Privatisation is back in the news after years of absence, with the government releasing a shortlist of five profit-making state-owned companies that will be put on the market before the end of 2018.
After a series of lawsuits that had re-nationalised companies that went private on the back of accusations of corruption in deals finalised before the 25 January Revolution, the privatisation programme came to a halt for almost five years.
However, in 2016 Tarek Amer, governor of the Central Bank of Egypt (CBE), said that the government was considering selling stakes in companies including one or two banks through the stock market.
Banque du Caire and the oil company Enppi were the first state-owned companies to be listed, and last week the government revealed the names of five other public entities that will go on the block.
The last time state-owned companies were listed on the exchange was in 2005 when shares were floated in Telecom Egypt, the state landline monopoly, and oil companies Sidi Kerir Petrochemicals and AMOC.
The five companies announced for privatisation last week are the Alexandria Minerals and Oils Company (AMOC), Eastern Tobacco, the Heliopolis Company for Housing and Development, Alexandria Containers and Cargo Handling, and Abu Qir Fertilisers. All are profit-making, and each is a pioneer in its field.
They are all at present majority-owned by the state, with part of their stock already in private hands.
The fact that all the companies are profit-making has raised mixed responses, since there have been criticisms that in its search for revenue the government is seeking to cover current deficits by selling off assets at the expense of future generations.
Prime Minister Mustafa Madbouli said on Monday that the IPO (initial public offering) programme that includes the companies would contribute to energising the stock market, raise the market value of company shares, and diversify their sources of financing and help to expand investment.
Alexandria Minerals and Oils Company (AMOC)
This was established in 1997 as a joint-stock company with stakes held by state-owned companies, public-sector banks, insurance companies and pension funds.
AMOC is a second-stage refining company that refines low-sulphur oil that other refineries cannot crack. It also produces higher-value products.
The company has an agreement with the Egyptian General Petroleum Corporation (EGPC) to give the later 88 per cent of its products to cover local demand, while the rest is either sold locally or exported.
AMOC is working on a $600 million project to turn it into a “zero fuel oil” refinery. Fuel oil has the lowest margins in the company’s current products mix. The project is part of petroleum ministry plans to reduce fuel oil usage by 2021 and shift to other petroleum products of higher quality.
“We believe that this project will eventually be a key trigger for AMOC stock,” the consulting company Pharos recently noted.
The floating of the pound two years ago has also benefited the company as it sells its output in dollars while its production costs are in Egyptian pounds. It has changed its products mix to increase the contribution of products with high margins.
AMOC showed a 24 per cent year-on-year rise in profits for the nine-month period ending in March 2018, recording LE1.05 billion in profits. It is considering floating some of its shares on the Nasdaq Dubai exchange, following the completion of listing on the London Stock Exchange to issue global depository receipts (GDRs).
The company was first floated on the Cairo Stock Exchange in 2005, and around 30 per cent of its shares are listed there.
AMOC’s biggest shareholder is the state-run Alexandria Petroleum Company with a 20 per cent stake. Two other state-owned oil companies each own 3.6 per cent stakes, and various banks and investment funds own the remaining 52 per cent.
The Eastern Company, a subsidiary of the Chemical Industries Holding Company, is an Egypt-based joint-stock company engaged in the manufacture and trade of tobacco and related products.
The company’s product portfolio includes cigarettes, cigars, pipe tobacco, and molasses tobacco. With 25-30 per cent of its 100 million population being smokers, Egypt is considered a vast market for cigarette companies.
The company was set up in 1920, and it dominates the cigarettes and tobacco market in Egypt as it alone produces 94 per cent of all the cigarettes sold.
In addition to producing its own brands like Cleopatra and Viceroy, it has local production agreements with international companies like British American Tobacco and Imperial Tobacco.
Its wide range of products with a wide price range is one of the main strengths of the company, as while it sells the popular low-priced Cleopatra and Viceroy cigarettes it also manufactures and sells high-end expensive brands.
The company hiked its ex-factory prices on all six occasions the government increased taxes on tobacco products over the last three years, making use of the flexible demand for cigarettes and the resilience of this demand to increase prices. It exports its products to 30 countries.
However, the fact that 65 per cent of the company’s production costs are spent on raw materials, mainly imported tobacco, makes it vulnerable to any change in foreign exchange rates.
The company needs LE300 to LE600 million annually to buy raw materials. Sources close to the company have told reporters that there are negotiations underway with the government to lift the ban on tobacco cultivation in Egypt.
Consultancy Prime Securities gave the stock a buy recommendation last week, as the company’s price/earnings ratio for 2018/2019 came in at 12.45 times compared to a worldwide average among tobacco companies of 16.4, meaning that investors pay less in buying shares to get LE1 of revenues.
Prime put the fair value of the shares at LE221, 32 per cent higher than their current value.
Abu Qir Fertilisers
Abu Qir Fertilisers released its financial results for the last fiscal year this week, showing a 25 per cent increases in sales to reach LE7.5 billion. Its net profits came in at LE2.44 billion, compared to LE2.2 billion the year before.
The government plans to sell 30 per cent of the company on the Cairo Stock Exchange, with the currently available shares representing only 16 per cent of company equity. Abu Qir Fertilisers was added to the EGX 30 Index in February.
The company produces and markets nitrogenous fertilisers and bulk-blended fertilisers in Egypt and internationally. It is the largest fertiliser producer in Egypt as it covers almost 70 per cent of market needs.
Its board recently approved studies to boost the efficiency of the company’s mixed-fertilisers unit at an estimated cost of 80 million Euros. It aims to achieve revenues of around LE6.79 billion and sales of LE6.2 billion in the current financial year.
Heliopolis Company for Housing and Development
This is a state-owned company, 75 per cent owned by the Holding Company for Construction and Development.
It has a wide land bank with two plots in significant locations, the first in New Heliopolis between the Cairo-Suez and Cairo-Ismailia Roads on 24.7 million feddans, and the second in Heliopark between the Al-Rehab and Madinaty residential projects.
Until 2015, the company depended on land sales as well as developing residential units, a business paradigm common among state-owned companies but limiting its profits and not helping with debts.
In 2015, the company signed off on a master plan to develop 655 feddans of land in New Heliopolis, where it will be responsible for installing utilities. ]
In June this year, it started talks with a local bank for a LE1 billion credit facility to fund the New Heliopolis project.
The timing of the loan was deliberate as monetary easing and lower interest rates are thought to be in the offing.
The company plans to finalise the designs for its Heliopark City in New Cairo before the end of 2018.
The owner of the Merryland Park and the Granada Entertainment City in Heliopolis, the company has contracts with developers to upgrade the two sites, which are to be reopened soon.
It reported an 11.32 per cent year-on-year decline in net profits after tax to LE120.5 million in the first nine months of 2017-18, down from LE135.8 million during the same period last year. The company attributed the decline to a LE80 million installment payment on a LE500 million leasing contract.
Alexandria Container and Cargo Handling (ACCH)
The ACCH is engaged in the marine port services sector specialising in container and cargo handling in Egyptian ports.
Its services include stevedoring and storage, security, tariffs on both domestic and foreign trade, and trans-shipment container handling in the Eastern Mediterranean. It operates in the Alexandria and Al-Dakheila container terminals
These comprise import and export yards, hazardous yards, operations buildings, security buildings, workshops, storage areas, customs areas and fuel stations.
Last month, the Company said it expected 2018/2019 profits to come in at LE2.8 billion, with net profits after taxes expected to be LE1.9 billion.
It was announced recently that 30 per cent of the company would be floated, with the government saying earlier that it was planning to sell an additional 15 per cent stake of ACCH on the Cairo Stock Exchange, bringing the company’s total free float to 20 per cent.
This is so because the holding company owning some of the stock would sell 8.7 per cent of its shares in ACCH (out of a total ownership stake of 55.8 per cent), with the remaining 6.3 per cent coming from the Alexandria Port Authority’s 40 per cent stake.
ACCH faced delisting earlier this year after failing to meet the Stock Exchange’s minimum free-float requirements.
*A version of this article appears in print in the 2 August 2018 edition of Al-Ahram Weekly under the headline: Five companies for privatisation