The resumption of initial public offerings (IPOs) should be a priority in the coming months, especially after the currency devaluation in March. IPOs will be a key mechanism to revive the local stock market, which has been in the doldrums since the beginning of the year.
It is a must to seek unorthodox financing resources against a backdrop of a global economic turmoil incurred by the repercussions of the Covid-19 pandemic and the Russia-Ukraine conflict.
Finance Minister Mohamed Maait revealed in February that the government would sell stakes in 10 companies on the stock exchange this year. It’s about time the Egyptian stock market took advantage of the growing momentum and investors’ interest in Egyptian assets.
The implementation of the IPO program is expected to be a catalyst for the stock exchange and the market as a whole. However, a carefully outlined timetable for free-floating stakes in state-owned companies is deemed to be the key element to making Egypt’s IPO program a success story.
Selling off stakes in state-owned firms will attract many world and local investors to pump cash into the economy.
No just reason for delay
At times of crises, investors look for safe havens like gold, properties, sovereign debt instruments and IPOs of state-run leading entities. In 2018, the government unveiled a plan to sell stakes in 14 state-owned companies for the first time and increase the floated stakes in nine others through a timely program of initial public offerings (IPOs).
Although the IPOs are deemed to be a magical wand to pump fresh investments into the economy, it took the government three years to carry out an IPO of e-finance for Digital and Financial Investments in October 2021.
The IPO program includes stakes in Misr Insurance, the Housing & Development Bank, Engineering for the Petroleum and Process Industries (ENPPI), the Middle East Oil Refinery Company (Midor) and Sidi Kerir Petrochemicals.
However, the plan was put on hold after the outbreak of the Covid-19 pandemic in early 2020.
From an economic point of view, this delay is unjustifiable given the momentum in other Middle Eastern markets. Saudi Arabia carried out the Aramco IPO, which is one of the most successful IPOs in modern history. The oil giant Aramco is worth more than $2 trillion in market cap.
Moreover, the Saudi authorities are working on about 70 more IPOs with no regard to world economic turmoil or the ongoing Russia-Ukraine war.
A necessity for growth
From a financial perspective, the IPOs can provide companies, whether public or private, with opportunities to increase issued capital to fund expansions and asset acquisition.
The IPOs of state-owned firms will increase the market capitalization of Egyptian stocks, boosting liquidity and investor confidence. IPOs will give state-owned firms the chance to expand operations, and boost governance and transparency concepts.
The planned IPOs will take advantage of a depreciated pound that attracts foreign investors into injecting fresh funds into newcomers listed on the stock exchange.
Furthermore, the IPOs should be deemed a transformation process rather than a mere financing instrument through the free-floating of state-owned stakes in public companies.
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