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Tuesday, 16 October 2018

Sarwa Capital shares closed down more than 11% in their EGX debut, raising questions about the outlook for the fall equity raisin season

** #2 Sarwa Capital shares closed down more than 11% in their EGX debut, raising questions about the outlook for the fall equity raisin season: Consumer and structured finance player Sarwa Capital saw its shares dip 11.14% on its first day of trading on the EGX amid concerns over a stock market slump, according to EGX data. The drop came as the EGX30 closed the day essentially flat, off 0.1% on moderate volumes. Sarwa’s shares opened at EGP 7.36 and were down as much as 18.5% before clawing back to close at EGP 6.54. The company’s first-day performance comes despite strong appetite for its shares during the bookbuilding process, with the institutional offering more than 10x oversubscribed and the retail component of the IPO even more in demand. The debut came as the EGX remains under pressure from a global sell off of emerging markets assets that saw the EGX30 fall to its lowest level in over a year last week.

Did Sarwa’s first day signal the fall IPO window may be closing? That’s the blunt headline from Bloomberg, which declared that “IPO flop sounds alarm for Egypt before USD 6 bn selling spree,” a reference to the state’s ambitious program to IPO state companies and offer for sale stakes in some already listed entities.

Catch 22 for the state: Analysts quoted by the business information service don’t think the government should be selling with the EM Zombie Apocalypse apparently still upon us — but say the state loses credibility if it is seen as pulling back from the IPO program for ideological second-thoughts. “It is likely that the government is only trying to sell the stakes because it wants to save its reputation, regardless of the cost,” said Naeem Aslam, chief market analyst at Think Markets U.K. in London. “We do not think it is the right time for the government to sell them, and launching them now could actually create some panic in the market.” Stephen Bailey-Smith, senior economist and investment strategist at Global Evolution Funds AG in Denmark, tells Bloomberg that, “If they postpone because they have second ideological thoughts, that would be taken badly.”

** #3 Is the Eastern stake sale about to be postponed? Against this backdrop, Public Enterprises Minister Hisham Tawfik is meeting today with members of the committee overseeing the state privatization program, as well as execs from state-owned investment bank NI Capital, EFG Hermes, and the Chemical Industries Holding Company. On the agenda: Setting a date for the sale of a 4.5% stake in cigarette maker Eastern Company. EFG Hermes — which is quarterbacking the transaction — called for the meeting to discuss dates in light of the recent drop in the EGX’s performance and tumble in Eastern’s stock price by more than 11%, sources told a local newspaper yesterday. They added that they expect EFG to try and push officials to postpone the sale beyond the 21-25 October slot, allowing Eastern’s share price to recover as market conditions become clearer. Tawfik had said last week that the sale would go on as intended despite conditions potentially cutting into proceeds. NI Capital had said it expects to raise as much as EGP 2 bn from the transaction.

All of this comes as capital raising in emerging markets has fallen to a seven-year low in the three months to September, the Financial Times reports, saying that market turbulence has prompted a slide in bond, equity and loan issuances. “The figures come amid a broad sell-off in emerging markets with the JPMorgan EMBI dollar bond index down 4.8% this year and the MSCI equity index tumbling 15.4%.” Read Emerging market capital raising falls to seven-year lowfor plenty more.

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