Acquisitions in Egypt have increased in recent months, especially by Gulf sovereign funds to acquire stakes from companies listed on the Egyptian Exchange (EGX) as part of the government’s plan to sell Egyptian state-owned assets worth $10bn annually.
Daily News Egypt monitored the opinions of experts on the impact of acquisitions on the government offerings programme.
Egypt topped the list of the most active countries in mergers and acquisitions, ranking second in the list of the top five targeted countries in the MENA in terms of the value of mergers and acquisitions (M&As).
Egypt concluded 65 mergers and M&As worth $3.2bn in the first half (1H) of 2022, making it the second largest M&As destination in MENA in terms of value and number of deals, according to a report by Ernst & Young.
M&As increased three-fold, led by favourable government initiatives, including granting a special license to foreign investors.
Egypt also succeeded in attracting investments worth $3.2bn, mostly from Gulf funds and the proceeds of selling shares in government-owned companies. Last week, the Saudi Sovereign Fund acquired stakes ranging between 20 to 25% of three listed Egyptian companies worth $1.3bn.
The Saudi Sovereign Fund’s investment comes four months after the UAE’s Sovereign Fund succeeded in acquiring stakes from five companies listed on the EGX with a value of $1.8bn, bringing the total deals that were made to about $3.1bn within a government target range to sell state-owned assets worth $10bn annually in a four-year programme.
These investments will not be the last, as Egypt signed cooperation agreements with Saudi Arabia worth $10bn focused on all sectors of the Egyptian state.
Furthermore, Gulf investments will not be limited to Saudi Arabia and the UAE, as Egypt is preparing to receive Qatari investments worth $5bn, while Kuwait pledged to pump about $5.1bn in 2022.
These trends are consistent with the statements of Minister of Finance Mohamed Maait last June that the state will move towards boosting foreign investment and exports and reduce its dependence on hot money.
He pointed out at the time that the UAE, Saudi Arabia, and Qatar pledged to inject investments worth $22bn.
Meanwhile, sources told Daily News Egypt (DNE) that there are ongoing negotiations to acquire stakes in MOPCO and AMOC from the Gulf side but with larger shares this time.
The sources added that the Saudi Sovereign Fund is about to acquire a share of Misr Aluminum by injecting investments to increase the company’s capital by about $215m to complete the development process, which is estimated at $315m and is expected to be completed within two months.
For his part, Noaman Khaled — Macroeconomic Analyst for the Middle East at CI Capital — said that the entry of large institutions such as the Saudi and Emirati Sovereign Funds is a positive and supportive factor for the Egyptian market and a suitable alternative to government offerings in companies that the government was planning to raise the percentage of free trading on.
Khaled also told DNE that the other positive factor in these investments is the confidence boost for any other institutions that monitor the Egyptian market and improve an appropriate opportunity to enter, but the government must attract other diversified investments and not focus on the presence of one or two new institutions in the market.
This was explained by the fact that Gulf institutions could change their strategy in the event of a change in oil prices or incoming changes. Therefore, the state should focus on attracting largest possible presence of diversified institutions in the Egyptian market.
He added that the upcoming government offerings of companies that have never been offered before, such as Banque du Caire, will aid in resolving the lack of liquidity.
However, Khaled ruled out the Egyptian government’s resumption of the government offering programme during the current year in light of the US Federal Reserve’s policies to raise interest rates, which would push Egypt to adopt the same approach, adding that it is likely to resume early next year or by the second quarter (2Q) of 2023.
In a related context, an Ernst & Young report said that MENA recorded 359 M&As worth $42.6bn in 1H 2022.
Seif Attia — Director of Trading at Al-Ahly Pharos Securities Brokerage — said that the succession of recent acquisitions in the Egyptian market by sovereign funds confirms the attractiveness of investing in Egypt in light of the low stock prices.
“Recently, we witnessed a clear absence of liquidity — whether on the part of individuals or institutions. But last week, the EGX witnessed an influx of liquidity from local institutions, in addition to the entry of local institutions that contributed to raising the level of liquidity and raising the values of some traded shares,” Attia said.
He added that the market urgently needs the continued availability of liquidity, especially since the EGX 30 shares have very promising opportunities, pointing out that the entry of any new investment from major institutions will give greater confidence, especially as the market has already reached the bottom and is preparing to rise again.
Attia also expects the resumption of the government offering programme by the end of this year in the last two months of 2022, but the issue depends on the continued improvement of the market.
Furthermore, in its latest report, Fitch Solutions praised Egypt’s tendency to partner with the private sector and promote foreign direct investment.
Amr Al-Alfi — Head of Research at Prime Securities Brokerage — believes that the acquisitions deals have not affected the market yet despite their scale.
He added that the prices of shares are far from the market price — in some cases being lower and in others being higher — pointing out that it does not have a clear reflection on stock prices in the market.
He also pointed out the importance of the government’s move in terms of providing USD liquidity worth $3.1bn from the Saudi and Emirati Sovereign Funds, in addition to the special effect of attracting attention to Egyptian stocks, especially that they are at low prices.
On the impact of deals on the government offering program, he believes that offering assets for sale is an easier way to exit the sectors that the state aims to withdraw from in a faster way than public offerings, however, it is likely that this will slow down the government offering programme.
Moreover, Al-Alfi pointed out that the government’s goal is to raise $10bn annually from the sale of assets — not necessarily from offerings — but it is possible in large deals for financial investors.
In a related context, Ahmed Hisham — Co-Director of Strategic Research at Beltone Financial — believes that the deals are a positive development, as they increase the momentum in the market by increasing liquidity levels, and thus increase the market value in Egypt.
Mostafa Shafei — Head of Research at Arabia Online Securities Brokerage — said that Egypt should focus on boosting its exports in addition to focusing on foreign investments to provide the USD liquidity it needs to overcome the current crisis.
Shafei added that the investments that Egypt attracted to its market are very positive, but the institutions that have acquired stakes in Egyptian companies must follow the investment spending policy to expand the companies’ operations.
He also believes that the government’s policy of offering assets for sale to strategic investors can be an alternative to offering on the stock exchange to attract liquidity directly and quickly.
For his part, Hany Genena — an economist and lecturer at the American University in Cairo — said that the entry of major institutions is positive in terms of providing USD liquidity that the state needs at the present time to bridge the financing gap in the context of discussions to reach an agreement on the IMF loan.
He also said that the matter heralds the resumption of the Egyptian government’s programme of government offerings during 3Q 2022, especially since the offering programme is among the requirements of the IMF.
He suggests that the launch of the two companies, Safi and Watania, would likely achieve two goals in one step, namely, the bidding process and the exit of the state from one of the sectors that it was seeking to withdraw from for the benefit of the private sector.
Genena also stressed that in the event of the entry of new institutions, an increase in the share price premium should be considered, in addition to emphasising the importance of increasing investments by the funds that have already entered, and that the investment is for the purpose of expansion and not with the aim of transferring the profits of the acquired companies.
