Several years after putting it on the list of state-owned assets to be sold, the United Bank is finally being privatised as part of the government’s privatisation programme encouraged by the International Monetary Fund (IMF).

The government is offering a 30 per cent stake in the United Bank, currently 99 per cent owned by the Central Bank of Egypt (CBE), through an initial public offering (IPO), the country’s first to sell a public company in three years.

The offering, to yield as much as LE5.15 billion ($104 million), includes a private placement, comprising 95 per cent of the issuance, as well as a public offering on the local Stock Exchange.

“It was about time,” Angus Blair, CEO of the Signet Institute, a Cairo-based think tank dedicated to the Middle East and North Africa (MENA) region, said in an interview with Asharq Business.

He added that most of the proposed banks to be privatised, whether the remaining 20 per cent of the Bank of Alexandria (80 per cent owned by Banca Intesa Sanpaolo of Italy), the United Bank, or the Banque du Caire, “could and should have been sold years ago”.

There has been talk about reviving the privatisation programme since 2018, but emerging markets turmoil followed by the Covid-19 pandemic and then the Russian-Ukranian war put the plans on the shelf.

In 2023, the government announced an initial list of more than two dozen assets to partly or fully privatise. However, only four privatisation deals took place in 2023, with the economy mired in a dollar crunch that drove investors away.

Even after a new and upgraded IMF deal and a 40 per cent devaluation of the currency in March this year followed by an inflow of funds and investments, none of the companies on the list were put on the bloc.

James Swanston, MENA economist at UK-based Capital Economics, read the step as a sign that with Egypt’s macroeconomic stability restored, officials are starting to turn their attention to longer-term reforms. Number one on the list appears to be reinvigorating the stalled privatisation drive.

Two weeks ago, the government noted that it would sell stakes in five sectors, namely banking, airports, pharmaceuticals, plastics, glass, and petrochemicals, by the end of June 2025.

Another 15 companies were touted as being in the privatisation pipeline beyond June 2025. Investment Minister Hassan Al-Khatib is expected to reveal a modified privatisation programme in early December, according to statements by Prime Minister Mustafa Madbouli earlier this month.

The offering of the United Bank coincides with the IMF’s conclusion of its fourth review of Egypt’s reform programme related to an expanded $8 billion loan. One of the main recommendations of the programme is accelerating the pace of privatisation and widening the role of the private sector in the economy.

The review will unlock a $1.3 billion tranche of the loan.

Blair said that the need to have a continuing flow of foreign investment in addition to meeting commitments to the IMF and other lenders had helped to force change in the pace of privatisation.

For Swanston, the change in pace comes at the right time as the floating of the pound has improved Egypt’s appeal to foreign investors and made Egyptian assets cheaper than they were 12 months ago.

He wrote in a note issued earlier this week that this improvement in competitiveness had made the prospect of investing in export industries tempting too.

November saw a series of new investment deals discussed and signed. Together with several energy-related projects, Malaysian automaker Proton opened a new factory in Egypt, and China’s Yutong partnered with state-owned Al-Nasr to deliver locally-produced buses.

“Investors need to be convinced that this time around the commitment of Egyptian decision-makers will be seen through actual sales at a competitive price for Egyptian market metrics and that other reforms will continue to occur to continue the momentum,” Blair noted.

Swanston underscored the importance of avoiding the flaws in Egypt’s previous privatisation deals.

A Capital Economics report issued at the end of 2022 stated that the success of Egypt’s past privatisations was questionable. Between 1991 and 2000, 118 companies were privatised, but “these firms were not wholly privatised, and many were sold to businesspeople with close ties to the ruling regime,” it said.

Corruption surrounded many of these deals, it added, saying that “based on estimates by the Egyptian Centre for Economic Studies [ECES], the government only realised 10 per cent of the true value of the assets sold.”

The report included the case of the Egyptian Bottling Company sold in 1999 to PepsiCo for 11 times the value it was sold for under the privatisation drive just five years earlier.

Moving ahead with accelerated reforms and allowing greater space for a level playing field for domestic and foreign investors will help economic growth to have more solid foundations in a world of increasing uncertainty and worsening regional geopolitical risk, Blair concluded.

The offering in a snapshot

THE UNITED Bank, currently almost entirely owned by the Central Bank of Egypt (CBE), is selling 330 million shares, a 30 per cent stake, at a maximum price of LE15.6 per share.

The first tranche of the offering, offered to institutional investors and representing 95 per cent of the issuance, was almost six times oversubscribed when trade closed on 25 November. The remaining five per cent is being sold to the wider public through the Stock Exchange starting on 27 November and continuing until 3 December.

The offering is the first initial public offering (IPO) by a public company in three years. The last IPO in the local bourse was for the privately owned ACT Financial in July 2024.

What makes the offering attractive is the fact that it is the first lender to be offered to private investors since the Arab Investment Bank was sold to EFG in 2020.

Another important factor, according to financial services company Thundr, is that IPOs in Egypt “are investments with potential upside and no downside risks.”

It said that on the first day of trading, the investor makes a profit if the stock price exceeds the value paid. If the stock price falls below the IPO price within the first 30 days of trading, the investor can recover his investment from the “stabilisation fund” used by the issuer of the shares.

According to a Thundr note, the United Bank will use this stabilisation fund to cover the public offering part of the IPO.

Many of Egypt’s past IPOs have delivered impressive first-day returns that reached 30 per cent, 50 per cent, and 29 per cent in the cases of Fawry in 2019, E-Finance in 2021, and ACT Financial in 2024, respectively.

The United Bank was established in 2006 as a result of the merger of the Nile Bank, the United Bank of Egypt, and the Islamic Bank for Investment and Development. This came as part of a plan to cut the number of banks operating in the country to streamline the sector and make dealing with bad loans easier.

The bank listed its 1.1 billion shares on the Egyptian Stock Exchange on 24 October in preparation for the IPO. It realised net profits of LE1.74 billion in 2023 from LE1.15 billion in 2021. Last year, it distributed 50 per cent of its profits to shareholders, “which is great news for long-term investors,” noted Thundr.

The bank offers both Islamic and conventional banking services and is one of only five banks that have both licences in Egypt. Being the major shareholder of the bank, the CBE can guarantee maximising the value and profits of the Bank, yet another point of strength.

Thundr, however, pointed out that the bank has a conservative approach to managing its assets, which might translate into lower returns compared to its peers.

* A version of this article appears in print in the 28 November, 2024 edition of Al-Ahram Weekly under the title: Privatisation of the United Bank