{"id":568442,"date":"2020-12-30T03:27:38","date_gmt":"2020-12-30T03:27:38","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2020\/12\/30\/plus-what-does-our-ipo-tracker-say-about-21-barring-a-global-meltdown-that-is\/"},"modified":"2020-12-30T03:27:38","modified_gmt":"2020-12-30T03:27:38","slug":"plus-what-does-our-ipo-tracker-say-about-21-barring-a-global-meltdown-that-is","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2020\/12\/30\/plus-what-does-our-ipo-tracker-say-about-21-barring-a-global-meltdown-that-is\/","title":{"rendered":"Plus: What does our IPO tracker say about \u201821? (Barring a global meltdown, that is)"},"content":{"rendered":"

<\/a> 2020 was not a good year to be an investor in public equities in Egypt, but there are<\/strong> glimmers of hope that suggest 2021 could be a different story.<\/strong> (Insert here your preferred waffle words and caveats about exogenous shocks, acts of God, pandemics and your legendary stock-picker friend who still managed to beat the market many times over.)<\/p>\n

How bad was 2020? <\/strong>Egypt is in the running with Bulgaria, Costa Rica, Mauritius and Jamaica in the sweepstakes for world\u2019s worst-performing exchange \u2014 the EGX30 is down 23.1% year-to-date with only today\u2019s trading session left to go. Among large, investable markets, Morningstar\u2019s index shows us the world\u2019s third-worst performer<\/a> behind Brazil and Colombia, but ahead of Hungary and Peru.<\/p>\n

Regionally, the Kuwait Stock Exchange (-12.6%) and Dubai Financial Market (-8.7%)<\/strong> are<\/strong> the next-worst performer<\/strong>s.<\/strong> The Nasdaq Dubai is down about 2.7%, while Saudi\u2019s Tadawul (+4.3), and the Abu Dhabi Exchange (+0.5%) could still close the year in the green.<\/p>\n

The world\u2019s top-performing exchanges<\/strong> according to data cobbled together from Bloomberg: Nigeria (+47.0%), Denmark (+29.4%), South Korea\u2019s Kospi (29.0%), Turkey (+27.2%), Iceland (+23.9%) and Argentina (+23.1%).<\/p>\n

The pandemic may have emerged from China, but it\u2019s done little to dent their stock markets: <\/strong>The Shanghai Composite is up 11.6% in trading today, while the Shenzen Component is up 36.0%.<\/p>\n

What happened in Egypt? <\/strong>Foreigners sold out of the market at the start of the pandemic and they\u2019ve largely sat out the year. The story is clear when you look at the brokerage rankings: Trading on the EGX is usually dominated by EFG Hermes (with a market share that is sometimes in the high teens, and usually in the low-to-mid-20s) and CI Capital (in the teens). It\u2019s simple math: Together, own the lion\u2019s share of the foreign institutional inflows into Egypt. That shifted as 2020 wore on. Last month, EFG had a 17.4% share, followed by Pharos (just under 6%), CI Capital and Beltone (each at about 5%) and Pioneers (just over 4%).<\/p>\n

But volumes are up, right? <\/strong>Yes. In fall 2019, total turnover on the EGX was in the EGP 400-500 mn per day range. This past fall, it was well north of EGP 1 bn most days \u2014 but the players were largely retail and local institutions, and trades have been spread out over the dozens and dozens of small brokerages who have clung to their licenses for years despite anemic business (did you know there are 130 licensed, active brokerage firms<\/a> registered with the EGX \u2014 and 142 if you include the ones whose licenses have been suspended?).<\/p>\n

Where did the foreigners go? They pulled out of the market \u2014 all the (emerging) markets.<\/strong> The EGX30 was down just 5.5% for the year at the end of February \u2014 then came the Great Global Emerging Markets Selloff of 2020, and Egypt got hammered the same as every other EM. By mid-March, we were down more than 37% for the year, and foreign investors have largely sat on the sidelines since. It could have been much, much worse: A lot of the local appetite to play the market came after things were grim enough that the Central Bank of Egypt stepped in with a nearly unprecedented share buying program. Foreign investors were net buyers<\/a> last year and net sellers this year. And as EM were melting down, the US Federal Reserve was engaged in precedented support<\/a> of financial markets stateside. Repo facilities, direct lending to securities firms and a host of other active market operations<\/a> ensured that liquidity was sucked back into the US market \u2014 giving investors a chance at higher returns with reduced risk in a classic flight to safety in a riskoff.<\/p>\n

One thing foreign and domestic investors are looking for in \u201821: New paper.<\/strong> Simply put, it needs to come into the market after two years in which IPO flow has been abysmal. Rameda Pharma and fintech darling Fawry were the only two IPOs in 2019 after Hassan Allam Holding and Carbon Holding pulled hotly anticipated transactions. The flap over Beltone\u2019s handling of Sarwa\u2019s EGX debut in late 2018 sapped momentum for many companies that were considering going public, and the state\u2019s privatization stake sale ran late for reasons domestic (think: bureaucracy) and international (selling pressure on EM), but EGX boss Mohamed Farid still started 2020 with at least three IPOs<\/a> in the pipeline and some government stake sales planned.<\/p>\n

Then: Covid, which wiped out Egypt\u2019s pipeline.<\/strong> High-profile transactions like Banque du Caire\u2019s hotly anticipated IPO postponed, and the state\u2019s stake-sale program was kicked back<\/a> once again.<\/p>\n

Covid outright killed at least two IPOs, possibly forever: <\/strong>Nile Air pulled the plug<\/a> on its offering after the tourism and aviation industries cratered, and Qalaa Holdings has reportedly postponed the 1H2021 sale<\/a> of a 30-40% stake in energy distribution player Taqa Arabia. Word on the street is that Qalaa will also put off the listing of the Arab Refining Company, parent company to its Egyptian Refining Company, whose financials came under pressure after covid wiped out oil prices (briefly sending them into negative territory<\/a>).<\/p>\n

Small-cap real estate player Emerald was the only IPO of 2020<\/strong>, in an EGP 202 mn offering on which parent company Odin was financial advisor and Mubasher the bookrunner.<\/p>\n

More interesting: Speed Medical became the first company listed on the Nilex to make<\/strong> the jump from the baby bourse to the EGX <\/strong>when it completed an EGP 222 mn capital increase<\/a> earlier this month.<\/p>\n

So, how do things look for 2021? Egypt looks compelling \u2014 the question is what<\/strong> happens with global markets. <\/strong>Let\u2019s take that piece by piece, shall we?<\/p>\n

First: Foreigners say they\u2019re coming back. <\/strong>Our friend Rami Sidani, head of frontier investments at Schroders, told us a couple of weeks ago that \u201c2021 is going to be the year for Egypt. We think the stars are aligned in terms of lower rates (the lowest in a decade) that will spur investment and accelerate credit growth. We\u2019re going to see tourism pick up as the world normalizes. \u2026 We also see Egypt reaping the fruits of all of the investment the government has been doing to connect cities and build out infrastructure.\u201d (If you haven\u2019t already done so, our chat is worth reading in full<\/a>.). You would also have to assume the Fed will cool-off its support for financial markets to avoid overheating the US economy. Investors would then be pushed to find market-beating returns in other markets and asset classes.<\/p>\n

The sell side likes Egypt, too<\/strong>, whether that\u2019s our friends at Pharos<\/a> here at home \u2014 or RenCap<\/a> and Credit Suisse<\/a> abroad. All of them like Egypt in the new year.<\/p>\n

Second: The government is sending signals that stake sales are in the cards<\/strong> as it looks to sell chunks of Alexandria Containers, Abu Qir Fertilizers and Sidi Kerir Petrochemicals. The offerings are promising enough that institutional investors and DFIs are all closely watching.<\/p>\n

Third: The country\u2019s \u201creal\u201d pipeline of equity capital market transactions is as healthy as<\/strong> it has been in years. <\/strong>We maintain an internal tracker of IPOs and stake sales on which we note every detail imaginable about any company whose CEO or beneficial owner has ever muttered that they may, one day, like to go public or sell additional shares.<\/p>\n

Lots of these pronouncements are bull[redacted] designed to gin up some media<\/strong> attention. <\/strong>There\u2019s little our colleagues in the domestic press like more than an easy IPO story. With that in mind, we assign every musing an ERR \u2014 Enterprise Realness Rating<\/strong>. A zero means there\u2019s a snowball\u2019s chance in hell that company will ever make its debut on the EGX. A 5 means we know with a high degree of confidence that they\u2019ve retained advisors.<\/p>\n

Only 15 out of 85 companies on our tracker have an ERR of 3 or more. <\/strong>Set aside the aforementioned stake sales, and we figure there\u2019s a 2021 pipeline that is anchored by:<\/p>\n