The late 1980s and early 1990s marked a time of economic change as Egypt began moving towards more market-oriented policies and streamlining its public sector through large-scale privatisation and restructuring, with at one point more than 300 state assets slated for divestment. However, a perceived mishandling of the process meant that by the mid2000s public resistance to the process was growing. By 2010 the programme had come to an end, with the 2011 revolution making the continuation of the process near to impossible.
A New Approach
Learning from criticisms of past efforts, the Egyptian government’s new public offerings programme is adopting a more cautious approach. Rather than large-scale sell-offs, minority interests in selected state assets are to be offered to public and private investors, with the government retaining control of its key resources. The authorities are also keen to secure a fair value for the assets being sold, mandating Egyptian investment bank NI Capital to coordinate its ambitious divestment schedule. Founded in 2015, NI Capital is a privately managed and incorporated subsidiary of the state-owned National Investment Bank.
The Egyptian Council of Ministers mandated NI Capital to prepare an initial public offering (IPO) programme that will see multiple state-owned companies listed on the Egyptian Exchange (EGX) and, potentially, internationally. Its basic strategy regarding the IPO programme is designed to reinvigorate local capital markets by offering stakes in promising state-owned enterprises to the investing public.
According to NI Capital, both retail and institutional investors in Egypt and abroad will be invited to partake in the coming deals. The planned role of ordinary investors in the privatisation effort contains an element of social inclusion which has been successfully exploited in the divestment of state assets elsewhere in the region. Neighbouring Saudi Arabia, for example, has for many years encouraged its citizens to participate in the IPOs of government-owned companies, framing the flotation of these bodies as a means by which the public can benefit from the economic expansion of the country.
The participation of foreign portfolio investors, meanwhile, brings benefits from the government’s perspective. As well as helping to reduce exchange volatility, portfolio investment from abroad will help attract hard currency to Egypt.
Setting The Tone
Should the programme unfold as planned, some large offerings are expected to be placed on the EGX. Details of the first of these were revealed in June 2017, when the Ministry of Investment and International Cooperation, the Ministry of Petroleum and Mineral Resources and NI Capital announced that they had appointed bookrunners for the potential IPO of Enppi, a local engineering firm and subsidiary of the state-owned Egyptian General Petroleum Corporation. The company is widely considered to be a promising initial start for the IPO programme, being well regarded for engineering services in the energy sector and having successfully expanded its operations to markets in Saudi Arabia, Venezuela, Jordan, Libya and Sudan.
As the opening IPO of the government’s divestment programme, the Enppi flotation will set the tone for future deals. Sahar Nasr, the minister of investment and international cooperation, acknowledged this fact telling industry media, “We are keen to see success of this IPO programme in broadening the ownership base in state-run companies through private sector participation, offered to both retail and institutional investors in Egypt and beyond. The Enppi IPO is only the beginning of a pipeline of state-run companies to offer minority shares publicly over the next year, while keeping majority stakes owned by the government in these enterprises, increasing the overall width and liquidity of Egypt’s stock market.”
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