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Monday, 13 September 2021

The FRA is making it easier to list on the EGX

Egypt’s financial regulator is making it easier for large companies to list on the EGX. New listing amendments (pdf) that were announced (pdf) yesterday by the Financial Regulatory Authority (FRA) will reduce the amount of capital that companies need to offer to the public in a move designed to encourage share sales on the Egyptian bourse. The move comes ahead of what officials have suggested will be a pickup in IPO activity in the coming months.

The old rules: Companies looking to list on the EGX used to need to offer a minimum of 25% of the company’s total shares, with no less than 10% in freefloat.

The new rules: Companies now only need to offer a total number of shares equal to 1% of those in the EGX’s total freefloat market cap. Under the new regulations, companies should have a freefloat market cap (the number of shares in freefloat multiplied by the share price) of no less than 0.5% of the EGX’s total freefloat market cap.

The rationale: By scrapping the requirement to list a 25% stake, the FRA hopes to encourage large, multi-bn EGP companies who might otherwise be reluctant to offer such a large stake to the public. That will allow them to tap public markets without significantly diluting anchor, founding or strategic shareholders who may not want to be as diluted. It will also make it easier for bankers to structure transactions — the move would make manageable the size of an offering by an extremely large size company, which under the old rules would require massive sums of capital to cover, an FRA source told us. And by cutting the value of a stake that very large company would have to take to market, the new regs would ensure the transaction would not suck up market liquidity or otherwise distort trading.

The amendments will likely pave the way for mega-listings by state-owned companies expected in the coming years: President Abdel Fattah El Sisi had last month announced that state-owned Administrative Capital for Urban Development (ACUD) could go public on the EGX in a record IPO within two years, a move that would double the value of the EGX, FRA head Mohamed Omran said at the time.

More IPOs are planned before year’s end: Planning Minister Hala El Said recently said the state’s privatization program would be making a comeback before the end of the year, with at least two, maybe three state-owned companies looking to IPO between now and December. State-owned e-finance will be among the companies to offer stakes, with unnamed government sources telling Al Borsa that 10% of the company could be offered as soon as next month. We believe that figure could ultimately be higher.

The FRA’s latest changes come following new regulations announced in July under which a maximum of five companies operating in each sector can be included on the EGX30, in a move aimed at improving the index’s diversity and representation of the market. Listing rules were also amended earlier this year to mandate that EGX-listed firms and non-banking financial services companies appoint women to at least 25% of their board seats.

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