Market maker: Sale of stakes in state-owned firms to boost Egypt's exchange - minister

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Egypt's Minister of Public Enterprises, Khaled Badawi (left), speaking to Simon Kitchen, head of strategy at EFG Hermes at the investment bank's One on One 2018 conference in Dubai.

Egypt's Minister of Public Enterprises, Khaled Badawi (left), speaking to Simon Kitchen, head of strategy at EFG Hermes at the investment bank's One on One 2018 conference in Dubai.

Egypt's plan to sell off stakes in an initial 10 publicly-owned companies "will create a lot of momentum" for the country's stock market, the country's Minister of Public Enterprise has said.

Speaking at a conference held by investment bank EFG Hermes in Dubai on Monday, Khaled Badawi said: "The Egyptian stock market does not, in my opinion anyway, reflect the size or the potential of the economy.

"Having a stock market that has only, I think, 800 billion (Egyptian) pounds, which is roughly $40-45 billion market cap, that's too low for an economy like the Egyptian economy," Badawi said.

"We have lots of sectors that are not properly represented in terms of weighted average in the markets. We have to inject a lot of stocks we have in specific sectors to increase the average," he said.

Some of the industries that are under-represented where firms could be brought to market include companies involved in the textiles, steel, construction and logistics sectors. Badawi said that of the 10 companies initially identified for stake sales, some were already listed, while others would be listed for the first time.

He said that the government will initially look to retain majority stakes in companies being listed, but indicated that this could change over time.

“I think one day there will be a sovereign fund and that fund will decide on the exact structure that they wish to have, but at this stage I think we will go down to 51 percent.”

He said that a sovereign fund for Egypt is "an idea that's being discussed and studied internally".

Badawi told the conference that there are 121 companies in the ministry's portfolio, of which 73 are currently profitable and 48 are not.

Some of these will need to be restructured before being brought to market, he said, and although some may suffer from liquidity problems, they have assets that can be sold to help fund turnarounds.

Speaking to Zawya on the sidelines of the conference, the chairman of Egypt's stock exchange, Mohamed Farid, said that "there is much room" for the market to grow.

He said that the total value of Egypt's stock market capitalisation currently stands at “about 20-25 percent” of its gross domestic product (GDP).

“We were talking around 80 percent previously,” Farid said. “Hence, this gives an indication that there is much room to grow.”

Returns on the Egyptian market were higher than for neighbouring Gulf exchanges in 2017. The Egyptian index gained 21.66 percent in value last year, as economic reforms in the country led to improved investor sentiment.

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(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@thomsonreuters.com)

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