New IPO's test for investor confidence

by Amira Salah-Ahmed | 19 May 2017

 

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Egypt’s bourse is expecting several new listings in the coming months after years of subdued capital market activity, signaling a relative recovery in the sector while simultaneously testing actual investor appetite in the aftermath of the pound flotation. 

Cairo-based regional investment bank EFG Hermes alone is reportedly advising on between five and six initial public offerings (IPOs) and acquisitions this year, valued at $500-700 million, according to Reuters.

One of the major IPOs in the pipeline is that of state-owned oil firm Enppi, which is 97 percent owned by the state-run Egyptian General Petroleum Corporation (EGPC). Another major IPO in the works is Banque du Caire, on which both HSBC and EFG-Hermes are advising.

The listing would be in line with the government’s previously announced plan to offer shares of what it deems successful state-owned companies and financial institutions on the local market. This would be a significant development given that it has been almost a decade since the last IPO of a public institution.

In an interview with Bloomberg, investment and international cooperation minister Sahar Nasr said that the IPOs seek to “broaden the ownership” of the companies among Egyptians, bolster local capital markets and help the government raise revenue.

On the one hand, Egyptian assets have become attractive to foreign institutions given their bargain prices since the flotation of the pound in November of last year. It is one of the reasons the country’s Eurobond issuance earlier this year was so successful, garnering a reported $4 billion on the global bond market, a much higher number than the set target and nothing short of historic for Egyptian bonds.

On the other hand, it will be one of the first real tests of actual investor confidence in the market after the series of reforms the government has undertaken in the past months. It will also force companies to confront the reality that their value in international markets has diminished as a result of the weakened Egyptian pound.

While sentiment has palpably improved, this has not yet translated into tangible results. The IPO activity will be a test of true will on the part of foreign investors to confidently pump back money into the capital market after capital controls were gradually eased in the months following the flotation. Restrictive capital controls, limits on banking transactions and limited capability to repatriate funds had frustrated investors to a great degree and impeded normal business activity.

Still, in either case, it is important to focus on reinvigorating Egypt’s capital market and bring back larger volumes and transactions in order to give Egyptian companies access to much needed liquidity in order to invest and expand their businesses during these difficult economic conditions.