Egypt will float shares in state-owned companies as of June 1 in an effort to boost public assets and attract more local and foreign investors to stimulate the Egyptian stock market. According to a report released by the Finance Ministry on May 15, the first round of the initial public offering (IPO), to run through early next year, will include shares in four to six state-owned companies in the petroleum, manufacturing and petrochemical sectors. The shares have an estimated value of 15-18 billion EGP ($852 million-$1.02 billion), according to the report.
On May 16, Prime Minister Sherif Ismail issued a decree to form a ministerial committee entrusted with managing the IPO. The committee will consist of the ministers of investment and international cooperation, petroleum, trade and industry, finance, planning and public enterprise.
According to Ismail's directive, published in the Official Gazette, with a reinvigoration of the Egyptian stock exchange, the government hopes to increase capital liquidity, improve the performance of state-owned companies, enhance transparency and governance in dealing with state assets and diversify the state’s sources of income.
In March, the Finance Ministry announced that the first phase of the IPO program aimed at floating shares in 23 state-owned companies over the next 24-30 months with a view toward raising about 80 billion EGP ($4.5 billion). The companies, which have a total market value of 430 billion EGP ($24.4 billion), operate in the petrochemicals, petroleum, banking, building materials and real estate sectors. The enterprises will sell 15%-30% of shares, according to the Finance Ministry statement.
Among the companies to be listed on the stock market in the first phase are the Engineering Company for the Petroleum and Process Industries, Alexandria Medical Oils Company, the Middle East Oil Refinery Company and Sidi Kerir Petrochemicals Company, along with the Housing and Development Bank, Banque du Caire, Bank of Alexandria, Misr Insurance and E-finance.
Finance Minister Amr el-Garhy said that the IPO does not include selling shares to strategic investors or involve privatization. The goal is to expand the ownership base, increase market capitalization and boost daily trade volume.
In statements to Al-Masry al-Youm on March 19, Garhy said that the funds raised would serve first and foremost as financial resources, to enable the companies to buy new equipment, hire more people and so on, regardless of whether they are holding companies or investment banks. This, he added, would contribute to increasing their profits and revenues and therefore increasing the tax flow into the state's coffers.
Hassan el-Hayawan, a professor of commerce at Cairo University, said that the decision to sell shares in state-owned companies should have been taken a long time ago, but in any case, now is advantageous in terms of timing because political stability is improving, investors are growing increasingly confident about the Egyptian economy and the local stock market appears to be on an upward trajectory.
“The program will give a push to the profits of these government-owned companies and help them find the necessary funding for expansion. It will also enhance public monitoring and transparency as well as attract new investments that can boost market capitalization,” Hayawan told Al-Monitor.
In April, the Egyptian Exchange posted a one-month gain of 31.9 billion EGP ($1.78 billion), an increase of 3.3%, with market capitalization at 1.006 trillion EGP ($56 billion) compared to 974.1 billion EGP ($54.4 billion) a month earlier.
The selling of shares is part of the economic reform program adopted by the government in late 2016, following the approval of a $12 billion loan from the International Monetary Fund. Other measures included floating the pound against the dollar and reducing food and fuel subsidies to boost economic growth, hopefully lower unemployment, reduce the budget deficit and increase local exports.
Ahmed Koura, an economist and banking expert, opposes the decision to open state-owned companies to private shareholding. “It opens the way for privatizing about half of the state-owned companies,” Khoura told Al-Monitor. “If the government seeks to increase market capitalization and needs additional funds, it can found new companies, make new investments and employ more workers. Moreover, investors will not buy into floated stakes of losing companies. They will only buy shares of large, successful companies.”
Koura emphasized, “Privatizing state-owned companies is never a good choice for generating extra money.”