A number of promotion and underwriting managers said that Egyptian IPOs lost their capacity to address a spectrum of financial institutions following the decision to float the Egyptian pound, which lowered the size of the offerings when promoted abroad.
The reluctance of these institutions to take part in those IPOs is owed to these institutions set minimum participation bar, of which Egyptian IPOs are 25% less.
Yet, they explained that the IPOs will remain attractive to some other financial institutions that target small-scale propositions.
Head of investment banking at CI Capital, Hesham Gohar, said that the average value of Egyptian IPOs ranges from EGP 800m to EGP 1bn, which was valued at $90-110m before the flotation. The value, however, dropped following the flotation, ranging between EGP 48m and EGP 59m.
He added that the type of IPOs does not match the minimum set by some foreign institutions. For instance, he explained that institutions that would invest $15-20m stipulate their stake to be lower than 25% so they could exit flexibly should they decide to.
“For the IPO to check this condition, the offering must be valued at a minimum of EGP 2bn,” he said. “This is not even that high, as previous IPOs ranged at around $200m.”
He pointed out that the greater the size of the IPO, the more attractive they become, as they fit with the standards of more financial institutions.
He noted that dealing with the small size of propositions after flotation requires a greater effort in promoting and targeting financial institutions that aim to cover small size IPOs.
Obourland will be the first IPO following the flotation, valued at EGP 774.4m ($43m).
The value of the private placement segment being promoted among financial institutions and high net worth individuals ranged around EGP 542m.
The deputy head of promotion and coverage of IPOs at an investment bank, who spoke on condition of anonymity, said that the flotation dropped a number of Egyptian IPOs from the consideration of many financial institutions. “This does not mean that the chances for covering them are less,” he stressed.
He cited Obourland private placement that was covered over seven times, even though the value of the national currency is still volatile. Meanwhile, Domty and Cleopatra Hospital IPOs were covered 5.5 and 6.73 times, respectively, before the flotation.
He explained that the high rate of coverage, at a time when the Egyptian proposals lose the ability to address large financial institutions, is caused by other financial institutions that target small size IPOs by at most $5m.
He added that promotion managers should address the type of investors that can fit this criterion, noting that even before the flotation many financial institutions did not take part in IPOs of less than $500m to $1bn.
Accordingly, we conclude that the Egyptian proposals maintain the chances of IPO success in light of the diversity of targets financial institutions around the world.