The end of January brought good news to the Egyptian capital markets

The Egyptian market is set to witness positive developments over the coming weeks. In addition to its having rejoined the JP Morgan Emerging Markets Bond Index starting on 31st January, a handful of state-owned companies are preparing to make initial public offerings (IPOs) starting in March, providing the market with much-awaited new blood.

The inclusion in the JP Morgan Bond Index came ten years after Egypt was removed in the aftermath of the January 25 Revolution. It follows three years of Ministry of Finance efforts to meet the requirements for relisting, including reshaping the yield curve of government bonds, extending their average time to maturity, and increasing the issuance size per auction, according to a statement by Minister of Finance Mohamed Maait. Being included in the index will secure Egypt around $1 billion in investment inflows, he said.

Investment decisions by institutional investors and investment funds are usually based on the country weights in a benchmark, which means more funds are allocated to countries included in the indices. The higher the weighting, the more are the allocations. Moreover, as they are directed by the weighting in the index, capital flows to any country are less sensitive to domestic economic developments, which may reduce outflows in response to domestic shocks.

Egyptian bonds will have an estimated weighting of 1.8 per cent in the index, and Egypt will also become a constituent of JP Morgan’s Green Bond Index with a weighting of 1.2 per cent, Maait said. Egypt is the first country in the Middle East and North Africa (MENA) region to issue sovereign green bonds, with a $750 million offering made last year and another planned soon.

Egypt is also planning yen-denominated Samurai bonds as well as sovereign sukuk (Islamic finance) bonds for the first time during 2022.

The privatisation programme is also gathering pace, with both Maait and Planning Minister Hala Al-Said making statements last week about plans to offer public companies throughout the year. The list includes the Ghazl Al-Mahalla Sports Club, the Banque du Caire, and fertiliser producer MOPCO.

Other company news includes:

 

Delta Sugar: The company, which produces sugar from sugar beet, recorded profits of LE349 million for 2021 compared to net losses of LE254 million in the previous year. The profitability turnaround is attributed to selling all of the sugar produced during 2021 and higher average selling prices, according to Prime Research.  

Prime expects that the government’s decision to increase the price of subsidised sugar will affect “the company’s operations positively in the event that the Holding Company for Food Industries makes a contract with it at renewed prices.”

 Eastern Company: The sole producer of cigarettes in Egypt is targeting a five per cent increase in its local brand production volume to 70 to 72 billion cigarettes for the fiscal year 2021-2022 compared to 67 billion in 2020-2021.

According to an investor’s Webinar held recently by the company, its production of foreign brands, made under toll agreements, did not live up to management expectations during the second quarter of the 2021-2022 fiscal year, but the rise in local volumes will be enough to compensate for that drop.

“The introduction of heat-not-burn cigarettes had a negative effect on the demand for regular cigarettes; however, the sustainability of that situation is still unknown,” according to a Prime Securities note on the meeting.

The company plans to import e-cigarettes to test local demand and will start producing them locally if the demand is high. It is in the final stages of introducing a new molasses brand.

 

Cairo for Investment and Real Estate Development (CIRA): The company’s revenues recorded a solid topline of LE430 million in the first quarter of 2021-2022 compared to LE370 million a year earlier.  

CIRA is an integrated provider of education services working on both the K-12 and university levels. The boost in revenues came backed by steady growth in higher education revenues resulting from a jump in student enrollment at existing facilities as well as enrollment at new faculties at Badr University in Cairo.

The company says that 2021-2022 targets of LE1.65 billion in revenues will be met, even if the Assiut University branch does not start operations. The K-12 segment currently consists of 24 schools after the recent addition of four new ones. Assiut University will start operations by February 2022, with infrastructure for nine faculties already in place without any new capital spending.

 

Abu Dhabi Islamic Bank (ADIB): The board of directors of ADIB gave the green light for an increase in paid-in capital by LE2 billion this week through a cash capital increase that will result in doubling the number of the bank’s outstanding shares to 400 million.

The move comes to comply with the requirements of the new banking law related to the minimum value of paid-in capital. ADIB introduced a new product this year in the shape of Sharia-compliant mortgage financing, which should add good numbers to its loan portfolio.

It is planning to upgrade the share of small and medium-sized enterprise (SME) financing to 25 per cent of the total by the end of the current year. It increased by LE1.3 billion in 2021.

 

*A version of this article appears in print in the 3 February, 2022 edition of Al-Ahram Weekly.