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The Egyptian Exchange: 2021/2022 Harvest and Trends

A Year with Poor Performance

The performance of the Egyptian Exchange (EGX) in 2021 wasn’t so good. Its performance came the worst among stock exchanges worldwide, recording a 23 percent decline along with the departure of foreign investors and individuals’ control over the performance of bourses throughout the year. When it comes to indices, the EGX 30 index (i.e. the blue index) increased by 10.18 percent, the EGX 70 index (red) rose by 2.64 percent, and the EGX 100 index (black) grew by 5.08 percent.

Figure 1: Performance of the three main market indicators of the EGX

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Despite the improved performance shown in Figure 1, it isn’t a definite indicator of the health of the Egyptian Exchange, particularly given its low performance relative to its counterparts in the region, which all recorded double-digit growth (above 10 percent), where the Saudi Tadawul All Share Index (TASI) rose by 30.99 percent, the Abu Dhabi General Index (ADI) increased by 27.51 percent, and the Dubai Financial Market recorded an increase of 10.18 percent.

Figure 2: Performance of Arab market indices relative to EGX

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Considerable Momentum in Initial Public Offerings (IPOs)

Regarding the IPOs activity and the listing of companies in the stock market, 2021 wasn’t the best year in this respect either. The first IPO in EGX was conducted in April 2021 with the public offering of Taaleem Management Services which came after one year of the last public offering of Rameda in 2019. Taaleem offered up to 49 percent of its shares (placing 46.55 percent of shares with institutions and 2.45 percent with individuals). This IPO witnessed strong investor interest as it was covered 29 times whereas the private IPO was covered 2.34 times. In effect, this IPO has special significance coming as the first digital IPO in Egypt, promoted through digital channels. These promotional tools paved the way for a new model for promoting IPOs which would encourage businesses to accelerate their plans for listing in the EGX.

The second IPO was carried out in May with the technical listing of Integrated Diagnostics Holding (IDH, i.e. a key healthcare company operating in Egypt, Jordan, Nigeria, and Sudan). This technical listing was the first dual listing on the main EGX market of a company originally listed on the London Stock Exchange. This IPO was covered 11 times and entailed IDH offering 5 percent (30 million shares) of its shares for listing in the EGX.

As for government IPOs, the government IPOs Programme was revived in 2021. Historically, this programme was first announced in 2018 as part of the state’s plan to promote the private sector’s role in the economy and encourage public offering of state-owned companies for partnership with the private sector. Relatedly, In March 2019, the Eastern Tobacco Company listed 4.5 percent of its shares in the EGX. However, with the outbreak of Covid-19 pandemic, the programme was placed on hold before being revived again in 2021 where, in October, 26.1 percent of the government e-payment giant E-finance For Digital and Financial Investments (EFIH) shares were listed in the EGX with a value of EGP 5.8 billion and this offering was covered 6.8 times by institutions and 61.4  times by individual investors. In many respects, this offering stressed the confidence of foreign investors in the EGX and the Egyptian economy, where foreign investors acquired 72 percent of the offered shares, a clear indication of the government’s endeavors to attract foreign direct investment. This success paved the way for the second public offering, which entailed the sale of 10 percent of Abu Qir Fertilizers’ shares at a value of EGP 2.25 billion in December 2021.

These successes of the government IPOs programme in 2021 will likely open the door for other IPOs, such as the IPO of Egyptian Chemical Industries Company (KIMA), particularly after the new projects (e.g. Kima’s new industrial complex for ammonia and urea in Aswan) inaugurated by the president El-Sisi during his tour in upper Egypt bear fruit –according to statements of Hesham Tawfiq, the Minister of the Public Business Sector. Another IPO that has been talked about for almost three years is that of Banque du Caire, which has been postponed several times. Misr Insurance Holding may also re-list one of its affiliates, i.e. Misr Life Insurance or Misr Insurance which was planned to be listed in the last quarter of 2019. Further, Heliopolis Company for Housing and Development looks to sell an additional share of its stock exchange shares in mid-2022. The same is true of MOPCO, which also plans to list an additional chunk of its shares in 2022.

Other companies owned by the National Company for General Services are on their way to be traded on the stock market within the Egypt Sovereign Fund program, including the National Company for Natural Water in Siwa (SAFI) and the National Petroleum Company (NPC) which will be sold to a strategic investor. Earlier in November 2021, the Sovereign Fund of Egypt announced it is about to complete the restructuring procedures of the two companies.

At the private sector level, several companies are planned to be traded on the EGX, including the pharmaceutical giant Macro Group, which plans to publicly offer 45.8 percent of its shares on the stock exchange through an IPO in the first quarter of 2022 and Abu Auf, which also plans to trade its shares in the second quarter of 2022. To that end, Abu Auf has chosen EFG Hermes to manage the deal. Besides, there is the non-banking financial services company, Ebtikar, which plans to enter the stock market in early 2022, and Galina Holding, which was supposed to make its EGX debut in early 2021, but postponed this step pending improved market conditions.

Developments Opening up New Prospects

As for the stock market, allowing special purpose acquisition companies’ (SPAC, companies established and listed in the Egyptian stock market with the purpose of raising capital through an IPO for the purpose of acquiring or merging with an existing company towards listing the acquired company in the stock market) listing in the EGX in November 2021, represented a promising development. Following this announcement, two companies at least announced their intention to establish SPACs and list it on the stock exchange, particularly this mechanism offers emerging companies facing difficulties in listing the opportunity to be listed in the Egyptian stock market.

A prominent development that is expected to be introduced at the beginning of 2022 is the introduction of capital gains tax in January 2022, where a 10 percent tax will be imposed on capital gains earned by investors. Imposing this tax caused wide controversy as analysts expected it would have a negative impact on the trading volume, resulting in significant declines in the market, which prompted the government to introduce a proposed package of incentives, including some discounts on expenses related to trading and other incentives to mitigate the impact of this tax on retail investors.

Murky Trends

Yet several concerns are looming on the horizon, particularly in global stock exchanges in 2022, where everything seems commingled and a state of uncertainty exists among analysts worldwide. The global inflation rate may preclude a positive outlook for the performance of markets during the next year, particularly with the US Federal Reserve declaring its intention to accelerate the pace of selling bonds and re-consider interest rates in 2022. This may portend a change in the liquidity conditions experienced by companies in 2021, which helped companies hit records in the stock market. Additionally, there is the Omicron threat, which imposes many restrictions on travel between countries and would cast a shadow on the state of uncertainty in stock markets in 2022.

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