CEO of A.T. Lease, Tarek Fahmy, said that his company plans to re-offer its shares in the Egyptian Exchange (EGX) in the third quarter of 2016 after the initial public offering (IPO) was extended for three months, set to end in December.
He added that his company retreated from the securitisation of a part of its financing contract portfolios because of the high interest rates, which will reduce the profit margin.
The ownership of A.T. Lease is divided over three entities, 89.9% Arab Moltaqa Investment Company (AMIC), 10% Al Baraka Bank, and the remainder is owned by A.T.Brokerage in Bahrain.
When will A.T. Lease start to offer its shares again on the EGX after the failed IPO in May?
Our company plans to re-sell its shares during the last quarter of 2016, after we were granted the approval of the EGX to extend the offering period for an additional three months until December. The first period ended in August.
As the second offering will be seven months later than the first, will the company make any changes to the targeted shares or the fair value?
We have not made any changes yet to the IPO plan. A.T. Lease still aims to offer 10% of the shares of the main shareholder AMIC. The offering price will be EGP 5.05 per share, according to the fair value previously set by the financial consultant Professional Financial Advisers, aiming to collect EGP 40.4m.
Does the company not see that re-offering the shares on the basis of the same financial data could pose a threat to the success of the IPO?
No, it does not see that at all. The first offering failed because the number of shareholders did not reach 300 in accordance with the registration rules in the EGX. In addition, the announcement of the first quarter of 2016 results, which were good, came after the beginning of the offering, which did not allow the company to fully benefit from these results through the offering.
The company achieved very good results during the first half of this year, with a new profit amounting to EGP 26.9m compared to a net profit of EGP 22.18m during the same period in 2015. It reflects the development of the operating performance of the company and its ability to improve the return on investment, which will be collected by the underwriters of the company’s shares.
After the IPO, A.T. Lease intends to study the launch of a new company specialising in financial leasing of small businesses as an alternative to the company which was sold to Tharwa Capital for EGP 20m. We also aim to increase the net profit to EGP 60m within four years.
What is the state of the issuance plan of securitisation bonds worth EGP 600m for the portfolio for financing contracts?
The company was forced to postpone this move as a result of the continually rising interest rate, which reached nearly 13% on deposits after the Central Bank of Egypt (CBE) increased the interest rates on deposits and loans. It means that the return rate for investors who will underwrite the securitisation bonds will reach more than 13%.
This return on bonds does not suit the rate of return achieved by financing the contract portfolio of the company, estimated at 15% on average. The return achieved by the company will be less than 15%, since the securitisation aims to rush the collection of profits in exchange for a lower return than the financing contract portfolio’s target return.
Moreover, the costs of issuing securitisation bonds are deducted from the company’s revenue, including the costs of studying the credit rating of the securitisation bonds and the banks responsible for the promotion of underwriting these bonds.
It is to be noted that our company issued securitisation bonds worth EGP 576m in 2001, representing approximately 50% of the total leasing portfolio of the company at the time.
How will the company deal with the low chances of the securitisation of its portfolio for financing contracts in light of the continually rising interest rates?
The main goal of the securitisation is to reduce the size of the portfolio in order to delay the maximum leverage of capital to a 1:9 ratio of the loans, according to the regulations set by the Egyptian Financial Supervisory Authority (EFSA). We can achieve this goal by increasing the capital currently estimated at EGP 200m.
Until this moment, we are still in the safe zone regarding the maximum leverage, especially as there are large financing contracts scheduled to end soon. It means that we will reduce the value of the portfolio after cancelling these contracts.
In case the interest rates keep rising, we will compare between securitisation and increasing the capital, if the leverage reached 1:8.
How has the cost of financing contracts granted by A.T. Lease been affected by the high interest rates?
The company used to obtain loans from banks at an average annual interest of 13% and grant financing contracts with an average interest rate of 15%. We now borrow with interest rates ranging between 14.5% and 15%, so we lend to our customers, on average, interest rates of 17-18%.
Some customers prefer finance leasing to bank loans despite its higher interest rate because the leasing operations include tax credits, which would reduce the cost of financing. In addition, the procedures for obtaining financial leasing from companies are quicker and easier than banks.
Does the company negotiate over new loans?
The company has opened lines of credit with banks worth EGP 1.6bn. The size of financing contracts executed by the company as of the end of June reached about EGP 1.15bn—equal to the value of all the assets covered by the contracts. The company finances 70-90% of these contracts.
A.T. Lease aims to increase the granted finances to EGP 1.6bn by the end of 2016.
What about the new financing contracts that are still under negotiations with the customers?
There are two co-financing contracts with several banks and real estate development companies. We are now discussing the contribution rates of the contracts. One of these contracts is worth EGP 200m and the other EGP 300m.