Egypt IPO programme: Privatisation guidelines

Niveen Wahish , Sunday 2 Jul 2023

There are things the government needs to bear in mind as it intensifies efforts to sell stakes in state-owned companies.

Stakes will be sold in a holding company that will include seven of Egypt s five-star hotels
Stakes will be sold in a holding company that will include seven of Egypt s five-star hotels


The International Finance Corporation (IFC) was appointed this week as strategic advisor to the Egyptian government’s Asset Monetisation Programme, under which it “will provide the government with technical assistance and advisory support to develop a strategy and implementation plan, help structure and prepare assets for sale… and ultimately implement selected approved transactions,” according to an IFC press release.

The agreement comes within the framework of government plans to sell stakes in state-owned companies to grow the role of the private sector in the economy.

“The IFC is uniquely placed to play this role given its neutrality, strong reputation, broad global experience in privatisation transactions, IPOs [initial public offerings], trade sales, and PPP [public private partnerships] tenders, multisectoral experience, and deep ties with strategic and financial investors focused on Egypt,” Prime Minister Mustafa Madbouli said during the signing ceremony.

While work on the agreement may still have to kick in, the government is not waiting around. Already there are deals in the pipeline, and news has come in about multiple offerings including IPOs and minority and majority stakes in companies in different sectors.

According to news reports, strategic investors are negotiating acquiring stakes in two pharmaceutical companies including the Chemical Industries Development Company (CID).

The government’s remaining 20 per cent share in the Bank of Alexandria could also be privatised. The Suez Canal Economic Zone (SCZone) is set for an IPO offering a 20 per cent stake in Port Said Container and Cargo Handling (PSCCHC) on the Egyptian Stock Exchange out of its 39 per cent stake.

The Qatari Sovereign Wealth Fund is also in negotiations to acquire a minority stake in a holding company that will include seven of Egypt’s five-star hotels.

All these offerings are part of ambitious government plans to sell stakes in 32 state-owned companies as part of its commitment to allow the private sector a greater role in the economy and to bring in much-needed hard currency to bridge its financing gap.

The plans are also part of the reforms the government has pledged to carry out within the framework of its 46-month $3 billion Extended Fund Facility with the International Monetary Fund (IMF).

The fact that the government is seeking to create room for private and more efficient ownership in diverse and important sectors of the economy ranging from energy to finance and from banking to insurance is a positive development, Irina Tsukerman, president of Scarab Rising, a media and security strategic advisory group, told Al-Ahram Weekly.

However, she warned that a lot will depend on who ends up getting the biggest stake, what roadmap the government puts in place for the future of the privatisations, how the process is managed to avoid pitfalls, mismanagement, and the creation of monopolies, and the strategy adopted by future owners.

Selling the stakes alone does not guarantee success, whether for the state or the private sector, she said. The revenues raised also need to be carefully managed, Tsukerman added.

She said that the highest bids alone may not be sufficient to guarantee the future successful management of these companies, including the banks and insurance companies. There are also concerns at having either foreign or domestic investors buying up these institutions and possibly using them to assert control over sensitive sectors of economy, she added.

“The buyers should be diverse and should have a keen stake in Egypt’s interests and prosperity,” Tsukerman stressed.

She pointed out that some of the sensitive infrastructure being offered, such as electricity, should be sold off in as many blocks of shares as possible to democratise the process and to ensure fair and free access by Egyptian citizens.

Dina Abdel-Fattah, chair and an assistant professor in the American University in Cairo’s Department of Economics, agreed, saying that in sectors identified as strategic it would be useful to sell off only a partial number of shares.

She said that whatever the line of business of the companies on offer, it was important that the sales should entail conditions on injecting fresh funds and creating jobs that could relieve the pressure on the labour market.

She noted that while the sale of stakes in the companies would inject foreign currency that would help to cushion the local currency, this would not be sustainable unless coupled with structural changes and reforms in investment policies, together with a significant improvement in the business environment and policies that support the private sector.

Privatisation is only one aspect of moves to liberalise the economy, Tsukerman said. Free trade, deregulation, better education, antitrust laws, protections of intellectual property, and transparent processes are all also essential to ensuring that key infrastructure and economic sectors do not end up either being indirectly tied back to the government or controlled by interest groups that will seek to influence government policy and drive the economy in self-serving directions. 

One of the challenges facing the sales has been the appropriate valuations of the companies concerned. Countries known to be undergoing significant challenges can expect to see the value of their companies go down, Abdel-Fattah said.

Those companies making a profit will be the attractive ones for investors until the economic conditions stabilise and the business environment witnesses significant improvements, she noted.

Tsukerman said that fair valuations have been difficult due to economic volatility. Investors may also not be inclined to carry through with their commitments due to concerns over returns on investment, she said.

“In part, this is a strategy to renegotiate valuations and to obtain greater stakes at lower cost,” she said. To avoid such issues, the government needs to diversify its sources of investment and revenue and create independent value, while also addressing any legitimate return-on-investment concerns by stabilising its economy, she said.

According to Tsukerman, the IFC can be very helpful in the privatisation process, but privatisation itself is only a step towards an end goal, which is the broader liberalisation of the economy. It should not be seen as the exclusive focus.

The IFC should also not be the only institution involved, Tsukerman said, and there should be diverse consultations in order to ensure that the process is not seen as being monopolised or hijacked by a single institution.

“The way around this is to balance this relationship with many others and to make discussions and policymaking transparent and thorough,” she said.

* A version of this article appears in print in the 22 June, 2023 edition of Al-Ahram Weekly

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