGP 1.5bn, and the volume of the direct investment portfolio is expected to grow by 25% by the end of this year. The direct investment portfolio is also distributed into a 20% portfolio for NI Capital itself, and the rest are Investments for Ayadi.
The most important strategic sectors that NI Capital and Ayadi Investment are focusing on are non-banking financial services. As for Ayadi’s portfolio, the focus will be on industrial complexes, agricultural manufacturing, entrepreneurship, and arts.
What is your outlook for the future of the government offering programme in 2022?
I expect two to three large proposals from the government’s IPO programme to be implemented in 2022, including one or two new companies that have not previously entered the stock exchange. I also expect a chance for cooperation with the private sector regarding offerings.
What factors guarantee the success of the IPO process, whether governmental or private?
The most important factors guaranteeing the success of the offerings are liquidity and pricing. The size of the offering, especially for initial offerings, is very important in enhancing its attractiveness, especially for foreign investments, as only the highly liquid offerings with a value of more than $300m attract institutions and funds as well as foreign investors of all kinds.
Foreign investors do not rule out entering into offerings that range between $200-300m. As for offerings of less than $100m, marketing depends more on the demand by local investors.
The pricing factor, which is very important for ensuring that the offering is largely covered, is also essential. Attractive pricing allows for good profit margins for investors, which also contributes to dealing with price fluctuations after the offering process, as high and exaggerated pricing threatens to collapse the share price after the offering, which gives a bad impression and sets it up for failure. It also spoils the chance for any upcoming propositions.
For example, we see the attractive pricing and the large size of the I-Finance offering, which were the reasons for the great success it achieved. It managed to attract international institutions and funds that entered the Egyptian market for the first time.
The most important factors for the success of an offering are always the company’s growth opportunities, the attractiveness of the activity where it operates, and the strength of its financial performance, as well as choosing an appropriate timing for the offering to ensure the availability of demand needed by the offering volume.
How do you expect the interest rate trends to look like in 2022?
I should make it clear that the real interest rate is the difference between the inflation rate and the interest rate; therefore, the real interest rate in Egypt is considered within the positive range of 3%, which is the highest real interest rate in the world.
This means there is no pressure that requires the Central Bank of Egypt’s Monetary Policy Committee to raise the interest rate in Egypt in the coming period to face the current inflation, which is still around 6%.
Conversely, the real interest rate is negative in most countries of the world. Therefore, most countries are currently moving to raise the interest rate to counter inflation.
What are some ways to attract foreign investments to the EGX?
It is not easy to attract foreign investments in light of the low trading volumes on the EGX. Foreign investors are only interested in active markets that have high trading volumes in order to ensure easy exit from them.
Additionally, large foreign institutions determine a set of criteria for themselves before investing in any market. In the 1990s, it was among the criteria that the daily trading value of shares is no less than $100m; however, this figure increased to $250m-300m.
It is essential for trading volumes on the EGX to grow to nearly EGP 5bn-6bn to be attractive to foreign investments, especially with the influx of large offerings that can generally grab the attention of foreign investors to the EGX.
Moreover, foreign institutions are interested in the relative weight of Egyptian stocks in the Morgan Stanley indicator, which has decreased to less than 0.5% instead of 3.5% in earlier years.
Do you see any ways to overcome the crisis of low stock trading volumes?
The crisis of low trading volumes in the stock market will remain as long as the real interest rates in Egypt are high. With fixed income tools that give the investor an interest rate higher than 10% net of taxes with zero risks, investing in them will remain the best option, so going to the EGX will remain a weak alternative, especially with the high investment risks.
Therefore, the revitalisation of the stock exchange’s transactions is subject to a decrease in interest rates. Additionally, it remains necessary to strengthen the stock market with large proposals by companies that enjoy good financial performance and strong growth opportunities.
It is expected that the upcoming propositions, from both the private and government sectors, will contribute to growing the investment volume in the EGX.
In your opinion, what are the challenges currently facing the Egyptian economy and hindering attracting foreign investments?
This year, the Egyptian economy may suffer from inflation-related challenges. However, the inflation crisis will be temporary, as we will see fluctuations of varying severities from one sector to another.
The increased inflation rate is a natural result of a lack of supply due to the supply chain crisis. However, the crisis will slowly ease as new players and competitors enter many industries. The situation will eventually stabilise on a global level in early 2023.
Egypt is still suffering from the reputation of the past years that withheld many of its direct investments. Changing this reputation requires taking all necessary measures to facilitate the establishment of private companies, obtaining the necessary licenses, purchasing or leasing industrial lands for long terms, and other matters that could be required by local or foreign investors to inject investments.
This is especially true for the industrial sector, specifically after the huge investment made in basic infrastructure during the past seven years, which will make Egypt an attractive country for establishing industrial activities and services, and that will generate tax revenue for the state to restore the capital invested in the infrastructure.