How to get capital markets off life support

Rehaam Romero [R.R]: Hi everyone. Thank you so much for coming today; this is such an incredible turnout. I'm very excited to have you here today at this particular juncture in Egypt's story. Because for the last few years, we've come to this stage to discuss how we revitalize capital markets amid a lot of uncertainty — which we know, investors love uncertainty. They love it so much. But today we're seeing a bit of a rally, right? So maybe let's start with a pulse check for the entire panel. 

Would you say this is a genuine recovery based on strong fundamentals, or is it a short-term reaction to macro stability? 

Gad, as Global Head of Investment Banking at EFG Hermes, do you want to start us off?

Moustafa Gad [M.G]: I think definitely a recovery that’s based on some fundamentals. I think we've all seen great reforms, especially when we're talking about monetary policy, and bringing down inflation gradually. Currency issues that were present two years ago or 18 months ago are coming under control. [There’s] much more liquid interbank. So I think they're all good reflections of the way forward in terms of the economy. The stock market is a reflection of the economy. It just operates as a mirror of what's happening. 

So there is this level of optimism. But at the end of the day, we're looking for more structural change to happen in the stock market that includes maybe attracting foreign investors back to the market. Their contribution is on the low side compared to historical levels. And this will require more reforms on the fiscal side and the economy itself. And the fundamentals of the economy, not only some KPIs that’s related to the currency and the inflation.

So I think what we've seen right now is a good reaction to what has [been] done that paves the way, hopefully, for a structural reform in the economy as a whole.

R.R: Amazing. So Amr as CEO of the Sell-Side at CI Capital, what are your thoughts on this?

Amr Helal [A.H]: First, I want to say that I disagree with the title of the session.

R.R: Oh, please tell us more.

A.H: I think we need to be a bit more optimistic because I think we are definitely off life support. Maybe not out of the hospital yet, but we're clearly off life support. I mean I agree with what Mustafa [Gad] is saying. I think the macro picture has cleared up for sure. Definitely investors — at least foreign investors — are still dipping their toes cautiously back into the market. But in terms of net new inflows or new money coming into the market, that's still not there yet.

I think 2026 will be a good year. If the momentum of reform continues — and I think we are going through the right trajectory — we'll start seeing foreign investors come back into the market. Especially what's been happening around us on a global stage is actually positive for emerging markets, and I think Egypt has a good chance to gain out of the volatility and the tariff war. So I think that should be a net positive to the economy. I think geopolitics always remains a bit of a question mark, but I think the world is starting to adapt that we are living in a new situation where geopolitical uncertainty becomes almost like a norm. So I think investors have started to make their peace with that, versus maybe five or ten years ago.

R.R: Okay. So Bassem, as Managing Director of BCG here in Cairo, we've heard from two investment bankers. I'd like to hear your perspective too.

Bassem Fayek [B.F]: Sure, absolutely. First of all, good morning everyone. [It’s] great to join this esteemed panel and thank you for inviting me over.

Two parts of that question: Is it based on sound fundamentals? Absolutely yes. We've seen improvements on Egypt's foreign reserves, in terms of better exports, tourism, remittances. So that gives that kind of a positive signal not just in terms of sentiment, but also structurally. I think that companies now think about these export markets, which, pre the last FX crisis, was not really top of mind for leadership. 

Companies were already growing very high double digits in Egypt. People would think, "Why do I need to really look into international markets which are a lot more complicated, competitive, and what have you…" That mindset is shifting, so that's very structural in how we think about it.

Now looking back again at the same question: is the capital market where it should be? Not yet. Simply to compare some numerics... So basically, a typical way to compare across geographies is when you say how big the capital market versus the GDP of the country. Egypt stands at somewhere between 10-plus percent. Of course, based on what the market cap is in the different companies. Now, we're not going to compare with the European or American markets. Let's compare with markets that let’s say [have a] similar socioeconomic context. 

Think about Morocco, India, Turkey… In Turkey, it’s quite higher in terms of GDP per capita, but they are probably at around 40% to 50%. Okay again, Egypt [is at] 10%. If you think about Morocco, almost the same — I mean GDP per capita is relatively closer — and they are at around 50%. Again, market cap versus GDP. You look at India, which I was surprised to know, [it’s] at 130%. Which is incredible. Again, the US is in the 230-plus percent — let’s park that for now. 

But at least when you compare Egypt's GDP and the size of the economy and say is the capital market where it needs to be? There's big room for improvement. And this is where it's not just about a recovery or that the fundamentals are strong. That needs quite a bit of structural reform. 

Of course, you look at the GDP structure, a lot of it is still predominantly public sector. So that privatization program being pushed and prioritized now is an important priority. And you see where the logic is coming up. So, if we really want to grow our capital markets and really give it even further depth, that is an important one dimension to go after. But of course there is a lot more nuance to this. So definitely we are on the right trajectory — still huge room for improvement.  

R.R: Okay. Amazing. So, we were kind of at 5,000 feet. Let's get maybe a little bit more granular. 

Gad, what are the top questions or concerns that you're hearing more frequently from investors when you pitch assets today versus three years ago?

M.G: I think this is a good question. I think three years ago, there were no questions at all. Or two years ago. It wasn't even “How are you going to solve these problems?” or “What’s going to happen?” There was no interest, because the situation was really difficult for investors to come.

Now we've seen a shift in the sentiment. People started to come and ask, "We've seen positive signs. You're getting things under control. We're considering looking into the market again and we're looking for good stories. But in the macro picture, how can we get the comfort that this is sustainable?"

Because at the end of the day, we’ve seen in Egypt cycles that took place. A similar cycle — not exactly the same, but a similar cycle — in 2016, and then a recovery in late 2017 up till COVID. Prior to that maybe in 2003. We had these kinds of cycles whereby things get a little bit out of control and we do some reforms to bring it back to where it should be. 

But they want to understand: on the economy side, what is going to be different? This time around, is the story more on the private sector side to drive the economy or not? They need signs to give them comfort. They need to see that the government — which is already taking place, to be honest — is spending less. Because we had a problem of overspending from the government in the past that was maybe partially related to the inflation and the currency issues that we had over time.

So we need the government to spend less, [the] private sector to contribute more. And then going to the micro level on the company specifics, I think they will be looking at companies that can grow. And when I say grow, especially in emerging markets, you want companies that outpace inflation in terms of growth. So when you look at it in dollar terms, it's actually delivering growth in dollar terms, not in EGP. So I think that’s the critical metric that they will look at. And definitely they will look for new stories to come to the market. 

Putting all this together, once we get to the point where Egypt — as the government and as a state — really delivers a solid, clear, crisp story about its economy and giving guidance to investors: "This is what is going to be for the coming five years. These are the sectors we're betting on. These are the sectors that we want to grow. The growth will come from the private sector. Our role will [be to] put the right regulations, the right incentives, the right policies in order to support this growth.” So it becomes very very clear in people's minds. 

Investors will start looking for the companies that are going to benefit from the story. But if the story is a little bit vague and we're still not sure what we are betting on — is it tourism? Is it services? Is it industrials? Is it logistics? Is it agriculture? If it's everything, they get a little bit lost. So it needs to be more crisp and direct to investors. And then comes the regulations and policies that will assist this vision to be implemented. Yeah I think that’s the response to that question. 

R.R: Yeah, I think "story" is really a running theme throughout today. 

So, there's an argument that the overhang isn't currency stability or policy consistency, and maybe even not the ability to repatriate funds, but a lack of interesting paper in the market. So it's a bit of a chicken and egg scenario. So Amr, what are your thoughts on that?

A.H: I think we were always of the view that there was a lack of paper, but I think this time around it's not necessarily lack of paper; it has been lack of foreign investor interest because of the macro picture. Now that this is clearing up, I think what we need to see is a combination of those foreign investors becoming more constructive — and I think they will be next year on Egyptian equities — and I think you need to come to market with interesting stories. In our mind, an interesting story is: right sector, right size, right valuation. 

In today's market, you can get away with raising two, three, four billion pounds. There is enough liquidity in the local market, but not depth. And when I say depth, it’s foreign participation [at] less than 10%. Retail investors you know roughly 70-75%. And then you have the local institutions that are trying to generate returns in difficult markets.

If you take a step back and let’s say go back to 2021, where we saw the last sizable IPO coming out of Egypt which we led at the time: eFinance. That was $370-plus million dollars — a very successful IPO and it had all the right ingredients. Right sector; there were a lot of interesting fintechs at the time. Right size. And a compelling valuation, which was very important. 

At the time when eFinance IPOed, the valuation relative to its listed peers was at a discount, and this got people excited and encouraged. And the IPO was extremely successful. So I think this is what we need to see coming into next year. Right sector, right size, and a compelling valuation that almost becomes a no-brainer for foreign investors to start getting exposure to Egyptian equities.

R.R: Bassem, could you tell us why we haven't seen more listings on the EGX as a cheaper source of capital? Is private capital just a lot more compelling?

B.F: Look, I mean the capital market is not for everyone. It comes with its own cost. So there is a critical scale that then makes sense for a company to be on the stock market. So definitely private capital is still quite... [It’s] potentially even in some cases better. Because the way we think about investors, either they are purely financial investors so — even in the private market  — it could be purely financial. But then you also want to think about strategic investors who bring in the technical expertise and the know-how and potentially access to new markets. And this is where it's something that potentially the capital market will not offer. 

So let’s say shareholders are looking to really decide which route to take, there's a number of things that need to be taken into account: what are they really getting out of it beyond the funding. And I think this [is], let’s say, [the] other nuances that need to be taken into account. 

R.R: Okay. Amr actually, I'd like to talk a little bit about state equity sales. Some would argue that listing 10% of a company isn't really going to move the needle. 

So what do we need to do to signal to the world that Egypt is back on the global stage? You mentioned sectors or specific sectors. Is there a company or a sector that you feel will be the icebreaker here?

A.H: Again, I think it's the combination of the right sector. And as Gad mentioned, people are looking for defensive but growing companies. So, companies need to be growing probably one and a half to two times inflation. Ideally, if there is a currency hedge embedded in it as well, opportunity to access export markets, localization of manufacturing and assembly, and size.

Because ultimately if you're not doing a $150-$200 million IPO, foreign investors — even if they like the story — wouldn't meet their size and liquidity requirements to be able to participate. And again, valuations have to be compelling. For at least the next two, three, four IPOs, to get those investors back into the market, we need to attract them even if we leave a little bit of money on the table. I think we need to be "long-term greedy," if you will, in terms of leaving a little bit of money on the table for those people to come back into the market, and then we see stock price appreciation and that will maximize shareholder value over time.

R.R: Okay, let's maybe take a step back from equities for a minute. So Gad, I wanted to talk to you about debt. 

So while the market for corporate bonds and Sukuk is still pretty small, companies are still finding financing. So what role is private credit playing here behind the scenes?

M.G: To be honest I think when you compare Egypt compared to the neighboring countries for the debt issuances, issuances are smaller. Definitely in size compared to our neighbours. But the regulations that are in place for debt capital markets — in terms of you can securitize your receivables, you can issue Sukuk… There's a lot of financial instruments that are allowed under regulations right now. And we've seen a pick up in companies depending more [on these] to finance working capital and even long-term needs through these kinds of products. And this is not really present in other countries around us.

I think what's lacking right now is, once you do this issuance, it's mostly held to maturity from investors. And most of the time these investors are commercial banks that like to diversify their investment and buy into these financial instruments. Around the world what you need to see is these products being [traded]. It's listed, yes, in Egypt, but it's not really traded. You don't still have the knowledge of how to trade fixed income, in terms of the minds of retail and other, maybe smaller financial players. How to read a yield curve, how to really understand when to buy the bond in light of the interest rate movements and stuff like that.

But at the end of the day, it's a learning curve. At least we have the foundation. We've seen very encouraging steps taken in order to open up the market more and more, and companies are relying on it. 

If you're talking about private credit in terms of extending like sub debt (subordinate debt), mezzanine financing, it's still not really active. At the end of the day, most of these funds are dollar-based and it's really difficult to find the right structure if you've not hedged 100% for a debt provider in order to take this currency risk. And on the local side, I think there is enough liquidity from the banks and from the market to satisfy the needs of the companies. I don't think there was a lot of demand coming for mezz and sub debt up till now.

R.R: Okay, we are right about to run out of time but I have one really rapid-fire question for all of you. Looking out into 2026, what is one bold but realistic prediction you have for Egypt's capital market? Maybe Bassem, let's start with you.

B.F: I’ll also say hope. Hopefully we see a big and relevant privatization materializing in 2026.

R.R: Okay, amazing. Amr?

A.H: I'm hopeful we'll see two or three large IPOs coming to the capital market next year.

M.G: Yeah, I agree with Amr. I think my hope — which I think is also realistic — is to see the first, let's say, $100, $150, or $200 million international-style offering with foreign participation coming back in. I think that that will be a big step forward and then hopefully privatization will kick in.

R.R: Amazing. Optimists, everyone. Thank you so much. It's been a pleasure having you.