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Thursday, 28 July 2022

State IPOs may be possible this year, but first sukuk could be sold at home –Maait

The government is still holding out hope that it could sell stakes in as many as 10 companies before the end of the year, Finance Minister Mohamed Maait told Al Arabiya yesterday (watch, runtime: 1:16), insisting that a state program to divest assets through IPOs and secondary sales of already-listed companies still has legs despite ongoing market turbulence. “We’re still committed to 10 sales this year,” the minister said, without getting into further details.

This was the plan before the world turned upside down in February: The government said at the beginning of the year that it wanted to pull the trigger on 10 primary and secondary offerings by state companies this year, only for the plans to be derailed by the economic crisis triggered by the war in Ukraine.

Two 2022 IPOs have been pulled in the past week: Banque du Caire (state owned) and Aman Holding (private sector) both delayed plans to debut on the EGX this year due to the tumult in the global markets. As of today, we’re not aware of a single would-be Egyptian issuer lining up to tap the equity markets this calendar year. The global investor pullback from EM, anemic volumes on the EGX (with foreign institutional buying flatlined), rising US interest rates, redemptions from equity funds around the world, and talk of recessions in developed economies make the IPO climate here at home inhospitable.

We expect the government has a good chance of lining up multiple sales to Emirati (and perhaps Saudi) investors given the GCC is riding a wave of high oil prices that has left sovereign funds and state-affiliated companies flush with cash. (See related story in Planet Finance, below.) Egyptian assets are very well priced right now, and Cairo can count on strategic support from Abu Dhabi and Riyadh — but through the sale of compelling assets, not straight-up assistance. It is possible that some of these transactions could include token domestic retail offerings or otherwise be executed via the EGX (for already-listed companies, for example).

KEEP IN MIND- GCC investors are not looking to buy stakes in moribund state-owned enterprises with zombie listings on the EGX. They want viable, interesting assets with plenty of potential to generate real ROIs — and to serve as springboards for growth. They’re not going to transact if that type of asset isn’t on the table.

The government’s new hotels company could be on the list: Public Enterprises Minister Hisham Tawfik told Bloomberg Asharq (watch, runtime: 4:00) the company could make its EGX debut in November. The state plans to sell 10-15% of the company to investors on the EGX and an additional stake will be sold to a strategic investor, he said. The Saudi sovereign wealth fund has previously expressed its interest in purchasing up to 20% of the company.

What new hotels company? The state is currently working on merging seven or eight state-owned hotels into a single entity to be offered up as part of the state’s privatization plans, which aims to attract USD 40 bn of fresh investment into the country over the next four years.

Remember: The resumption doesn’t necessarily need to feature share sales on the EGX but could be done via private sales to strategic investors, the latter of which is increasingly becoming the tool of choice for the state’s privatization push.

SEPARATELY-

The Madbouly government might opt for a local sale of its first-ever sukuk issuance due to volatility in the global markets, Finance Minister Mohamed Maait told Al Arabiya yesterday (watch, runtime: 1:16). “Global market [conditions] are very, very difficult. There might be a local sukuk issuance,” he said. The government had wanted to take the issuance to international markets, but will have to wait, Maait said.

Turning the issuance local isn’t much of a surprise: Maait’s statements come weeks after he said that Egypt’s maiden sovereign sukuk issuance was pushed to FY 2022-2023 amid see-sawing market conditions on the back of the crisis in Ukraine and rising interest rates. The issuance was originally expected to go to market before the end of the 20201-2022 fiscal year, which ended on 30 June, but markets were not ideal, he said. “There are estimates that the volatility could subside in 3-4 months, but nothing is certain right now,” he said at the time.

Maait did not specify how large the domestic offering would be. The Finance Ministry had guided last summer on an international offering in the USD 2 bn range.

Background: The sharia-compliant bonds could be issued on both the local and international stock exchanges.The issuance is part of FinMin’s strategy to reduce government debt and shift towards longer-term borrowing, which saw it issue its first green bonds in 2020. The Cabinet approved executive regulations of the Sovereign Sukuk Act in April, yet the content of the regulations remains undisclosed.

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