Egyptian Exchange EGX boosted by IPO share offer

Egypt’s $372m e-finance IPO may herald privatizations

Does the success of the biggest initial public offering (IPO) on the Egyptian Exchange (EGX) pave the way for more action in Egypt’s multi-billion pound programme of privatizations? After a surge of money for the share offer of state-run payments company E-Finance for Digital and Financial Investments, a promised flood of new listings could continue the growth and transformation of the dynamic Egyptian Exchange (EGX).

E-Finance is a fintech platform owned by the Egyptian Government. The share price before the listing was EGP 13.98 per share, at the top end of its book-build range, with strong demand including from foreigners keen to invest into Egypt. On its first day of trading on 20 October the price soon jumped 40% to EGP 19.51. Since then it has reached a high price of EGP25.20 and closed on 9 November at EGP21.20.

Co-Lead Managers and bookrunners were Renaissance Capital Egypt, CI Capital Investment Banking and Al Ahly Pharos Investment Banking. NI Capital, founded in 2015 as a privately managed and incorporated subsidiary of the state-owned National Investment Bank, is the IPO advisor to the company. Simon Aird, head of international equity capital markets at Renaissance Capital told Reuters:”Total foreign investor allocations to the book were around 72% – a great outcome and one of the key priorities for the Government of Egypt,”

E-finance for Digital and Financial Investments develops digital payments infrastructure and is core to the fast-growing digital economy. It was established in 2005 to build, operate and manage the Egyptian Government’s financial payments hub and says it is the only entity authorised to operate the government’s financial network, which supports issuing, processing and settling card payments. Over 40m cards have been issued and other activities include processing and settling payment and collection transactions.

Revenue was $78m in 2020 and 2021 revenues are forecast at $118m to grow to $165m in 2022. The Group’s Chairman and Chief Executive Officer, Ibrahim Sarhan, said in a pre-listing press release: “Our strategic and corporate transformation was also accompanied by strong financial and operational results. With revenues and net profit up by an H1-2018 to H1-2021 CAGR of 37% and 68%, respectively, e-finance has consistently generated superior returns and with expanding profitability over the years. e-finance’s net profit margin has expanded from 16.8% in H1-2018 to 30.5% in H1-2021. Looking ahead, e-finance for Digital and Financial Investments is in a very strong financial and operational position to thrive over the coming years and to repay the confidence of its stakeholders and valued investors.”

Share offer IPO raised $372m

The IPO raised more than EGP5.84 billion ($372 million) and was 61.4 times oversubscribed. It is the biggest IPO, according to the EGX announcement, passing the IPO of Egypt Telecom in 2005 which was EGP 5.1bn. Dr. Mustafa Madboli, Egyptian Prime Minister, praised the success of the IPO as “the largest in the history of EGX”. He added that this offering is attracting foreign investments to the Egyptian market, reflecting the confidence of local and foreign investors in the Egyptian economy.

Eager anticipation for the IPO had seen Egypt’s benchmark EGX 30 Index climbing, both before and after the IPO.

Analysts at Prime Securities wrote that the stock could “could be a liquidity booster (referring to trading activity on the EGX exchange), given its ability to attract some cash that was originally on the sidelines.”

The Financial Regulatory Authority approved the IPO prospectus on 6 October. The public and private offer totalled 417.77m shares (26.1% of the total of the company) of which 178m are a primary offer of newly issued shares (new capital raised for the company) and 80m were a sale by existing shareholders. The IPO shares were offered to institutional investors and to individuals. The final free float was 23.5%, according to Reuters. The public offer IPO was 25.77m shares and the private placement was the rest.

The government’s IPO Committee approved “fair value” for the shares in June and equivalent to a market capitalization of $2.5bn. The shareholders included 3 state-owned banks: National Investment Bank, with 63.6%, and the National Bank of Egypt, Banque Misr, Egyptian Banks Company (a payments operator led by the Central Bank of Egypt) and Egyptian Company for Investment Projects, with each owning 9.09%.

Will Egypt’s privatization share sales pipeline going to start flowing?

Dr. Mohammed Farid Saleh, Executive Chairman of EGX, said that listing and trading of eFinance was an important step that will encourage other government and private companies to offer and trade to take advantage of EGX’s platform for financing and achieving objectives and business plans of these companies. Dr Farid stressed that IPOs contribute to businesses development and economic growth.

Egypt’s current privatization programme started moving with the ratification of law 2014 no. 32 according to this analysis by Julian Nabil of Arab Finance on Zawya. See also our story from 2014 which echoed the hype! NI Capital was mandated to prepare the IPO programme by the Egyptian Council of Ministers, according to Oxford Business Group report.

There were announcements of companies that would be sold in 2016 and 2017 and in 2018 came the first specifics, when the Egyptian Government first announced a programme of sales of some 23 state-owned assets. These included further offers in some companies already traded on the EGX including (per announcement July 2018) Alexandria Mineral Oils Company, Eastern Tobacco, Alexandria Container and Cargo Handling, Abu Qir Fertilizers Company, and Heliopolis Housing.

In April 2019, Khalid Abel Rahman, Assistant Minister of Finance for Capital Market Affairs, said the Government was embarking on an IPO programme is to raise EGP100bn ($5.8bn) according to our story. Three companies that were not listed – El Nasr Mining Company, e-Finance, and Banque du Caire – were announced in December 2019.

However, headwinds started hitting emerging markets in 2018. In March 2019 Government sold an extra 4.5% stake in tobacco monopoly Eastern Co through a private placement, with foreign investors gaining 94%. After that came the COVID-19 pandemic.

In May 2021 the Government sold 51% of state-owned Arab Investment Bank (AIB) to private company EFG Hermes, in the first bank privatization in a decade, according to Reuters.

Egypt Today reported that in mid-October, the IMF increased its growth forecast for Egypt to 3.3% for 2021, rising to 5.2% in 2022, while downgrading the forecast for the world overall.

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