EGX chairman says state IPO programme will spur capital inflows

Egypt’s plan to sell shares in at least 20 state-owned companies this year will help solve the country’s foreign currency crunch and spur inflows into the stock market, said the chairman of the Egyptian Exchange.

“This is a cash flow situation,” Rami El Dokany told The National in an interview. "Once the cash flow has been resolved, we’re going to see more interest and more inflows happening.

“I think the IPO [initial public offering] programme will play a big role in making things happen.”

Egypt had initially identified 23 state-owned enterprises in 2018 that could be listed on the stock exchange or have additional stakes offered to investors, but the Covid-19 pandemic and the economic fallout from the Russia-Ukraine war have contributed to delays.

Prime Minister Mostafa Madbouly last week announced the government would be pressing ahead with the programme in an effort to attract foreign investors and revive the economy.

He said he would reveal the list of companies after the weekly cabinet meeting on Wednesday.

Egypt’s net foreign reserves rose slightly to $34.224 billion last month from $34.003 billion in December, the Central Bank of Egypt said on Sunday.

However, on an annual basis, international reserves have shrunk more than 16 per cent from $40.98 billion in January 2022.

In the weeks immediately after the outbreak of the Russia-Ukraine war last February, investors pulled $20 billion out of Egypt’s debt market.

Egypt has agreed on a $3 billion rescue plan with the International Monetary Fund to deal with its economic crisis, contingent on introducing a flexible foreign exchange rate and reducing the state’s footprint in the economy.

EGX performance

The Egyptian pound has lost about 50 per cent of its value since last March, which has had some positive impact on the stock market, as investors capitalised on cheaper shares.

Despite the bearish conditions for the EGX in the first half of last year, it outperformed its Middle East peers for the year, thanks to a bull run in the fourth quarter sparked by a currency devaluation in October and the loan agreement with the IMF.

“The rally after devaluation definitely has positioned stocks to be more competitive with regional peers,” Mr Dokany said. "So, I think a lot of international and regional investors are eyeing these opportunities to come in."

The EGX has the lowest price-to-earnings ratio, the value measuring a company’s share price relative to its per-share earnings, in the region. Its five-year historical average P/E ratio is 8.8, compared to 9.3 in Dubai, 15.4 in Abu Dhabi and 18.8 in Saudi Arabia.

Turnover on the exchange rose 7.6 per cent year-on-year in 2022 to 1.08 trillion pounds ($35.6 billion), according to its annual report.

About 175,000 new investors began trading on the EGX last year, triple the number in 2021.

The share of non-Egyptians trading over listed stocks increased to 31 per cent last year compared to 21 per cent in 2021.

“The foreign contribution to daily trade is not up to what we aim for. It’s still dominated by local retail and institutions,” Mr Dokany said.

State IPO programme

Historically, there has been significant foreign interest in the public offerings of state-owned enterprises.

For example, foreign participation in Eastern Tobacco’s 1.7 billion pound public offering and private placement in 2019 reached 91.3 per cent. E-finance’s 5.8 billion pound public offering and private placement in 2021 attracted 69.3 per cent foreign participation.

Of the 23 state-owned enterprises previously earmarked for the IPO programme, nine are currently listed, coming from the property, petrochemicals, industry, petroleum, finance and logistics sectors.

These are Madinet Nasr Housing and Development, Heliopolis for Housing and Development, Sidi Kerir Petrochemicals, Abu Qir Fertilisers, Egypt Aluminum, Alexandria Mineral Oils Company, Housing and Development Bank, e-finance and the Alexandria Container and Cargo Holding Company.

The EGX approved the temporary listing of two logistics companies, the Damietta Container and Cargo Handling Company and the Port Said Container and Cargo Handling Company, in December ahead of planned IPOs.

Mr Dokany said those two companies would definitely be on the main market in the coming months.

Other state-owned companies that have been mentioned in the past, but not yet confirmed, include Egyptian Ethylene and Derivatives, El Wady for Phosphate Industries and Fertilisers, Methanex, Egyptian Liner Alkyl Benzene (ELab), Enppi, Assiut Oil Refining Company, Egyptian Drilling Company, Middle East Oil Refinery, Bank of Alexandria, Banque du Caire and Misr Insurance.

Last year, Egypt also approved pre-listing procedures for petrol station operator Wataniya and water company Safi.

The government plans to sell 15 to 20 per cent stakes in some of these companies through the EGX or private placement deals.

Egypt is targeting foreign investment of $40 billion up to 2026, including about 65 per cent in private investment.

“Any policy is only as good as its execution plan … but I think the government is quite serious about it,” Mr Dokany said. “And the fiscal situation definitely says that we need to go into this direction.”

The EGX has adopted a road show strategy in conjunction with events and conferences to attract investors, particularly in the Gulf. The team will be travelling to the Saudi Capital Market Forum in Riyadh and the HSBC Menat conference in Dubai this month.

“We always see that EGX stocks are favoured by Arab investors and GCC-based investors. This is why we’re always going on road shows in the region to speak to funds out of Saudi, the UAE … high net worth individuals, family offices and all of that,” he said.

This year's goals

Mr Dokany, who was appointed to a one-year term in August, said he wants to see a derivatives market put into place during his tenure and is in talks with local technology companies to list on the EGX.

“Egypt has an interesting tech base for a lot of start-ups,” he said. “We still lack some of those big names, but we are targeting two or three names here in the Egyptian market to take them one step forward.”

He is also hopeful that a voluntary carbon market within the EGX will be launched by midyear.

The voluntary carbon market platform for the trading of carbon emissions reduction certificates was announced at Cop27 in November and established by Prime Ministerial decree in December.

The decree allows for carbon emissions reduction certificates to be recognised as tradable financial instruments and issued in favour of entities establishing projects reducing greenhouse gas emissions.

Many steps need to happen before it is ready, including providing listing rules and creating the actual supply and demand in the market, Mr Dokany said.

In the meantime, until there are firm listings and commitments from foreign investors to provide liquidity in the market, he anticipates a period of neither growth nor contraction.

“Until some positive announcements have been made in the market, I think we’re going sideways for a little bit.”