One of the most profitable markets in the ME: Should businesses enlist in or delist from the EGX?

While Egypt is currently encouraging businesses to enlist their companies in the Egyptian Exchange (EGX) through the government’s initial public offering (IPO) program, companies are concerned about a shaky exit scenario and poor reflection of the capital market’s performance on the EGX.

The question is: how confident can companies be about enlisting in or delisting from the EGX?

The EGX’s performance
As experts and investors assess if Egypt’s stock market is a promising platform for trading, recent sessions have shown positive signs.

The EGX gained LE66.8 billion in market capitalization during the first quarter of 2019 as the total market value of listed companies reached LE816.5 billion, increasing 8.91% from LE49.7 billion during the same period in 2018, according to the quarterly bourse report.

In March, Bloomberg reported that the EGX is among the most profitable markets in the Middle East since the start of 2019, with its main index EGX30 making the best start since 2014, increasing 14% so far.

The increase was driven by the rise in shares of the Commercial International Bank (CIB), accounting for over one-third of the index.

“Companies will be encouraged to enlist in the EGX when they actually start feeling a positive macroeconomic impact, which is inevitably reflected in the stock market. A constant available dialogue about fiscal and monetary policies will also gain businesses’ trust in enlisting,” assistant chairman for disclosure at the EGX Heba ElSerafy said during a seminar held by the Egyptian Center for Economic Studies (ECES).

Edita as a case study: Should businesses have good faith in the EGX?
In 2015, snacks producer and family business Edita Food Industries enlisted in the stock market.

“It was a very risky step amid the political instability at the time. I believe companies fear enlisting in the EGX because they have to fully disclose their profits, capital and financial results,” chairman of Edita Food Industries Hani Berzi explained.

The company was already eligible to enlist in 2010, but it took five years to conclude the deal, with assistance from Goldman Sachs and EFG Hermes.

“Our 30%-offering was successful. We did not aim to just sell shares but also secure a safe exit for some of our private equity and foreign investors. At first, we offered shares at LE18 each, but once the price reached LE33, we went for a stock split,” he added.

Today, Edita trades at LE20 with a market cap of LE14.5 billion. Giving an account of how the company benefitted from enlisting in the EGX, Berzi explains: “At the moment, Edita’s board can easily evaluate and calculate the actual worth and value of the company on a daily basis. It would have also been impossible to reach this market cap without the stock market.”

Post-offering challenges in the EGX today
Edita is facing no problem with liquidity today; however, having investors that hold on to shares and do not trade them in handling sessions can become a challenge, according to Berzi.

Another challenge is that the EGX lacks retail presence and local investor trust. As a result of appealing bank interest rates, Egyptians have turned from investors to savers, injecting their cash flows into banks rather than other investment platforms.

Official steps into revamping EGX
Regardless of the challenges, the EGX is a trading platform with rising opportunities, according to ElSerafy.

In efforts to encourage businesses and provide them with what they need to enlist, the EGX focused on the supply and demand side of the exchange.

“We communicated with ministries and authorities to a create a feasible system that will attract investments in the stock market through providing good quality cash handling, a competitive technological platform and cutting-edge payment services,” ElSerafy explained.

The EGX has also recently launched a Customer Relationship Unit (CRM) to analyze trends and behaviors in the stock market, introduced short-selling and provided more liquidity. It also offered bilingual disclosures for foreign investors.

“I believe that the Egyptian stock market has a good trading platform and an organized regulatory framework; however, the exchange, government, companies and other authorities need to share full responsibility when boosting its potential,” ElSerafy concluded.

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