Busy IPO Season Beckons for Cairo as Reforms Yield Results

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  • At least six Egypt companies plan to list by end of next year
  • Franklin Templeton says state company IPOs would boost market

Egypt’s stock market is shaping up to be the Middle East’s hot spot for initial public offerings next year.

At least six companies plan IPOs by the end of 2018, following two sales since January, according to data compiled by Bloomberg. That’s a marked increase on the average of three in the past three years as foreign investors fretted that a severe dollar shortage would trap their money.

Between 2011 and 2014, there were no IPOs at all as the aftermath of a popular uprising destroyed the conditions for listings. The turning point came in November, when authorities removed almost all restrictions on the pound to help end the hard-currency crunch and secure a $12 billion loan from the International Monetary Fund.

Hazem Barakat, the chairman of Cairo-based BPE Partners, has intended to sell shares in his private equity firm for longer than a year. He has now hired managers to oversee a share sale that could raise about 500 million Egyptian pounds ($28 million) in the first quarter of 2018.

“The only foreign investors in the market were the ones who couldn’t get their money out,” said Barakat. “After the float, Egypt is on the investment map and people are looking at it. Now there is a chance to do an IPO.”

Share trading has almost doubled, averaging 1.1 billion pounds a day in the 12 months ended Oct. 10, compared with 540 million pounds a year earlier, data compiled by Bloomberg show. And foreigners have returned, their net buying of stocks tripling to $497.3 million in the fiscal year to June 30. The EGX 30 index fell less than 0.1 percent as of 10:14 a.m. in Cairo, trimming its gains this year to 13 percent.

The prospects for further IPOs look promising, said Mohamed Farid, the chairman of the Egyptian Exchange. “We have plenty of requests from various companies of various sizes to list and partially float. Also there is plenty of traction when it comes to companies asking for listing requirements and trying to comply with them.”

Oil, Banks

While the uptick in IPOs is a boost for Africa’s third-biggest economy after years of political and economic instability, the relatively small size of most of the planned new listings may discourage some foreigners from buying the securities.

“Egypt’s market cap remains fairly underrepresented compared to the economy and liquidity is still low, although improving, which limits international participation in the market,” Salah Shamma, Franklin Templeton Investments’ head of Middle East and North African equities, said in an interview.

Two of the six IPOs planned for the coming months involve state-owned businesses: Engineering for the Petroleum & Process Industries and Banque Du Caire SAE. They’re part of a government plan announced last year to raise as much as $10 billion from share offerings. Better progress on that plan would attract bigger companies to market, generating greater foreign interest and higher trading volumes, Shamma said.

Past attempts to bring large government companies to market have proven complicated and time-consuming. Telecom Egypt Co. was the last state-owned company to sell shares to the public more than a decade ago.

“With a gradual macro improvement expected next year, and much improved export terms of trade helping export orientated companies, we are generally interested in investing in Egypt further, should our team find interesting new ideas,” said Mark Lawrence, investment analyst for frontier and emerging markets at T. Rowe Price Group Inc. in London. His firm is interested in the Banque Du Caire IPO, as well as export-oriented stocks, Lawrence said.

Regional Competition

Egyptian companies will have to compete for investor money with the main event on next year’s Middle East IPO calendar: Saudi Arabian Oil Co., which may sell a stake of as much as 5 percent for what could potentially be the world’s biggest offering. In the United Arab Emirates, regulators say they are working on five applications for IPOs as the country joins other Gulf Cooperative Council neighbors in diversifying its economy and reducing reliance on crude oil.

“Egypt is one of the busier markets in the region, but low oil prices and ongoing economic restructuring means that we are likely to see IPOs of state-controlled assets in the GCC as well,” said EFG-Hermes’ Strategist Simon Kitchen. Appetite for broader emerging market IPOs should remain robust in 2018, with Egypt in line for a “bigger piece of the pie” following the currency float.

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