Egypt postpones public offering programme amid emerging market speculation

Fluctuations in market conditions and an increase in geopolitical tension over trade have seen Egypt delay the sell-off of shares as part of its public offering programme (POP).

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 tobacco company Eastern.

In a statement released by the Ministry of Finance (MoF), the government cited recent global financial market volatility, along with the increase in protectionist policies associated with the US-China trade dispute, as major factors behind the decision.

The public offering of the stake in the company, which was expected to raise about LE1bn ($55.8m), was to be the first phase of the government plan to sell shares in public sector companies.

Earlier this year the government announced that it would offer stakes in five public sector companies: Alexandria Mineral Oils Company, Heliopolis Company for Housing and Development, Alexandria Container and Cargo Handling, Abu Qir Fertilisers and Eastern.

Another 18 sales of public company shares were expected over the next two or three years as part of POP; however, it is unclear if these plans will be altered following the postponement of the Eastern sale.

Partial sell-off plans form part of government austerity measures

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 IMF, signed in November 2016.

The government had expected to raise some LE10bn ($557.6m) 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 FY 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.

While Egypt is expected to raise around $5bn on the foreign currency bond market next year, the MoF cancelled 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 POP, activity on the Egyptian Exchange (EGX) remains strong on the private side.

The EGX witnessed four initial public offerings (IPOs) at a value of LE5.2bn ($290.4m) in the first nine months of the year, according to Mohamed Farid Saleh, chairman of the exchange, up from the LE3.9bn ($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.

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.

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, chairman 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.”