A recent wave of encouragement regarding initial public offerings (IPOs) has generated a debate on whether or not this can allow for the privatisation of state-owned companies. While some believe privatisation can bring about development, others argue that guarantees must be provided to protect workers and avoid past mistakes.
Managing Partner and co-founder of investment firm Catalyst Partners Ali Al-Taheri explained that the issuance of stocks can be conducted using two main methods. The first is through increasing the capital of the company by offering new shares while the second revolves around the primary shareholders’ desire to monetise on the shares.
“Shareholders can have an opportunity to sell their shares and therefore the money of these sales goes into their pockets.” Al-Taheri said. “Meanwhile, issuing IPOs through increasing capital means that the company is investing in its growth in the market.”
Al-Taheri said that between 1995 and 1997, state-owned companies entered the stock market with 20% of their capital base to later increase the issuance to 65%.
Head of research at EFG Hermes Wael Zeyada said: “Technically, there is no regulation that will forbid a state owned company from having all of its shares listed in the market.”
Al-Taheri argued that issuing a larger number of shares, or 85% of the company’s capital, convinces the market that there is clear process and that real changes will occur. He added that this, however, brings forth the debate regarding whether a company is better managed when it is privately or publicly owned.
“Listing increases the levels of transparency and dominance of the company,” Al-Taheri said, adding that the increase in issued shares assures investors that they can “hold the owner responsible”.
“Comparing between issuance of 20% or 85%, you’d find that that 85% is more beneficial,” Al-Taheri said.
If a buyer obtains more than 50% of a company’s shares, the buyer has an obligation to request the purchasing of the remaining shares through a mandatory tender offer, Al-Taheri added.
Chairman and CEO at Dcode Economic and Financial Consulting Mohamed Farid stated that regulations for listing private companies are different that those for state owned companies.
Head of the Arab Union for Direct Investment Hani Tawfik said that it is preferred that the original shareholder keep 10% or 20% of the shares. He mentioned that the reasons for which a company issues its stocks can also vary.
“Companies can be suffering from lack of financing so they would need new investor,” he said.
Tawfik added that this is a form of privatisation, adding that the influence on the workers will differ from one company to another. “Some companies might experience layoffs while in others, new workers are hired,” he said.
Ahmed Ezzat, social rights lawyer at the Association for Freedom of Thought and Expression (AFTE), said that the previous wave of privatisation the country witnessed was a “bitter experience”.
“The rights of workers were wasted and many were laid off while the standard of living of many others was not improved,” Ezzat said, adding that the companies experienced increasing losses.
“The privatisation wave did not lead to any economic growth,” Ezzat said.
The lawyer said that such injustices led to a wave of demonstrations in 2006, starting with the Misr Spinning and Weaving Company’s worker strike, followed by a string of other companies, which lead to the 2011 uprising.
“Unless guarantees to workers are provided, privatisation will not prove to be successful,” Ezzat said. He mentioned that these guarantees should protect the rights of workers, maintain levels of productivity and lead to economic growth.
Last month, interim President Adly Mansour suggested that Egypt could revive privatisation. Mansour stated that the public sector will not be sold at a cheap price.
Undersecretary of the Ministry of Finance Samir Azer told the Daily News Egypt that the Ministry of Petroleum is preparing an IPO for new petrochemicals companies.
Azer said that the ministry has started with petrochemicals companies because the preparation of their IPO issuance is easier than that for already-established companies.
For more on the IPOs conference coverage, please check:
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State owned companies’ IPOs: Disguised privatisation or economic solution?