Fluctuations in market conditions and the increase in geopolitical tension over trade have seen Egypt delays in offering shares in its state-owned companies, as part of the government’s initial public offering (IPO) programme, according to a report issued by Oxford Business Group (OBG) on Monday.
In late October, the Higher Committee for Share Offerings, the body in charge of the sell-off, announced it was indefinitely postponing the sale of an additional 4.5% stake in the state-owned Eastern tobacco company.
The public offering of this stake in the company, which was expected to raise about EGP 1bn ($55.8m), was to be the first phase of the government plan to sell shares in state-owned companies.
The five companies in the programme’s first batch include, Alexandria Mineral Oils Company, Heliopolis Company for Housing and Development, Alexandria Container and Cargo Handling, Abu Qir Fertilisers, and Eastern.
The report cited that another 18 sales of public company shares were expected over the next two or three years as part of the IPO programme, however it is unclear if these plans will be altered following the postponement of the Eastern sale.
IPO programme is part of government austerity measures
According to the OBG’s report, the public offerings come amid government efforts to generate additional funding as the country implements a series of austerity measures associated with a three-year, $12bn loan deal with the International Monetary Fund (IMF), signed in November 2016.
Moreover, the report cited that around EGP10bn ($557.6m) will be raised through public offerings this year, which, along with the cutting of a series of energy subsidies, was central to attempts to reduce the fiscal deficit to 8.4% of GDP by the end of June next year, down from 9.8% in fiscal year 2017/18.
However, higher oil prices this year – which, despite dropping just below January levels of around $65 per barrel in late November and early December, peaked at more than $86 per barrel in early October – coupled with rising yields on emerging market debt have posed challenges to meeting this goal.
Moreover, the report indicated that Egypt is expected to raise around $5bn on the foreign currency bond market next year, despite the cancellation of four consecutive bond auctions in September due to the high yields demanded by prospective buyers.
New IPOs reflect market confidence
Despite the government’s delay of IPO offerings, activity on the Egyptian Exchange (EGX) remains strong on the private side.
The report indicates that, the EGX witnessed four IPOs at a value of EGP5.2bn ($290.4m) in the first nine months of the year, according to Mohamed Farid Saleh, chairperson of the EGX, up from the EGP 3.9bn ($217.8m) recorded in 2017.
The companies involved were financial services firm CI Capital, private equity company B Investments, educational services firm Cairo for Investment and Real Estate Development, and investment firm Sarwa.
However, according to the OBG, the launch of the IPOs comes amid a difficult year for the EGX, with the exchange’s main index, the EGX30, falling 16.4% from the beginning of the year to early December, and more than 30% from yearly highs recorded in late April.
Yet, the report indicates that although there have been falls, industry figures say the private sector IPOs carried out this year reflect confidence in the Egyptian stock market, and to a certain extent, the Egyptian economy.
“Despite this volatility, Egypt has fared better than other emerging markets because of the broad economic reforms,” Hussein Choucri, chairperson of HC Securities, told OBG. “Foreign investors are experienced and have the ability to make comparative analyses, which explains why they have reduced volumes, but still continue to be net buyers.”