Egypt 2015: Back in business

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Egypt’s capital markets are firmly back on the radar of international investors, thanks to a pair of high-profile IPOs and the promise of the first sovereign bond for more than five years.

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AS WITH MUCH else in the country, deal flow in Egypt more or less came to a standstill during the three years after the 2011 revolution. Investors fled equity markets, dealmakers held their hands and plummeting ratings kept the country locked out of international bond markets.

In the past year, however, Egypt’s capital markets have sprung back to life. Its stock market was one of the top five performers worldwide in 2014. The benchmark EGX 30 index was up more than 30% on the year and rose by a further 10% in January, to levels not seen since 2008. It has since had a slightly bumpier ride but in late April was still well above 8,500, more than double the level three years earlier. 

The primary equity market is also showing strong signs of revival. In May 2014, Arabian Cement became the first company to launch a major flotation on the Egyptian Exchange for four years when it priced a $108.8 million initial public offering (IPO).

It was followed in March this year by Orascom Construction, the newly demerged engineering and construction business of Netherlands-listed OCI, which launched a $185 million dual listing on the Egyptian Exchange and Nasdaq Dubai. 

The engineering and construction firm, which is controlled by Egypt’s Sawiris family, had previously been the largest listed stock on the Cairo bourse but its shares were moved to Amsterdam in 2013 as the political and economic environment in Egypt deteriorated. Its return to the Egyptian Exchange was therefore seen as a vote of confidence in the new regime of President Abdel Fattah al-Sisi.

Snack attack

The IPO that attracted most international attention, however, was that of Egyptian food and beverage firm Edita. With annual revenues of around E£2 billion ($262 million), the Cairo-based company is the largest independent snack producer in North Africa and exports to more than 15 countries in the Middle East, Africa and Asia. It is also one of the few Egyptian firms to have thrived in the aftermath of the Arab Spring, notching up double-digit growth in each of the past four years. 

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The listing comprised retail and institutional offerings, both of which proved hugely popular with investors. Institutional investors placed more than E£22 billion of orders for 92.5 million shares, giving an oversubscription level of 13.4 times. The retail tranche was 4.5 times oversubscribed, with orders totalling E£1.4 billion. 

International investors were well-represented in the deal, with around 70% of the institutional shares being placed in London in the form of global depository receipts (GDRs). In total, the flotation – of 30% of Edita’s total share capital – raised E£2 billion, putting the company’s market capitalization at E£6.7 billion. 

The success of the transaction is widely expected to encourage other Egyptian privately owned companies that have been considering an IPO, such as leading mobile operator Etisalat, to come to market in the coming months. 

Public sector promise

Equity investors may also have a chance to buy shares in state-sector firms this year, if ministers deliver on promises to restart Egypt’s long-delayed privatization programme. There have been no new public offerings of state-owned assets in Cairo since 2005, but in the past two months it has been reported that at least five public sector companies are preparing to list. 

Misr Oil Processing and Fertilizers Company (Mopco), a major producer of urea, looks set to be the first to market after applying to the Egyptian Exchange for a listing at the end of March. The state-owned company, which has a share capital of E£2.3 billion, has been reported for several years to be planning an IPO and its chairman Hassan Abd El-Alim confirmed in September that the flotation would finally take place this year.

Announcing the listing request, the Egyptian Exchange noted that it "reflects the public sector intention to take advantage of the funding opportunities offered by EGX as part of its efforts, along with many other governmental institutions, to list more state-owned companies".

Three of the other privatization candidates are from the petrochemical sector. The Middle East Oil Refining Company (Midor), an Alexandria-based refinery with a share capital of $1.1 billion, is reported to be aiming to raise $400 million in an IPO in the fourth quarter of this year. The Egyptian Company for Refrigeration (Gas Cool) and El-Neel Oil Marketing Company are also preparing to float, according to the Egyptian Exchange. 

Meanwhile, Egypt’s Supplies Minister Khaled Hanafi indicated in February that the ministry was exploring the options with regard to a listing of the Food Industries Holding Company (FIHC). An IPO, which would be the first ever of a government-owned holding company in Egypt, could raise E£3billion-4 billion to support underperforming companies in FIHC’s 43-strong portfolio.