Will Egypt’s IPOs Programme be a success?

Fatma Salah
10 Min Read

June is drawing to a close and the government is still raising the goal of raising $2bn before the end of the month through its IPOs programme.

So far, the government has collected about $175m from selling 10% of Telecom Egypt, which was not included in the programme in the first place, and selling the Paints and Chemical Industries Company (Pachin) at a value of $25m.

A state of anticipation dominates the market, awaiting the implementation of the IPOs programme, amid strong Gulf interest in Egyptian assets, but it is accompanied by disagreements over valuations, amid expectations of liberalizing the exchange rate of the Egyptian pound against the dollar.

Sources told Daily News Egypt at the beginning of this month that the Saudi Sovereign Fund’s acquisition of The United Bank was halted due to a dispute over the evaluation currency, as the Saudi side wanted to evaluate the bank in pounds and pay in dollars as an Egyptian bank operating in the Egyptian market, while the Egyptian government wanted In assessing the bank in dollars and paying the value of the transaction in dollars.

The sources added that the valuation difference between the two methods will affect the deal by about $80m, which prompted the Saudi sovereign fund to withdraw from the acquisition of the United Bank.

The IPOs programme advisors, Barclays Bank and CI Capital, are working on a promotional tour in several Arab countries, which began in the United Arab Emirates, to be resumed after Eid Al-Adha.

The government is mainly counting on reaping $2bn from the sale of the Beni Suef Power Station, and the sale of Telecom Egypt’s share in Vodafone Egypt, which amounts to about 45% in favor of the Qatari sovereign fund, and mainly on Gulf investments, especially after the Saudi and Emirati Gulf sovereign funds pumped $3.3bn in investments in Egyptian assets listed on the Egyptian Exchange during the past year.

Sources told Daily News Egypt that there are several companies ready for offering during the coming period, including Egyptian Linear Alkyl Benzene (Elab), Banque du Caire, and a number of programme companies that have been included in the Pre-IPO Fund of the Sovereign Fund of Egypt.

Preparations are also underway to sell about 30% of the recently established Hotel Holding Company, which has collected a number of historical hotels under its umbrella.

Experts unanimously agreed that implementing the IPOs programme is a quick-acting solution to bridge the funding gap and provide dollar liquidity, in addition to it being a necessity to increase the role of the private sector in the economy in line with the conditions of the International Monetary Fund.

Several IPOs expected in second half of this year: El-Masry

Yasser El-Masry, managing director of the Arab African International Securities, said that the state can manage the targeted amount of foreign currency at a value of $2bn through other sources instead of offerings, suggesting that the IPOs programme will be implemented during the second half of this year, which will generate additional liquidity.

He explained that the liberalization of the exchange rate did not have a negative impact on the offering programme, but rather was a positive engine and motivation for foreign investors to pump more investments due to the low cost for investors.

He added that the government is seeking to exit from sectors that attract investment, and that the petroleum products sector has a priority now, as it is the most attractive sector for investment, explaining that there are several other sectors that the state seeks to exit from, such as electricity, banks, and insurance.

IPO programme is the ideal solution for US dollar shortage: El-Alfy

Amr El-Alfy, head of the research at Prime Holding, said that there is difficulty in evaluating the government’s IPOs programme at the present time, especially since no offers were implemented for a large number of companies, and that only a share of Telecom Egypt was sold, and the exit from Pachin.

He pointed out that the IPOs programme is the ideal solution to provide dollar liquidity, and the government will be able to collect an amount of $2bn, as there is a possible sale of the Beni Suef Power Station at a value of $2bn, explaining that the most attractive sectors for investors are export sectors such as the petrochemical sector and sectors related to infrastructure such as the energy sector.

The British direct investment company, Actis, and Idra Holding, have renewed their competition to purchase the Beni Suef Power Station in southern Cairo, as they intend to submit purchase offers for the largest possible share of the station.

El-Alfy added that the IPOs programme must be implemented quickly to provide dollar liquidity, so that speculation on the dollar on the black market stops.

Egypt’s IPO Programme faces uphill battle as IMF talks and exchange rate woes continue: Naglah

Mahmoud Naglah, Executive Manager – NBE Money Market and Fixed Income at Al-Ahly Financial Investments Management, said that the vicious circle between the exchange rate and the decisions of the International Monetary Fund is the reason for the delay in offerings, and that investors are waiting for the fund’s decisions, while the IMF is waiting for the continuous movement of the exchange rate, which Egypt has been negotiating about since last March. 

He pointed out that the power of negotiation with the IMF, whether by addressing or changing part of it, is very important, and that the upcoming proposals are a very important part of addressing the economic problem that the country is going through, and it is the easiest alternative to bridge the large financing gap, but it may take longer than announced.

Naglah added that it is difficult at the present time to issue international bonds due to the high-interest rates globally, in conjunction with the difficulty of internal financing due to the decrease in the transfers of Egyptians from abroad due to exchange rate fluctuations, with the increase in its price in the parallel market from the official rate.

Government IPOs could stimulate competition and investor interest: Abou Hend

Ayman Abou Hend, CEO Cartel Capital, said that the evaluation of the IPOs programme depends on the issue the size of the expected return from it, along with the number of offerings required to bridge the gap, since the financing gap is large and the dollar sources are not many.

He pointed out that government IPOs programme will achieve a great goal of launching competition for the strong return of the private sector, and the entry of new investors in the companies subject to the offering, pointing to the possibility of delaying the offerings from the already targeted time for several factors.

Abou Hend added that one of the biggest challenges is the global timing currently to increase the severity of global and local economic crises, with no company being offered yet, noting that the fastest sectors to exit are petrochemicals and banks, although they were affected after Moody’s assessment, then the manufacturing sector and industries as well.

IPOs Programme a temporary solution, must be followed by other measures: Abdel Hakim

Mohamed Abdel Hakim, head of the trading department at Ostoul Securities Brokerage, said that the performance of the IPOs programme so far is weak compared to the aspirations of the parties related to it, but it is necessary and is the only way now to provide dollar liquidity and bridge the gap.

Abdel Hakim explained that there is no level to determine the success of the IPOs programme, as success is a relative thing that depends on who the buyer is, the percentage of shares he obtained, the price sold at it, and the time it takes to complete the sale process. He explained that the IPOs programme is a temporary solution for the short term and must be accompanied by radical solutions such as increasing production and export in order to save the pound and revive the economy.

He added that the offering should focus on consumer sectors such as food, medicine, telecommunications, petrochemicals and the energy sector because they are the most attractive to attract strategic investors, suggesting that the coming period may witness an improvement in the performance of offerings.

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