Privatization: Telecom Egypt rings in $891 million IPO


Peter Koh
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Telecom Egypt kick-started the Egyptian government’s privatization programme by completing the biggest IPO from the Middle East and North African region in 2005 in December.

The E£5.13 billion ($891 million) deal is the third-biggest IPO in the region for at least 25 years and just slightly bigger than Lebanese telecom operator Investcom’s $778 million in October 2005. The deal is the largest in the region since Maroc Telecom’s $1.04 billion IPO in December 2004.

The IPO was completed using an unusual volume-weighted average price pricing method.

“The deal was divided into a retail tranche and an international tranche,” says Albert Momdijan, head of Middle East corporate and investment banking at CSFB, joint global coordinator with local investment bank EFG Hermes on the deal. “The international tranche was done as a private placement but the government wanted to give retail investors a discount.

“The international tranche was sold using a type of auction in which the final price set was calculated using the volume weighted average price of bids received. The retail price was then determined by applying a discount to the international price.”

The deal technique, which has been used in previous Egyptian IPOs, helps to avoid some of the excesses that have plagued other hotly anticipated IPOs in the region.

Half of the 299 million shares sold by the government went to Egyptian and international institutional investors, 45% went to retail investors in Egypt and 5% to the company, which will offer them to employees.

The Egyptian government first tried to float Telecom Egypt in 2000 but had to abandon the deal because of poor market conditions. Demand this time around, however, was strong. The institutional tranche was 53 times oversubscribed and the retail tranche 10 times. Investors have shown strong demand all year for both Middle Eastern and North African IPOs as well as emerging-market telecom stocks.

The IPO, which lists the company on the Cairo and Alexandria Stock Exchange, included a London global depositary receipt listing as well. The GDRs equivalent to five ordinary shares were sold at $13.50 a share and the institutional price was E£15.56. Retail investors paid E£14.8 a share.

The IPO gives the company a market capitalization of approximately E£26.6 billion and a free float of about 20%.

The decision to list the GDRs in London is a blow to the new Dubai International Financial Exchange, which is hoping to attract regional primary and secondary listings. However, Investcom, the other big IPO from the region this year, chose to list in both London and Dubai.

“London was chosen for two reasons,” says Momdijan. “If the company just wanted to be in the region, a Cairo listing would have been adequate. As the largest company in Egypt it attracted enough regional demand by itself without having to go to Dubai. The company chose London because of the international disclosure standards and because it is the home of all other Egyptian GDRs.”

Telecom Egypt is the largest fixed-line telecoms operator in the Middle East and Africa. It is also the leading internet services operator in Egypt where the market has grown by 72% over the past four years.

The success of the deal is another clear sign of Egypt’s rehabilitation in the eyes of international investors. Just two years ago the country saw less foreign direct investment than Sudan. Today it is among the leading recipients of FDI in the region.