CAIRO — Egypt’s Prime Minister Mustafa Madbouly unveiled on Wednesday the names of the more than 30 state-owned companies of which the government plans to sell shares within a year through direct sales to strategic investors and listings on the Egyptian Exchange (EGX), in a renewed push to revive the authorities’ long-stalled privatization plans.
The list, announced after a meeting of the Council of Ministers, includes 32 companies from 18 economic fields, more than initially expected. Among them are three banks, two military-owned enterprises, and several companies in the energy and transportation sectors. Some of them have been in the privatization pipeline for years.
The announcement comes as the government is moving to reduce the state’s footprint in the economy in a bid to stimulate the private sector and attract foreign investments to ease a severe economic and liquidity crunch. It also follows a $3 billion deal with the International Monetary Fund (IMF) in December that envisaged a sweeping privatization plan.
“This step had become an important and urgent necessity, especially since it is considered somewhat late, given that the government’s offering program came to light two years ago but [was delayed as] the conditions were not completely conducive to offering,” Mostafa Shafie, senior equity analyst at Arabeya Online, a local brokerage firm, told Al-Monitor.
The list of companies in which the government intends to offer stakes to the private sector includes five firms that had been added to the Pre-IPO Subfund set up last September by the Sovereign Fund of Egypt. These are Banque du Caire, Egyptian Linear Alkyl Benzene, Misr Life Insurance, military-owned bottling company Safi and Wataniya Petroleum.
Other companies that have been selected and had attracted interest are the Port Said Container and Cargo Handling Co. and the Damietta Container and Cargo Handling Co. Also on the list are the United Bank, the Arab African International Bank, and several companies in the sectors of hotels, construction and petrochemicals, including fertilizers.
Madbouly has stated that stakes in some of the companies will be sold within the next three months, while others will follow within five months and a final group by the end of the year or the first quarter of 2024. The specific details will be disclosed case by case.
Ashraf Naguib, co-founder and chief executive officer of the Egyptian private sector think tank Global Trade Matters, told Al-Monitor that the government will likely follow a two-step implementation process. “We will probably see an offset of private placements at the very beginning, so small portions of shares going out not in an IPO but more so on a private placement to some local and international multinational organizations,” he said.
The likely decision to prioritize sales to strategic investors instead of going directly to the EGX seeks to increase the companies’ capital, expand their business and foster private sector access to the management ahead of an IPO from which the state could also benefit.
“You need to fix these assets first. What makes sense is to first offset small percentages, do private placements, restructure and redevelop these companies, and then prepare them for a proper IPO into the market,” Naguib said.
It is not yet clear what percentage stake the government will offer in each company, but some media reports have speculated that it could range from 5 to 20%, an amount that some fear may not be attractive enough for strategic investors to buy.
Naguib, however, believes that the offer involves taking some risks but is still appealing. “When you think about it from a strictly business perspective, what you are doing is buying at the very beginning. You can walk in and you don’t have to take a majority stake; you don’t have to take that very high risk.”
“What we are doing is putting our foot into it [and] readjusting these companies. And any adjustment will equate into an increase of the value of your 5, or 10 or 20% stake, which means that when you IPO, you’ve taken the risk, but with it comes good returns,” he added.
The privatization announcement comes after President Abdel Fattah al-Sisi approved in December a strategic program that defines the contours of public sector presence in the national economy and sets out the sectors from which the state plans to withdraw in the coming years and those in which it intends to increase or reduce its involvement.
Madbouly had stated during the presentation of the government’s plans to draft the State Ownership Policy Document in May last year that the goal was to double the private sector’s contribution to economic investments to 65%, from 30% in 2021. Yet the final text approved in December only states that the aim is to increase investments by 25 to 30%.
The agreement with the IMF, which was sealed just two weeks before the state policy document was approved, also entailed policies aimed at unleashing private sector growth by reducing the state footprint in the economy.
The memorandum prepared by the government in the framework of the negotiations with the IMF already stated that authorities aim to raise $2.5 billion in the first phase of pre-initial public offering stake sales by the end of fiscal year 2023 at the end of June.
“The sale of SOEs is a vital part of the government’s efforts to avoid the debt distress that countries from Sri Lanka to Ghana have suffered in the past year,” Charles Robertson, chief economist at the frontier investment bank Renaissance Capital, told Al-Monitor.
“The difficulty for Egypt is that no one likes to sell an asset when it’s cheap, and Egyptian assets do look cheap as a result of the country’s twin deficits and debt levels,” he added.
Despite the renewed enthusiasm sparked by the government’s move, many call for caution as similar announcements have been made in the past that were not implemented. Egypt’s long-awaited IPO program for state-owned companies actually goes back to 2018 when the Cabinet first announced that over 20 firms would offer shares to the EGX. The plans have since been repeatedly postponed citing unfavorable market conditions.
“Our baseline view is less optimistic than the Egyptian authorities about the government’s privatization plans. In 2018, a similar highly publicized announcement to list 23 SOEs on the stock exchange was made, but most of those sales were delayed largely due to difficult global financial conditions,” said Callee Davis, an economist at Oxford Economics Africa.
“The outlook for the global economy still remains challenging,” she told Al-Monitor, noting that “the success of [the] privatization plan also hinges largely on the commitments made by the GCC countries and, therefore, the performance of these economies.”
The prospect of state-owned companies going public has raised great expectations on the EGX, which has become one of the world’s best-performing stock markets and one of the best hedges for capital since October’s devaluation and IMF deal.
Its benchmark index, the EGX30, has since climbed 60% in local currency terms, and this 2023 is up 16%. In dollar terms, however, the index is only up 4.2% since October and still 26% down from January 2022.