Egypt's EGX on radar for government development

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Egypt - The Egyptian Exchange (EGX) gained the attention of the Egyptian state as a tool to attract foreign investments and dollar liquidity that would contribute to the recovery of the Egyptian economy from the consequences of global crises.

This comes on the back of the EGX succeeding in attracting $2bn from Gulf institutions recently by selling stakes in the five largest companies listed on it, which in turn prompted an increase in the Egyptian government’s interest in developing the country’s capital market.

President Abdel Fattah Al-Sisi issued a set of assignments to the government to support and stimulate the economy, most notably assigning the government a programme for the participation of the private sector in state-owned assets, and offering companies owned by the armed forces on the EGX before the end of this year, in addition to reactivating the government offering programme.

The Private Sector Participation Programme aims to expand participation to $10bn annually for a period of 4 years.

The government has had a programme that offers companies owned by it and the armed forces since 2015 that has been updated several times, and there are companies that have already been prepared for offering within the programme, but the outcome was very limited.

Prime Minister Mostafa Madbouly said that the government would begin implementing the assignments Al-Sisi issued yesterday according to an implementation plan.

He added on Wednesday that these assignments will contribute to pushing the private sector’s participation in state-owned assets to double the role of this sector in developing the economy and to launch an initiative to support and localise national industries by strengthening the role of the private sector and expanding the base of large and medium industries.

This year, the EGX witnessed three initial offerings since the beginning of the year, which are Macro Group, Nahr Al-Khair for Agricultural Investment, and Industrial Projects.

Rania Yacoub — Chairperson of Threeway Securities — said that the presidential assignments reflect the state’s view of the EGX after the government demanded to reactivate the role of the exchange and asserted its importance in attracting liquidity to the Egyptian economy.

Yacoub added that the announcement of the assignments heralds the start of the real activation of the role of the EGX, especially after it gained the attention of the bulk of the presidential assignments related to the economic aspect.

She also pointed out that Al-Sisi directed the development of a comprehensive plan to promote the EGX by offering shares of state-owned companies as well as shares of army-owned companies to attract greater liquidity to the Egyptian market after the Russian-Ukrainian war that cast a shadow on the Egyptian market.

The chairperson added that despite the crisis, Egyptian assets are attractive, especially as they trade with a low profitability multiplier compared to other markets, which aroused the interest of Arab investors and sovereign funds that have implemented several acquisitions of a group of listed Egyptian companies due to their low value.

She stressed that the EGX was able to be a window into the Egyptian economy’s players despite a global crisis affecting all emerging markets in particular.

Furthermore, Yacoub indicated that the market is waiting for the practical implementation of the presidential mandates that the private sector and investors are waiting for to attract foreign investment to help the Egyptian economy recover and to stay away from hot money in bills and bonds, which are greatly affected by developments in foreign markets.

Regarding the market’s readiness to receive IPOs, Yacoub said that quality goods would attract liquidity even in crises, pointing to the need to encourage private sector companies to list themselves on the stock exchange by creating incentives for listing, especially tax incentives.

She added that resolving the issue of capital gains taxes is necessary to activate the full potential of the EGX’s trading.

Last year, the EGX witnessed each of the offerings distributed between E-Finance company for financial and digital investments, which listed 1.6bn shares at a value of EGP 5.84bn; Taaleem for management services with 730.3 million shares, with a value of EGP 2.1bn; Emerald for Development and Project Management with 425m shares worth EGP 57.6m; and Emerald Real Estate Investment Company, which was offered on the Nile Stock Exchange with a value of EGP 200m during 2020.

Last year, global IPOs witnessed their best performance in 20 years through 2,388 deals worth $453.3bn, according to data released by Ernst & Young, with deals increasing by 64% y-o-y, while issuances’ revenues jumped by 67% on an annual basis.

Mohamed Maher — Chairperson of Prime Capital — told Daily News Egypt that the presidential mandates to stimulate the EGX reflect the state’s interest in the money market, pointing out that it is a positive indicator for the market in general.

He added that the issuance of assignments directly from the president gives an impetus to the speedy practical implementation of these assignments, expecting a community dialogue soon to discuss the issue.

Maher also said that the government’s direction to speed up the IPO programme would stimulate the Egyptian market and increase trading values, adding that the increase in offerings will attract new investors to the EGX by activating the supply side and increasing the listed companies.

Furthermore, he pointed out that the good prices of the offerings attract institutional or individual investors, and the presence of institutions in the market is important in order to achieve balance.

For his part, Mohamed Fathallah — Managing Director of BLOM Egypt for Securities — said that the decisions are positive and reflect the state’s interest in the EGX, but there is an urgent need for clarity on the mechanisms of practical application, pointing to the need to announce the details of the offering programmes.

Fathallah added that the details should include arranging the companies with the shares to be offered and the dates of the offerings, pointing to the need to develop a clear and deliberate plan to rehabilitate the EGX in order to prepare the market to receive the expected offerings.

He also pointed to the necessity of marketing for IPOs in order to attract new investors to the Egyptian market.