In an interview with Ahram Online, Egyptian Minister of the Public Business Sector Hisham Tawfik revealed more details about Egypt's Initial Public Offering (IPO) programme, asserting that the IPO has not been postponed.
Below, Tawfik talks in detail about Egypt's IPO programme, including the plan to upgrade 119 Egyptian public sector companies, which has resulted in the closure of two companies due to their critical fiscal situation.
Why has the implementation of the IPO programme been postponed?
The programme has not been postponed at all, but the offerings are affected by the status of financial markets and stock performance, which was not suitable for offering more companies in 2019, as the market witnessed a slump in activity, in addition to other technical and legal issues. So, the decision was made to pick a more appropriate time to offer more companies.
Who takes the decision on what offerings should be put forward?
The National Investment Bank (NIB) decides what companies are chosen.
Could you explain the role that the public business sector ministry plays in the IPO programme, especially given that there is already a ministerial committee responsible for the programme's implementation?
Seventy-five percent of the total number of companies listed for offering are under the Ministry of the Public Business Sector, so the ministry introduces the majority of companies to be offered, whether they are being offered for the first time or through offering additional stocks for already listed companies.
Is the IPO programme still in its first phase? Which companies have been included?
The first phase is not yet finished, it just saw the offering of one company in 2019, which is Eastern Tobacco Company, by offering additional stocks on the EGX. Three more companies will be offered in the same phase during 2020: Alexandria Container and Cargo Handling Company, Abu Qir Fertilisers Company, and Heliopolis Company for Housing and Development, which is scheduled to be offered last in this phase.
What does the second phase involve, and what is its scheduled timeframe?
The second phase involves the offering of eight companies, six of which belong to the public business ministry and are already listed on the EGX with the offering of additional stocks to be traded. Not all eight companies will be offered, they will be filtered by the ministerial committee.
Are Banque du Caire and e-finance set to be offered in January as has been reported?
They will be offered during the second phase. We are now working on selling 20 to 25 percent of the holding company for construction and development’s shares. Ten percent of the shares will be sold to a strategic investor who will be a participant in the company’s management with authority on the company’s board.
When will the EGX witness the next offering?
As soon as the NIB decides to start the offering process.
How will the IPO programme make a difference in the performance of state-owned companies?
The public sector has significant resources and assets that are not optimised. Our plan is to make use of this resource by selling the companies with the aim of upgrading them and discharging their debts, which surpass EGP 40 billion. As we do not have the cash liquidity to pay these debts, we are focusing on selling these assets to provide the required cash liquidity.
How have Egypt’s economic reforms impacted your sector?
Egypt, under the leadership of President Abdel-Fattah El-Sisi, has put at the top of its priorities for economic reform the maintaining of solid infrastructure and setting a sound monetary policy. This is what has pushed Egypt’s macroeconomic signs to evolve and record high indices, but it is not sufficient. More structural reforms are needed, especially in companies, as they are the main beneficiary from good infrastructure and the good performance of the macro economy. Attracting investments is also needed, especially domestic ones. Also, the private sector must be stimulated to play its role in Egypt’s economic renaissance, which is coming ahead.
In your opinion, how can the private sector be given a chance to thrive?
We must give the private sector the chance to not only play a role in production and manufacturing, but also to draft ideas and form strategies, in addition to sharing its ideas with the government; to be a participant, not just a receiver. If this happens, 2030 would definitely see a significant boost in the Egyptian economy.
What is the share of the public business sector in Egypt’s GDP?
Actually, we contribute a very limited share. The sector's workforce numbers around 500,000, 209 of whom are under the public business sector ministry, while the rest are in 107 public business sector companies belonging to 11 different ministries. This is compared to 20 million workers in the private sector.
Let’s talk about the public business sector ministry's plan to modernise the textile and cotton sectors.
Well, currently we are focusing on the 20 percent of matters that are the source of 80 percent of the problems. So, we found that 48 companies in fiscal year 2017/18 were taking losses. Furthermore, we found that 26 of these companies were the main cause behind 90 percent of the total losses in the sector, which amounted to EGP 60 billion. These companies lost their capital, which recorded EGP 16 billion, as well as an additional EGP 44 billion. This was the main problem that is need to be handled.
What about other companies?
The others are profit-making companies. To upgrade them we changed the number of board members, and we put in place an integrated plan to improve these companies’ performance to be able to compete with the private sector in the domestic market.
How many companies are under your ministry?
There are 119 subsidiaries and eight holding companies that belong to the ministry. We did not work on upgrading all of them, but on the companies that are in a critical situation, which account for 50 percent of companies.
What is the modernisation plan based on?
We applied a SWOT analyses, which is a study undertaken to identify the internal strengths and weaknesses of the companies, as well as their external opportunities and threats. In some cases we found that closure was the solution.
Does this mean that there were companies closed due to their fiscal problems and debts?
Without a doubt. We have already closed the National Cement Company, and another company is on its way to being closed. The 117 remaining companies will be better after they are upgraded according to the modernisation plan.
What about the modernisation of the cotton and textile sector?
The ministry has started to apply a modernisation plan in the textile sector with a total cost of EGP 21 billion, which aims to merge nine ginning, pressing, and trading companies into one company, and merge 22 textile and dyeing companies in nine companies. We are also expanding the use of short staple cotton in textile manufacturing with a quality close to the tall staple cotton products, instead of depending on the highly costly tall staple cotton.
What are the resources for funding this plan?
The Cotton and Textile Industries Holding Company will provide the funding by selling plots and with a fund from Egyptian fiscal corporations.
What about the cotton sector?
Cotton gins are the backbone of the textiles and ready-made garments (RMG) industry. But, we found that 25 cotton gins in the sector are in a very bad situation. Some of their machines are from 1870 and the most modern one is from 1980. The management was very poor and the pollution was high due to the dependence on hand circulation of cotton.
How did you cope with this?
We decided to establish 11 new cotton gins at double the production rate to replace the current 25 gins. When the new 11 cotton gins start operating, Egypt will be able to export cotton at a higher quality than US cotton.
What is the current estimate for our production and export of cotton?
Egypt imports four times its production of cotton. Between 200 and 300 acres are planted with cotton.
Prime Minister Mostafa Madbouly has instructed the public business sector ministry to coordinate with both the agriculture and trade and industry ministries to set a modernisation plan to upgrade cotton agriculture and trading, which has started with the new system for trading cotton being applied in Beni Sweif and Fayoum over the past seven months, and will be applied in other governorates soon.
What is the expected impact of this plan on the sector?
The new system will pave the way for the Egyptian cotton bourse to return and make Egyptian cotton competitive in the global market. In this regard, the United Nations Industrial Development Organisation (UNIDO) has launched a multi-stakeholder pilot project in Egypt to train cotton farmers on the Better Cotton Initiative's holistic approach to sustainable cotton production, to insure the quality of cultivated cotton.
What is the anticipated time for this plan to show results?
Within two-and-a-half years.
And what about the tourism sector?
We have launched a plan to modernise the sector through the Holding Company for Tourism, Hotels and Cinema (HCTHC). Three hotels are under development, including Shephard Hotel, which was assigned to Al-Sharif Group Holding, a Saudi company, as an investor to modernise it and turn it from a four star hotel into a five star hotel with an investment of EGP 1.4 billion.
Are there arrangements with Egypt’s Sovereign Wealth Tharaa to invest in the sector’s assets?
We have already opened talks with Tharaa to invest in four hotels that belong to the sector, and we are preparing a plan to entirely restructure the company to restore its strength in the tourism sector.
Moreover, we are currently focusing on one-day tourism through launching an online platform to promote domestic tourism under the name Tof Weshof (Travel and See), for which the HCTHC is responsible.
When is this plan expected to show results on the ground?
I cannot give a definite time, but I can assert that 2020 will be a milestone in the HCTHS and its role in backing Egypt’s tourism sector.