Foreigners’ concerns about the devaluation of the Egyptian pound and reluctance of small investors to participate in IPOs, which prevented the offering of A.T. LEASE to meet the requirement of the number of shareholders, are among the most prominent challenges facing new offerings on the Egyptian Exchange (EGX).
Companies’ offerings in the Primary Market at EGX are facing three challenges at the present time while a number of companies are promoting their IPOs.
The real challenges appeared after A.T. LEASE failed to meet one of the requirements of IPOs last week, as the company should have a minimum of 300 shareholders after the IPO.
The first challenge facing offerings is the low liquidity that leads small investors away from IPOs of companies that rely on the public offering only in the local market to cover the IPO, which is the case of A.T. LEASE according to what it has announced.
This offering did not see a private placement for the biggest stake of the IPO among investment institutions in external markets.
A.T. LEASE was not the first company to fail in meeting the IPO requirements. DBK Pharma and itsynergy went through a similar experience when they failed to cover their offerings due to their reliance on the local market to cover the entire offering.
The Egyptian Exchange (EGX) recently saw the offering of Domty, and now, it is getting ready to receive the offering of Cleopatra Hospital in the next few days.
The importance of IPOs comes from providing financing for the companies or enabling shareholders to exit these companies by selling stocks in the market, in addition to attracting indirect foreign investments to the country as “hot money”.
Vice president of investment company EFG-Hermes’s promotion sector, Mohamed Abou Samra, said that the second challenge is promoting companies’ IPOs on the EGX among foreign institutions, which is caused by the difference between the US dollar price on the official and parallel market.
He added that this situation creates fear among foreign investors of the CBE taking further devaluation decisions, as in March, hence, decreasing the value of their investments when exporting the proceeds of selling their stakes abroad in US dollars.
The CBE depreciated the pound against the US dollar roughly two months ago, bringing down the price from EGP 7.73 to EGP 8.88. The US dollar price on the black market exceeded EGP 10.
Abou Samra noted that this challenge can be overcome by convincing foreign investors of the potential growth rates of IPOs, compared to the available investment opportunities in other markets in the region.
The third challenge, as explained by chairperson of Mubasher Securities Trade and Al Thamarat Charity Association, Ehab Rashad, is securing US dollars for foreign investors to export their profits abroad.
He added that the CBE tasked a fund to secure US dollars for investors to export their profits abroad in March 2013; however, there are still outstanding requests from investors seeking hard currency to export their proceeds from selling shares.
Chairperson of the EGX Mohamed Omran said that growth opportunities of the domestic capital market support the promotion of new propositions between international investment institutions’ investors with high solvency.
He added that assuming IPOs would meet the same fate as one failed IPO is not correct, as the market has also received several successful IPOs on the Nile Exchange, as well as the main market, such as Domty.
The EGX is one of the most successful markets in the region and foreign investors took part in those IPOs, which signals their confidence in the promising potential and freedom of money flow, Omran said.
Last year, the EGX hosted four major IPOs: Orascom Construction, Edita Food Industries, Emaar Misr, and Orascom Development.