Egypt Pulse

Will Banque du Caire’s second go at privatization succeed?

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Article Summary
Banque du Caire hopes to raise $300-400 million by selling a 20-30% stake in it this year.

Egypt’s state-owned Banque du Caire is reported to be preparing for an initial public offering (IPO) during the second half of 2019. The bank's chair, Tarek Fayed, was quoted by Masrawy on April 18 as saying that a stake of 20-30% would be floated.

Fayed valued the stake at an estimated $300 million to $400 million, with EFG Hermes and HSBC serving as lead underwriters. Founded in 1952 as a commercial bank, Banque du Caire’s market share currently stands at 5% in terms of savings, according to Fayed, and at the end of 2018 it held assets estimated at 165.7 billion Egyptian pounds ($9.66 billion). By comparison, the National Bank of Egypt, the country’s largest bank in terms of assets, with 1.5 trillion pounds ($87.4 billion), has a market share of 29% in terms of deposits. 

Abdel Mottaleb Abdel Hamid, professor of economics at the Cairo-based Sadat Academy for Management Sciences, told Al-Monitor that the IPO is expected to be the largest in Egypt in the past 10 years. 

“It will have a positive impact on the banking sector, the bank’s performance, the stock market and the economy as a whole,” Abdel Hamid said. “The IPO is well-timed and is in line with Egypt’s economic reform program.”

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Abdel Hamid further asserted, “Generally speaking, IPOs benefit corporations by boosting their assets and capital. The ultimate objective is to enhance performance, profitability and financial positioning in the medium and long terms. As for Banque du Caire’s IPO, the lender will highly benefit from injecting fresh liquidity into its capital base.”

Previous efforts to partially privatize Banque du Caire date back to 2008, Abdel Hamid said. At that time, President Hosni Mubarak's government had wanted to auction off the bank.

“Selling the entire bank to one strategic investor stirred public resentment back then,” Abdel Hamid remarked. “We [the public] opposed the plan in 2008, and the then-government scrapped the whole plan under public pressure.”

In October 2006, the Mubarak government had sold an 80% stake in the Bank of Alexandria to the Italian group Intesa Sanpaolo for $1.6 billion. “However, the situation is different today, as the present government is [only] seeking to float up to a 30% stake in the lender on the stock market, while retaining the remaining [majority] stake,” Abdel Hamid noted. “The process is being handled with objectivity and transparency.” 

Public Enterprise Minister Hesham Tawfik explained to Hapi on April 21 that the general rule is to sell off stakes in state-owned companies via IPOs to broaden the investor base and also to bolster the stock market. “However, a sale to a strategic investor, for example, would be an exception based on the approval of the Cabinet,” Tawfik told Hapi.

“The government … has selected a number of state-owned firms to go public through listing on the stock market, where investors can buy and sell the shares in an open market,” Abdel Hamid said. “The market conditions are positive given the political stability and growing investor confidence in the Egyptian economy. Market sentiment has been improving since Egypt launched economic reforms in November 2016.”

In March 2018, the government announced plans to list 23 state-owned companies on the Egyptian Stock Exchange. Those listed were involved in the oil and petrochemicals, logistics, financial services, real estate and manufacturing sectors.

The first round of IPOs included Engineering for Petroleum and Process Industries, the Middle East Oil Refinery Company and the Egyptian Drilling Company. The IPOs also included stakes in Alexbank, Misr Insurance, E-finance and the Housing & Development Bank. In March, the government floated a 4.5% stake in the Eastern Company, Egypt's largest producer of cigarettes.

The World Bank reported in April that Egypt’s economic growth has recently been “robust,” averaging 5.3% in fiscal year 2017/18, driven by expansion in gas extractives, tourism, manufacturing, construction and information and communications technology.

Egypt had launched a raft of economic reforms after signing a $12 billion loan agreement with the International Monetary Fund (IMF) in November 2016. On March 21, Fitch Ratings upgraded Egypt's IDR, long-term foreign-currency issuer default rating, to B+ from B with a “stable” outlook.

Retail and corporate deposits at the Banque du Caire had risen 7.5%, to 131 billion pounds ($7.63 billion), by the end of 2018, compared to the previous year's figure. In addition, the bank’s loan portfolio surged by 48%, to 66 billion pounds ($3.84 billion), for the same period. In a March 29 statement, the Banque du Caire reported that its net profit increased by 200%, to 2.5 billion ($145.7 million), in 2018, compared to 800 million ($46.64 million) in 2017.

On April 23, Moody's upgraded long-term local currency deposit ratings for the National Bank of Egypt, Banque Misr, Banque du Caire and Commercial International Bank, to B2 from B3, and their long-term foreign currency deposit ratings, to B3 from Caa1. The agency wrote in a statement on its website, “The rating actions follow Moody's upgrade of the Egyptian government's issuer rating, to B2 stable from B3 positive, and reflect the improved economic outlook and stronger growth potential.”

Mohammed Jarrah al-Sabah, chairman of the Union of Arab Banks, said Egypt’s banking sector tops that of non-oil Arab countries in terms of assets, which stood at $304 billion at the end of 2018, and ranks fourth, behind United Arab Emirates, Saudi Arabia and Qatar, in the Arab region as a whole.

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Ahmed Elleithy is an Egyptian reporter and financial columnist who has been writing for various local and international newspapers and news portals since 2004. 

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