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Announcement of a Partial IPO Progr

Announcement of a Partial IPO Program for State-Owned Companies
On 25 June 2016 the Ministry of Investment announced signing a contracting with “NI Capital” as its adviser for the preparation of an “IPO Program” which aims at a partial IPO of some state-owned companies in the Egyptian and international stock exchanges.[1] The Program will be implemented over the course of three to five years under the supervision of a trilateral committee of the ministries of finance and investment and the Central Bank of Egypt. It targets around $10 billion of private indirect investments both foreign and local. The Program also aims at improving the performance of the state-owned companies that are selected for the partial IPO through enacting transparency and good governance, besides increasing and diversifying their resources. This is in addition to re-activating the Egyptian Stock Exchange and increasing its market capital. The implementation steps of the Program include cooperating with local and international investment banks in order to identify the companies that will be put for IPO, as well as present recommendations for priorities and suitable timings for the IPOs, besides promoting them. It is worth mentioning that “NI Capital” is one of the companies owned by the National Investment Bank[2] and falls under the supervision of the Egyptian Financial Supervisory Authority (EFSA). It was established less than a year ago with the objective of undertaking IPOs for state-owned companies and public business companies besides managing public investments. It is noteworthy that the Ministry of Investment’s announcement pertains only to the public sector, so far, which means that it does not yet include the public business sector. The latter falls independently under the supervision of the Ministry of Public Business Sector (a total of 8 holding companies and 125 affiliates).[3] The action plan of the “program for development and restructuring of the public business sector” – which is included in the Government Program approved by the Egyptian Parliament on 20 April 2016[4] – has not been announced yet. Securities represent a crucial and efficient tool for providing finance required for growth. It mobilizes private savings – both local and foreign – and attracts them as indirect investments. Despite the slowdown the Egyptian economy has witnessed over the five years, the capital market in Egypt – which is regulated by Law No. 95 for 1992 – has been performing relatively better. This could be attributed to the important legislative amendments recently undergone by EFSA to regulate this market and enhance its governance structure, among which is the amendment of the regulations for listing and de-listing of securities[5]. The EGX30 (LE) has scored returns of 51%, 24%, and 32% in 2012, 2013, and 2014 consecutively. Furthermore, the ranking of Egypt with respect to the two indicators of “provision of finance through the stock market” and “supervision of stock markets” – included in the Global Competitiveness report issued annually by the World Economic Forum – has improved from the rank of 60 to 55 and the rank of 107 to 104 among 144 countries respectively. In light of the above, the IPO Program is expected to yield the following positive impacts:
  • Encouraging the private sector – both local and foreign – to direct their savings into the stock market, thereby enhancing its liquidity as well as attracting a new category of dealers. Therefore, the market capital will increase. This is in addition to providing a new source of foreign currency which has been suffering from severe shortages lately.
  • Providing new sources of finance for state-owned companies, other than borrowing and the state budget. This will increase the capital of those companies and support their plans for development, restructuring, and expansion. In that way, debt burdens such companies have long been suffering from will lessen, which will also decrease the burden on the state budget.
  • Having Egyptians contribute to the capital of state-owned companies will enhance the notions of participation, accountability, and supervision in the country.
  • Pushing state-owned companies to regulate their financial statements in order to attract investors to buy their stocks will result in the achievement of financial discipline for those companies. According to Articles No. (5) and (6) of the Capital Market Law, the bulletin of any company wishing to trade in the stock market must include its plans for how it intends to utilize the incremental funds generated, besides the expected revenues. Moreover, it is obligatory that all companies present bi-annual reports on its activities and work. This means that having state-owned companies initiate IPOs will push them to adjust their financial statements and fall under the supervision of EFSA. This, in turn, will help them reform the structural financial and administrative distortions they have long been suffering from.
However, in order to ensure that the said IPO Program achieves positive impacts stated above, many factors must be taken into consideration. These include ensuring accuracy with respect to the selection of companies as well as the prices of the stocks to be traded. This can only be done through well-prepared financial and economic feasibility studies and intact future plans that are based on profit maximization and financial sustainability. Also the timing for the IPOs must be chosen accurately. On the other hand, regulations must be set to guarantee the utilization of the incremental funds generated from the IPO in restructuring state-owned companies, increasing their productivities, building their capacities, and developing their administrative structures and human resources, rather than utilizing the funds in paying off debts. This would guarantee financial sustainably and optimizing benefits from the IPO Program. [1] Press Release issued by Ministry of Investment on 25 July 2016, available through this link. [2] The National Investment Bank was established by virtue of Law No. 119 for 1980 with the objective of financing projects enlisted in the Government Plan for Economic and Social Development. [3] A commentary on the established of an independent Ministry for Public Business Sector is included in the ELU edition issued on the 2nd week of April 2016. [4] A commentary on the Government Program is included in the ELU edition issued on the 1st week of April 2016. [5] A commentary on Listing Rules Amendments is included in the ELU edition issued in May 2016.
On 25 June 2016 the Ministry of Investment announced signing a contracting with “NI Capital” as its adviser for the preparation of an “IPO Program” which aims at a partial IPO of some state-owned companies in the Egyptian and international stock exchanges.[1] The Program will be implemented over the course of three to five years under the supervision of a trilateral committee of the ministries of finance and investment and the Central Bank of Egypt. It targets around $10 billion of private indirect investments both foreign and local. The Program also aims at improving the performance of the state-owned companies that are selected for the partial IPO through enacting transparency and good governance, besides increasing and diversifying their resources. This is in addition to re-activating the Egyptian Stock Exchange and increasing its market capital. The implementation steps of the Program include cooperating with local and international investment banks in order to identify the companies that will be put for IPO, as well as present recommendations for priorities and suitable timings for the IPOs, besides promoting them. It is worth mentioning that “NI Capital” is one of the companies owned by the National Investment Bank[2] and falls under the supervision of the Egyptian Financial Supervisory Authority (EFSA). It was established less than a year ago with the objective of undertaking IPOs for state-owned companies and public business companies besides managing public investments. It is noteworthy that the Ministry of Investment’s announcement pertains only to the public sector, so far, which means that it does not yet include the public business sector. The latter falls independently under the supervision of the Ministry of Public Business Sector (a total of 8 holding companies and 125 affiliates).[3] The action plan of the “program for development and restructuring of the public business sector” – which is included in the Government Program approved by the Egyptian Parliament on 20 April 2016[4] – has not been announced yet. Securities represent a crucial and efficient tool for providing finance required for growth. It mobilizes private savings – both local and foreign – and attracts them as indirect investments. Despite the slowdown the Egyptian economy has witnessed over the five years, the capital market in Egypt – which is regulated by Law No. 95 for 1992 – has been performing relatively better. This could be attributed to the important legislative amendments recently undergone by EFSA to regulate this market and enhance its governance structure, among which is the amendment of the regulations for listing and de-listing of securities[5]. The EGX30 (LE) has scored returns of 51%, 24%, and 32% in 2012, 2013, and 2014 consecutively. Furthermore, the ranking of Egypt with respect to the two indicators of “provision of finance through the stock market” and “supervision of stock markets” – included in the Global Competitiveness report issued annually by the World Economic Forum – has improved from the rank of 60 to 55 and the rank of 107 to 104 among 144 countries respectively. In light of the above, the IPO Program is expected to yield the following positive impacts:
  • Encouraging the private sector – both local and foreign – to direct their savings into the stock market, thereby enhancing its liquidity as well as attracting a new category of dealers. Therefore, the market capital will increase. This is in addition to providing a new source of foreign currency which has been suffering from severe shortages lately.
  • Providing new sources of finance for state-owned companies, other than borrowing and the state budget. This will increase the capital of those companies and support their plans for development, restructuring, and expansion. In that way, debt burdens such companies have long been suffering from will lessen, which will also decrease the burden on the state budget.
  • Having Egyptians contribute to the capital of state-owned companies will enhance the notions of participation, accountability, and supervision in the country.
  • Pushing state-owned companies to regulate their financial statements in order to attract investors to buy their stocks will result in the achievement of financial discipline for those companies. According to Articles No. (5) and (6) of the Capital Market Law, the bulletin of any company wishing to trade in the stock market must include its plans for how it intends to utilize the incremental funds generated, besides the expected revenues. Moreover, it is obligatory that all companies present bi-annual reports on its activities and work. This means that having state-owned companies initiate IPOs will push them to adjust their financial statements and fall under the supervision of EFSA. This, in turn, will help them reform the structural financial and administrative distortions they have long been suffering from.
However, in order to ensure that the said IPO Program achieves positive impacts stated above, many factors must be taken into consideration. These include ensuring accuracy with respect to the selection of companies as well as the prices of the stocks to be traded. This can only be done through well-prepared financial and economic feasibility studies and intact future plans that are based on profit maximization and financial sustainability. Also the timing for the IPOs must be chosen accurately. On the other hand, regulations must be set to guarantee the utilization of the incremental funds generated from the IPO in restructuring state-owned companies, increasing their productivities, building their capacities, and developing their administrative structures and human resources, rather than utilizing the funds in paying off debts. This would guarantee financial sustainably and optimizing benefits from the IPO Program. [1] Press Release issued by Ministry of Investment on 25 July 2016, available through this link. [2] The National Investment Bank was established by virtue of Law No. 119 for 1980 with the objective of financing projects enlisted in the Government Plan for Economic and Social Development. [3] A commentary on the established of an independent Ministry for Public Business Sector is included in the ELU edition issued on the 2nd week of April 2016. [4] A commentary on the Government Program is included in the ELU edition issued on the 1st week of April 2016. [5] A commentary on Listing Rules Amendments is included in the ELU edition issued in May 2016.