Take off on the Horizon: Weighing up Egypt's IPOs

Official statements are indicating that the government’s initial public offerings (IPOs) programme to privatise some state-owned companies may be inching towards take-off.

Head of Egypt’s stock market Mohamed Farid also anticipated earlier this month that the IPOs of public-sector companies would kick off in the first quarter of 2019.

The government decided in October to postpone selling off shares in some 23 companies slated for privatisation on the back of the volatility in global stock markets since the outbreak of the emerging markets crisis.

A government source in the committee supervising the offerings programme was quoted last week as saying that the IPOs were expected to be launched in early March.

The committee has been regularly meeting to select an ideal time to announce the launch of the IPOs in cooperation with the investment banks participating in the programme, the source added.

The investment banks that will handle some of the IPOs include a consortium made up of EFG-Hermes and Citibank, which were awarded the responsibility of selling an additional stake in Alexandria Container and Cargo Handling.

Another consortium formed of CI Capital and Renaissance Capital will manage the sale of an additional stake in Abu Qir Fertilisers. However, “the programme may be postponed again,” said Ibrahim Al-Nemr, head of technical analysis at Naeem Brokerage.

The government has stated that the offer price of the shares will be based on their average price a month before the offering is made, plus or minus 10 per cent.

Therefore, the targeted revenue announced by the government will currently be difficult to achieve, he explained.

He added that the government had targeted collecting LE2 billion from the sale of 4.5 per cent of Eastern Tobacco, which meant that the offer price would be set at LE20, more than the currently trading price of shares at approximately LE16.

The figures indicate that it could be difficult to reach the target price in March. Launching the IPOs programme in March depends on whether the sales could achieve the targeted sum or not, Al-Nemr stated. The IPOs programme aims to expand the ownership base and increase the market capitalisation of the Egyptian Stock Exchange, in addition to raising the value and amount of daily trading.

The Ministry of Finance announced in March last year that 23 public-sector companies would be offered through IPOs on the stock market, to a total value of LE80 billion, in the first phase of the government’s IPOs programme.

Hisham Tawfik, minister of public enterprise, said that the committee supervising the offerings had begun reviewing the list of 23 companies slated to be offered through IPOs to weigh up the possibility of adding other companies.

The committee released a statement in October 2018 announcing it had decided to shelve its share offerings because the trading price of Eastern Tobacco shares had fallen below the margin stated in Cabinet Decree 926/2018 governing the programme to divest publicly owned shares. However, inflation rates should drop in the coming months, resulting in a decrease in interest rates and encouraging the investment banks to increase their investments in the stock market, said Radwa Al-Sweifi, head of research at Pharos Holding, a consultancy.

A Ministry of Public Enterprise statement explained that the delay in offering shares in Eastern Tobacco had been the result of fluctuations sweeping the financial markets, which had coincided with factors including an increase in protectionist policies worldwide, the trade war between the US and China, and the difficulties of emerging markets in the light of increased interest rates on US and European treasury bonds.

Al-Sweifi believes the share prices of the Alexandria Mineral Oils Company (AMOC) and Eastern Tobacco have not yet reached the target range, unlike shares in the Alexandria Container and Cargo Handling Company, which have reached the target price.

The government is planning to offer shares in five public-sector companies AMOC, Eastern Companies, Alexandria Container and Cargo Handling, Abu Qir Fertilisers and the Heliopolis Company for Housing and Development — on the stock market.

Al-Nemr said that since AMOC’s share price was currently trading at LE6.3 and the target price was LE10, reaching the target price by March would be difficult.