The seventh edition of the Capital Markets Summit, organized by Media Avenue, focused on the government IPOs programme, the market’s perspective, and stakeholders’ proposals for implementing a successful programme.
During the summit, Abdalla El-Ebiary, TSFE’s Chief Investment Officer, disclosed that seven companies were listed in the pre-IPO Sub-Fund and are being promoted to strategic investors, including sovereign funds. El-Ebiary said that the fund’s primary goal is to promote development, increase investment, and expand it. It aims to create suitable opportunities that are achieved by restructuring various companies.
The summit also discussed innovative financial tools in the market to look towards the future of the financial sector in Egypt. Ramy El Dokani, Chairperson of the Egyptian Exchange (EGX), announced the establishment of a company to settle transactions on futures and derivatives contracts. El-Dokani added that trading on these types of products will start during the third quarter of the year, after completing the trading system tests.
He also mentioned that the EGX trading system is stable, and that last week’s transactions were smooth without any interruption. In March and April, liquidity from the banks’ 18% saving certificates was directed towards gold, so they launched the gold investment fund to meet the market demand.
The establishment of investment funds in precious metals, especially gold, is a first step towards regulating the market and increasing its transparency. It will work to rationalize the demand for buying gold bars, gold pounds, and gold artifacts that are purchased for investment purposes, especially with an organized alternative subject to governance and transparency rules that allows the investor to invest in precious metals without buying gold from markets and holding it. This will save the investor additional costs, reduce risks, and maximize returns in the long term.
MCDR looks forward to launching short selling mechanism
Misr for Central Clearing, Depository and Registry (MCDR) plans to launch a short selling mechanism and electronic voting during the current year, as well as a digital operations application named “EgyClear”. Khaled Rashed, MCDR Managing Director, made this announcement during his speech at the 7th Annual Capital Markets Summit.
The short selling mechanism allows investors to profit from declining market indicators by borrowing a security whose price they anticipate will fall, selling it on the open market, and buying the same stock back later at a more favorable price.
Rashed discussed the company’s development plan and core services, noting that MCDR plays a crucial role in the government’s IPOs programme. The company aims to enhance its infrastructure to increase trading and facilitate companies’ entry into the market, while executing new offerings.
In 2021, MCDR’s revenue surged to EGP 1.7bn, a 75% increase from EGP 1.01bn in 2020. Additionally, the company’s net profits rose by 110% to EGP 1.05bn.
Cooperatives are one of the most important activities to create jobs
Sherif Samy, Chairperson of National Asset Management and Investment, and former Chairperson of the Financial Regulatory Authority (FRA), stated that cooperatives are one of the most important tools for creating job opportunities and supporting small and medium-sized projects. They are also one of the most important non-traditional financing options for certain segments of society.
Samy explained that, in dealing with many bank presidents and finance companies, he found that cooperative activities are absent among industry leaders and companies looking for new financing options, thus wasting significant financing opportunities for small projects.
Egypt currently has 12,000 cooperative units operating in various fields, including agricultural cooperatives that are involved in all aspects of agriculture such as fertilization, land reclamation, livestock breeding, sheep and poultry farming, and fishing.
Samy pointed out that agricultural cooperatives serve more than 4.5 million citizens, and there are over 6,000 of them spread across the country.
Cooperative activities have been present in Egypt for more than a century, with the first cooperative established in 1908. Many laws have been issued to regulate this large sector.
Samy also emphasized that cooperative activity is one of the most important economic pillars supporting economic activity in Egypt, for both the private and government sectors. If its role is maximized in a manner consistent with the current stage of development, it can be a stimulus for economic growth.
First panel tackles ways to accelerate IPOs
The first panel discussion focused on mechanisms to accelerate the pace of implementing the government IPO programme and boosting offerings on the EGX in general.
Several leaders in the financial market participated in the session, including Ahmed Salem, Group CEO & Managing Director of Al Ahly Financial Services; Amr Helal, Chief Executive Officer of Sell-Side Investment Bank, CI Capital; Hany Aman, CEO of Eastern Company; Mohamed Metwally, CEO & Managing Director of NI Capital; and Wael Ziada, Founder and Executive Chairperson of Zilla Capital. The session was moderated by Karim Helal, President of Concord International Investments Group.
Karim Helal noted that there have been recent changes in IPOs, with the government’s exit from many companies according to the conditions agreed upon between the government and the International Monetary Fund. Currently, NI Capital is helping the government complete the programme, and IFC has been appointed as a strategic advisor. Are all these procedures a message directed towards possible foreign investors?
Ziada commented that at the beginning of the programme, no details were provided regarding the offering mechanism, whether it was public or private, and who was responsible for coordinating with the government, offered companies, and other investors. However, today, investment banks and the regulatory schedule for the offerings program have been selected, along with the offering regulation process and participating investment banks.
Amr Helal said that the company is capable of cooperating with many parties, in addition to attracting investments to the market and coordinating those deals and dealing with them.
Metwally explained that the concept of the IPOs programme includes offering on the EGX or to a strategic investor, and the vast majority of countries around the world always deal with many offerings. He added that the government’s selection of an international advisor to assist in implementing the programme, which includes 32 companies, contributes to accelerating the sales process.
Regarding whether the current investment banks are capable of implementing the IPOs programme, Salem said that looking at previous experiences, they were successful, and they can be reimplemented. “We were indeed part of the offerings that were implemented during the previous period in coordination with CI Capital and NI Capital, and the entry of IFC will be an addition to the IPOs programme.”
Karim Helal asked Aman about Eastern Company’s successful IPO story and the challenges it faced during that period. Aman said that the company’s experience in the IPO was the most successful during the past five years, and it was the only one of 17 companies that received this amount of subscription. He added that the biggest challenges that the company faced were fierce resistance from the company’s employees who did not accept the idea and believed that the offering meant destroying the company. “We managed to convince those who rejected the context of the offering and turn their position towards accepting the plan and trying to make it successful.”
Aman said that the first year of the offering was the most difficult, during which we faced employee rejection and more than five labour strikes. But we managed to prove that the presence of the private sector would be an addition to the company’s successes and not a destruction, and indeed, the board of directors was changed, and over the past five years, the company’s profits have proven that the decision was correct.
Karim Helal asked about the effects of the exchange rate in the coming period. Amr Helal said that there is local and global anticipation for the exchange rate in Egypt. Salem said that we believe that the vision is clear, but it is not easy to move under global conditions, and solving the crisis needs more time, so improvement will be long-term.
Metwally said that the success of IPOs depends on two parts. The first is offering products, but the more important part is the availability of demand, especially as the sales of foreigners reached about EGP 350m weekly for institutions and Arabs. Therefore, the offerings programme must be accelerated to compensate for the exit of foreigners. He explained that the investment conditions on EGX are being improved to increase demand, which reflects on supply, and we need to focus on the appetite of the Egyptian investors, taking into account that 60% of those dealing in the stock market are individuals.
Second session expects growth in consumer finance activity
The second session of the event focused on the non-banking financial sector, in the wake of rising inflation rates. Discussions centered on innovative financial instruments and plans for companies in the sector to maintain growth despite existing challenges and crises.
Speakers predicted a surge in consumer finance activity in the near future, fueled by the significant increase in prices of all goods and products.
Amr Hassanein, Chairperson of MERIS, opened the session by questioning the future of the consumer finance sector and its most prominent challenges. Said Zater, Managing Director and CEO of Contact Financial Holding, stated that consumer finance activity has doubled in recent years, particularly after the regulatory law for the activity was passed two years ago. With continued demand from citizens, demand is expected to increase significantly next year.
Zater added that while consumer finance companies are currently experiencing growth, the market faces challenges in regulating procedures related to duties and benefits provided by companies to customers, which requires review to attract more companies to the sector.
Meanwhile, Mohamed Negme, Chairman of Zaldi Capital & Managing Director of Arabia Cotton Ginning Co, stated that consumer finance companies are still far from financing exporting companies, despite the current economic conditions in the sector, due to the shortage of hard currency.
He explained that the market faces significant difficulties in managing foreign currency, and therefore, focusing on providing financing to operating companies will open a large door to increase their foreign sales, and therefore, the influx of foreign cash into the local market, contributing to the availability of dollars.
Hazem Moghazi, CEO of Aman for Financial Services, stated that they have issued five securitization operations so far, but were negatively affected by the decline in exchange rates and the increase in interest rates since March 2022.
He added that in the current high-price environment, companies are turning toward long-life products, therefore, it is not preferable to provide installment payments for products with a lifespan of less than two years.
Mohammed El Kahki, Managing Director at Tamweel Mortgage Finance Co., stated that the biggest challenge facing real estate financing in the past two years is the increased installment period for developers.
He continued: “Investing in real estate is the best, given that the market is not affected by the decline that occurs in gold and the dollar equally.”
He said that the state is looking to expand real estate exports, given the difficulty that Egyptians face with the recent price increases, which have been reflected in the prices of units. El Kahki added that the significant increase in the price of the dollar in recent months has been reflected in real estate prices, with an increase of about 35%.
Session 3 discusses new investment tools in the market
The third session, titled “Innovative Financial Tools That Attract Investors to the Market,” discussed new investment tools in the market following the launch of products such as precious metal funds and sukuk, as well as the future steps after these tools.
Mai Adel, advisor to the Minister of Finance for financial markets, stated that emerging markets, including Egypt, were greatly affected by the Federal Reserve’s decision to raise interest rates. Egypt resorted to issuing sukuk, which took a very long time due to the lack of appropriate laws and regulations at the time. Therefore, the Ministry of Finance worked on those laws in collaboration with several entities, including the Central Bank and Parliament, to establish the necessary system for issuing sukuk. The ministry succeeded in issuing sukuk this year with coverage rates exceeding 4.5 times and issuing only $1.5bn.
She revealed that the Ministry of Finance is considering issuing panda bonds in the near future.
Sameh Eltorgoman, Chairperson and CEO of Evolve Investment Holding, said that to revive Egypt’s privatization program, it must accelerate the offerings. He added that in the past 30 years, the Egyptian market has not had new financial instruments, so there are only stocks and bonds in a simple form. The lack of diversity in financial instruments prevents investors from entering the market, either in the form of contracts or Sharia-compliant indicators.
Ahmed Abou El-Saad, CEO of Azimut Egypt, said that Egyptians naturally love gold. After evaluating its experience in 18 countries, Azimut sees that the biggest attraction point in Egypt is the strength of the population composition. However, it was delayed in developing its financial products.
He added that the role of Azimut is to provide multiple investment solutions for people. It is easy to have a financial product, but it is difficult to reach people. Azimut Egypt obtained the first license to launch investment funds in Egypt. All it lacked was gold, as gold is a means of wealth preservation, and it is considered more of a savings than an investment.
He revealed that the gold fund has already attracted a large number of Egyptians, with 7,500 investors in the first week. Today, after a month and a half, the number of investors has increased to 21,000. Thndr helped them with its ability to reach the largest number of people, as it enables all groups to invest through it, not just the rich. Azimut also has a good experience with Valu. It will also be possible to buy investment fund documents through the “Halaa” application. He revealed that the first digital application for investment funds in Egypt will be launched next month.
Ahmad Hammouda, Co-Founder and CEO of Thndr, said that when they started, there was a big question and skepticism about the Egyptian people’s awareness of an investment application like Thndr. He pointed out that 600,000 transactions worth EGP 3.6bn were processed through the application, none of which were margin purchases, and all of them were investors’ money. 90% of investors invested for the first time, and 50% of them were from outside Cairo.
He pointed out that there are high prospects for investment in Egypt, as only about 2% of the population invests in companies compared to 50% in the United States.
Hatem Al-Banna, Executive Chairperson of Zaldi Capital, said that we must work with artificial intelligence technology, especially since Egypt does not lack qualified human cadres to use it.
