New public offerings in Egypt: High time for IPOs

Ahmed Abdel-Hafez, Friday 8 Jan 2021

Initial public offerings are planned for stakes in further major public-sector companies this year

High time for IPOs

Stakes in two companies affiliated to the National Service Products Organisation (NSPO) affiliated to the Ministry of Defence will be up for grabs this year, said Minister of Planning and Economic Development Hala Al-Said two weeks ago.

The two companies for which initial public offerings (IPOs) are planned are the National Company for Producing and Bottling Water, or Safi, and Wataniya Petroleum, which owns about 200 petrol stations nationwide.

A few days following Al-Said’s statement, Ayman Suleiman, executive director of the Sovereign Fund of Egypt (SFE), said the fund had assigned leading local investment bank EFG-Hermes to advise on selling stakes in the two companies.

Suleiman said the NSPO intended to offer 100 per cent stakes in the two companies. However, this contradicted reports that the government was still studying the offer. It could look for a local or foreign partner that would be offered the majority of the shares, or it could offer shares on the Egyptian Stock Exchange, or it could sell off the whole of each company on the bourse, the reports said.

Gulf newspapers have reported on Saudi and UAE bids submitted to the SFE to buy Wataniya Petroleum. The SFE has not said whether it has received offers from other foreign or Egyptian buyers.

However, the financial services outlet Bloomberg has reported that a number of local and foreign investors have expressed an interest in acquiring a majority stake in Wataniya Petroleum, including the Abu Dhabi National Oil Company (Adnoc), which produces most of the UAE’s oil. Adnoc wants to partner with the SFE on ownership of Wataniya, it said.

Qalaa Holding’s Taqa Arabia is also eyeing a majority stake in Wataniya with the SFE as a partner, according to reports. Taqa Arabia is a local private-sector energy distribution company investing and operating in gas transmission, power generation, and the distribution and marketing of petroleum products.

Regardless of the little information available, those involved in the IPOs in Egypt lauded the step, calling on the government to speed up the process to refute rumours about NSPO control of various economic sectors. President Abdel-Fattah Al-Sisi rejected such claims last year, saying “military-owned projects make up no more than two per cent of the economy.”

Ihab Said, a capital markets expert, hailed the move, saying the state should move in this direction. “Conditions in 2014 forced the army to intervene and expand in some civilian sectors to preserve national security, after many investors had pulled out capital. With the introduction of security and stability in 2017, the state began contemplating leaving this space for the private sector to grow.”

Said’s statement is in line with Al-Sisi’s speech a year ago when he said that for the past three years the state had been considering offering some of its companies for partnership with the private sector or through the Stock Exchange. The first phase of the plan comprises 10 companies, including Safi and Wataniya Petroleum.

“Offering stakes in the two companies is a bold move and should be commended. Its success will embarrass the state for the procrastination of successive governments in privatising a number of public-sector companies, and it will also encourage the government to move ahead with other IPOs,” said Mohamed Radwan, head of the Arab Finance Company.

Radwan believes the IPOs will go ahead without technical issues. “The government is studying the bids it has received, although it has released no details,” Radwan said. After selecting the approach it will adopt, it will put the bids on the negotiating table, he added.

Data about Safi and Wataniya Petroleum are confidential, given that the two companies are affiliated to a military institution. “If the SFE decides to offer stakes on the stock market, it will disclose information concerning the value of the shares and profits. If the fund decides to partner with the private sector, bidders will receive data about the size of the businesses, evaluation mechanisms, and a detailed budget so that investors can make up their minds,” Radwan said.

 “Publishing information on two companies if they are offered on the bourse will be no problem. The companies’ legal status is stable, and if they are the subject of IPOs they will be regulated by Law 159 which regulates joint-stock companies. They will have to publish accounts every three months just like other listed companies,” Al-Said said.

The timing was appropriate for the move, she added, since the stock market needed new activity, regardless of the percentage of the stakes offered. “It’s high time for these offerings. The Central Bank of Egypt has lowered interest rates, which drove many investors to the Stock Exchange in search for better profits. Real estate is in a slump, and the second wave of the coronavirus has brought development in many sectors to a near halt, save for the information and communication and technology sector,” Al-Said said.

“The time for the offerings is now,” said Radwan, adding that “there will be a lot of interested bidders because the two companies have good reputations. This is a major incentive for foreign investors to access the Egyptian Stock Exchange. The move will resonate positively on an international level.”

 “The NSPO owns more than 30 companies. It will test the market to determine the best approach for selling stakes in them that is both appealing to investors and will bring it maximum revenues,” Al-Said concluded.

*A version of this article appears in print in the 7 January, 2021 edition of Al-Ahram Weekly.

Search Keywords:
Short link: