Economic Update

30 Apr, 2019

The Central Bank of Egypt (CBE) has announced plans to sell a stake in one of the country’s state-owned lenders later this year as part of a privatisation drive aimed at boosting public coffers.

Speaking to Bloomberg on April 15, Tarek Amer, the governor of the CBE, said that a 20-30% stake in Banque du Caire – the second-largest publicly owned lender by assets – would be offered on the Egyptian Exchange (EGX) towards the end of 2019.

Banque du Caire was one of 23 state-owned firms identified in March 2018 for partial privatisation over the coming years in the hope of raising roughly LE80bn ($4.5bn), in addition to increasing activity on the exchange.

Among the other firms undergoing preparations to offer minority shares are Misr Insurance, Middle East Oil Refining, and Engineering for the Petroleum and Process Industries.

See also: The Report – Egypt 2018

Divestment delay ends with 4.5% stake sold in tobacco firm

The first partial privatisation of the 23 firms took place on February 28, when Eastern Company, a manufacturer of tobacco products, offered shares accounting for a 4.5% stake in its business.

Valued at LE1.7bn ($60.1m), the shares were offered privately, with foreign investors buying 94% of them in a sale that was 1.8 times oversubscribed. Saudi buyers were among the biggest overseas investors, purchasing 25% of the listing for around LE400m ($22.5m). Eastern Company is the one of the largest revenue earners in Egypt, with a projected income of LE55bn ($3.1bn) for 2019.

The sale of these assets was initially scheduled to begin last year, though unfavourable market conditions, including instability in global equity markets and diminished investor appetite for Egypt’s public debt, postponed the programme’s rollout.

The delay followed a shaky debut by investment firm Sarwa Capital in October last year. The company’s share values fell by 15.1% on their first day of trading, despite enthusiasm surrounding their LE2.2bn ($124m) initial public offering. Industry observers expressed concern at the time that pushing forward with privatisation despite Sarwa’s difficulties would sow panic among potential investors.

More firms ready to participate in the privatisation drive

According to local media reports, Abu Qir Fertilizers will be the next state-run company to offer shares. No more than 10% of shares will be made available through a private placement, while the remainder will be offered on the primary market.

Local private sector investment banks CI Capital and Renaissance Capital were selected to manage the firm’s tender programme and are reportedly working with the government to finalise the book-building process.

While it was previously believed that Alexandria Containers and Cargo Handling would be the second company to take part in the privatisation drive, the sale of a 30% stake in the firm will not take place until the Abu Qir Fertilizers sale has been completed. Together, the offerings are expected to raise up to LE8bn ($450m).

State looks to bolster EGX activity through divestment

Along with his announcement of the Banque du Caire listing earlier this month, Amer stated that the government’s privatisation drive was not only a bid to raise funds, but also a route to boost market capitalisation and daily trading on the EGX. “We have a plan to support the stock exchange with new issues. There is a lot of demand,” he said.

First quarter activity on the EGX was relatively strong, with total value traded hitting LE82.6bn ($4.6bn), up from LE79.4bn ($4.5bn) the previous quarter. There were 15.6m securities sold through 1.6m transactions, representing quarter-on-quarter increases of 16.4% and 5.2%, respectively. By the end of the January-March period market capitalisation reached LE817bn ($45.5bn), up 9% from an opening total of LE750bn ($42.2bn).

Given the raft of new listings set to take place, the EGX seems poised to build on this strong start to 2019.