The Egyptian Exchange (EGX) is preparing to receive government offerings during this year. Egypt’s Prime Minister revealed that 32 state-run companies will be offered to the private sector through public offering or direct sale to strategic investors or both until March 2024.
The prime minister stated that the list covers 18 economic activities, and the next six months will witness the offering of at least 8 companies.
The list of companies to be offered includes El Nasr Housing and Development Company, Maadi Company for Development and Construction, El Mostakbal for Urban Development, Misr Technology Services (MTS), Misr Concrete Development Company, Helwan Fertilizers, and Egyptian Propylene & Polypropylene (EPP).
The list also includes: El Nasr Mining, Egyptian Ethylene and Derivatives Company (ETHYDCO), Haffr Petroleum Services, Egyptian Linear Alkyl Benzene (ELAB), Sinai Manganese, Egyptian Ferro Alloys, Canal Mooring and Lights Company, Port Said Container & Cargo Handling Company, Damietta Container & Cargo Handling Company, El Salhiya Investment and Development, and some hotels owned by the Ministry of Public Enterprises Sector.
Other companies are: Misr Insurance, Misr Life Insurance, Jabal al-Zeit wind station, Zaafarana wind farm, the Beni Suef power station, Chemical Industries Development (CID), Paint and Chemicals Industries (Pachin), Alamal Alsharif Plastics, and Misr Pharma.
Rami El-Dokany, Chairperson of the Egyptian Exchange, said that the state intends to expand the ownership base of state-owned companies by resuming the government’s IPO programme. He stressed that EGX is capable of accommodating all volumes of offerings.
He mentioned e-finance as an example of successful offering, which amounted to EGP 5.8bn and was covered 68 times, indicating that these offerings lead to a broadening of the institutional and individual investor base, increasing the market’s efficiency and its ability to offer new products and securities in a manner that suits all types of investors.
He stressed that increasing the number of companies listed on EGX is a major requirement for all types of investors, both institutions and individuals. El-Dokany pointed out that the timetable for these IPOs is subject to the vision of the Egyptian government and the ministerial committee concerned with the IPO programme.
He added that the EGX is communicating with many government institutions with high liquidity ratios to redistribute their assets towards the securities listed on the stock market. This include Misr Insurance Holding Company, the General Authority for Comprehensive Health Insurance, the Egyptian Endowment Authority, the General Authority for Social Security and Pensions, as well as the Egypt Post.
He added that the IPOs will be reflected in the capital market in terms of increasing trading values and the market value of the EGX. All market indicators witnessed a strong improvement recently, as the market capitalization recorded its highest level in its history, accounting for about 12.3% of the GDP, and the rise in cash and free and capital increases to EGP 30.2bn, El-Dokany explained. He added that the listed companies distributed cash dividends of EGP 36.3bn, and the number of new investors reached a record high, of 526,000 by the end of the 2022.
He added that these improvements were achieved despite the enormous challenges that the global financial markets witnessed as a result of the Russian-Ukrainian war and the monetary tightening policy pursued by the US Federal Reserve.
The increases came especially during the second half of last year, as the EGX ranked first in terms of the return rate of the main index compared to the main indices of the Gulf countries by 22.2%, and ranked third after the Tadawul and Abu Dhabi Stock Exchanges in terms of trading values denominated in dollars, with trading values of $59bn in 2022, despite the depreciation of the Egyptian pound against the dollar. The percentage of non-Egyptians trading on listed shares increased to 31%.
El-Dokany added that the Egyptian Exchange has benefited greatly from the economic reform programme adopted by the state, and the reforms it is implementing after obtaining an International Monetary Fund loan, which gives a strong certificate of confidence in the Egyptian economy.
Also, adopting a flexible exchange rate regime to enhance the resilience of the economy in the face of external shocks, and monetary policies that aim to gradually reduce inflation rates has benefitted EGX, according to him.
He pointed out that the Egyptian economy has proven its ability to withstand external shocks.
As it benefits from a unique geographical location at the crossroads of Asia and Africa, the youth component of the population, and the structural reforms program to upgrade fair value chains, according to Ramy El-Dokany.
The EGX Chairperson stressed that the market is very attractive and represents an environment full of opportunities for investors in value stocks supported by achieving strong levels of profitability. The profit multiplier of the Egyptian market is currently about 7.7 folds, compared to 9.3 folds for the Dubai market, and 12.1 folds for the Qatar financial market. Meanwhile the profitability multiplier of the Abu Dhabi market is 18.3 folds, while the profitability multiplier of the Kuwait and Saudi markets is 21 folds, and 16.4 folds, respectively.
El-Dokany said that the new stage of cooperation between the Egyptian Exchange and the Financial Supervisory Authority was the main pillar that contributed to the advancement of the stock market during the last third of last year.
This helped in approving a package of decisions that reflected positively on market performance, including the use of many mechanisms to control the performance of the stock exchange. Such as the reverse execution mechanism, in order to ensure the stability of the market instead of canceling operations, in addition to adopting the rules for the settlement of transactions executed on corporate bonds. This contributed to activating the secondary market for corporate bonds, and amending the listing and disclosure rules, which allowed temporary registration of companies in the stock exchange lists before registering with the FRA.
In a related context, El-Dokany revealed that the launch of the first voluntary carbon market in Africa will come into force during the next six months. At the end of last year, the Egyptian Exchange Holding Company for Capital Markets Development in Egypt signed a framework agreement with the Agricultural Bank of Egypt and Libra Capital to establish a company concerned with the development, management and issuance of carbon certificates, certificates and environmental products of all kinds.
He revealed that Egypt aims to issue up to 7m tons of carbon certificates during the first 3 years of establishing the platform. “We have a goal of at least 10m tons in the next three years, in general, whether from Egypt or Africa,” El-Dokany said.
He explained that the issuance of carbon certificates goes through several stages, before they are circulated, the most important of which is what is known as verification and validation. It is done through private companies that review the issuance in terms of reduction achieved in carbon emissions and review these certificates annually.
The EGX Chairperson explained that each certificate contains a ton of carbon, and therefore each project issues certificates in exchange for the number of tons of carbon it reduces annually, and then obtains a certificate of verification and validation from international companies specialized in this matter, and thus is ready for trading.
El-Dokany said that the Egyptian carbon market is in the stage of establishing the stock exchange, but the obstacle is that many companies are still not ready to issue certificates. In order to issue and review the certificates, this stage will take between 18 and 24 months. For this reason, the Egyptian Exchange took the initiative to make the voluntary market that is being established for the entire continent, and not just an Egyptian market.
“While the African continent emits less than 3% of the world’s carbon emissions, it can be a great platform for carbon certification,” he indicated.
Unfortunately, carbon certificates issued by African companies and governments are sold at a very large discount from their global counterparts for two reasons: The first can be described as “exploitation” by international institutions outside the continent due to their ignorance of them and their value, he explained. The second reason is related to the lack of transparency and thus the need for a market that provides fair pricing for these certificates, according to El-Dokany.
Currently in Africa, carbon certificates are sold individually. Therefore, given that Egypt is preparing to issue its own carbon certificates, whether to companies, governmental and non-governmental organizations, or even individuals, it is imperative that there be a market that provides fair pricing without exploiting the ignorance of companies and individuals of the value of carbon certificates.
El-Dokany said that financial institutions will be very interested in financing these projects to reduce their carbon emissions through carbon credits.
He said that the establishment of a voluntary market for trading carbon certificates creates a number of opportunities and returns that benefit the Egyptian economy. The first is the existence of an organized market for the trading of carbon certificates, and the creation of additional revenue for companies from selling these certificates.
The second issue is fair pricing, as previous attempts by companies in Egypt or Africa priced carbon certificates issued by them at about $3 to $4 per certificate. On the other hand similar certificates in developed countries were priced at $18, and sometimes reached 100 dollars for one certificate.
The third is creating a financing tool for companies, as some banks are considering linking it to granting financing to some companies that are trying to reduce their carbon emissions, such as cement companies. The bank collects these balances from companies and then puts them back into circulation, or it is part of the repayment of loan installments through carbon certificate balances.
El-Dokany ruled out that there would be a return on Egypt from selling the carbon credits achieved in accordance with its international commitments and pledges to reduce emissions, in which Egypt identified its efforts in 3 main sectors, including transportation and energy.
He stressed the importance of the role played by the EGX in the file of sustainability, and its commitment to achieving the goals related to environmental protection, social responsibility and governance.
He referred to the basic principles on which EGX relies on in this regard, represented in building an institution based on sustainability through active participation in local, regional and global initiatives. In addition to raising awareness among market participants and working to develop sustainable stock markets.