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Would a global IPO enhance Egypt’s investment capitalbase?9 HOURS AGO
BUSINESS WORLD (HTTP://INBUSINESS.AE/CATEGORY/BUSINESS-WORLD/), FEATURED (HTTP://INBUSINESS.AE/CATEGORY/FEATURED/)
By Prof dr m s s el namaki, Dean, School of Management, Victoria University, Switzerland
I – The problem
Going to market through an IPO, an Initial Public Offering, is one way of enhancing capital base and providing businesses with
sought capital. The practice is, it goes without saying, common but drew great attention when the size and recognition of the
corporations involved reached global dimensions. Agricultural Bank of China or ABC ($ 22.0 Billion), Industry and Construction
Bank of China or ICBC ($ 19.1 Billion) , Facebook ($16.00 Billion) and General Motors ( $ 15.00 Billion) all belong to what we may
term “global” IPO’s that broke many records (Reuter, 2015). Shares in those companies were, as a result, traded in an open
market and were subjected to monitoring and control by assigned government and institutional agencies. Global IPO’s outcome
did, in those and other cases, add low cost capital to the investment base, rewarded entrepreneurs for their entrepreneurial
zeal, opened the door for many to acquire solid assets and, probably more importantly, allowed the corporations in question to
explore new investment opportunities
Given those obvious advantages one may wonder whether the global IPO route could provide an answer to Egypt s investment
capital market woes. And whether a global IPO for some of Egypt’s State business entities may provide an opportunity for capital
asset enhancement and a solution to State enterprise underperformance.
The following articles explores this issue.
The article starts with an identi�cation of the framework and distinct features of global IPOs. It, then, proceeds to answer the
question: why Egypt? This is discussed in terms of need, process, candidates and possible outcome. . The article concludes
with an assessment of the potential and the probable outcome of the process.
The article is novel in terms of contribution to Egypt’s capital market strategies and investment framework. It could provide a
premise for policy decisions within the State enterprise as well as the investment promotion domains.
The article also draws the attention to global IPO’s as vehicles for capital market maturity in some emerging economies.
II – Why a global IPO?
A global IPO is an Initial Public Offering conducted across two or more nations within an international business framework. It
ful�lls, next to standard common IPO criteria, some or all of the following conditions:
Floated within one or more foreign investment markets.
Addresses a foreign investor segment.
Managed by an internationally recognized underwriter or underwriters.
Denominated in an internationally recognized reserve currency.
Launched within a recognized international IPO market
Supported by promotional material written for foreign investors
Subject to regulatory frameworks of the country or market where it is launched.
As commonly advocated, IPOs deliver advantage in terms of low cost of capital, diversi�cation of equity base, relative ease of
investor reach, enhanced recognition of the launcher and, �nally, better management performance . Global IPO provide the
added advantage of a capital denominated into a global reserve currency, a scale that allows greater investment volume, a scope
that would allow wider investor reach, an underwriting that enhances investor con�dence , an exposure that increases player
recognition and last but certainly not least, a malleable price range.
Strategic criteria dictate the choice of a location of the global IPO. As seen in recent global IPOs as Alibaba’s, a choice of a
location is in�uenced by many issues including investment reach, ease of listing and price outlook. Cross listing belongs also to
the possibilities. Listing in the USA, for example, brings with it certain advantages in terms of regulatory environment, US $
denomination and liquidity access. Criteria for listing could also differ for foreign listers from domestic ones. New York Stock
Exchange, NYSE, for example, require foreign companies to abide by internal control requirements but excludes them from
certain rules and regulations that apply to publicly listed US companies.
Shifting location preferences have led to a change in ranking of stock markets. The United States was prior to 2009, the leading
issuer, by value, of domestic and global IPOs but China has taken over this place (Shanghai
(https://www.revolvy.com/topic/Shanghai%20Stock%20Exchange&item_type=topic), Shenzhen
(https://www.revolvy.com/topic/Shenzhen%20Stock%20Exchange&item_type=topic) and Hong Kong
(https://www.revolvy.com/topic/Hong%20Kong%20Stock%20Exchange&item_type=topic)). Figure (1) features the picture in
2016 and how Hong Kong and Shanghai took the lead while New York and London were relegated to the third and seventh place
respectively (Reuters, 2015).
Global IPO procedures are governed by different laws in different countries. In the United States, IPOs are regulated by
the United States Securities and Exchange Commission
(https://www.revolvy.com/topic/United%20States%20Securities%20and%20Exchange%20Commission&item_type=topic) under
the Securities Act of 1933 (https://www.revolvy.com/topic/Securities%20Act%20of%201933&item_type=topic). In the United
Kingdom, the UK Listing Authority (https://www.revolvy.com/topic/UK%20Listing%20Authority&item_type=topic) reviews
and approves prospectuses and operates the listing regime. China operates with a registration-based IPO system that puts the
ultimate offering decision in the hands of the Public Offering Review Committee under the CSRC.
Record subscriptions were achieved in many recent or fairly recent IPOs. Alibaba went public on September, 2014 and ended up
with a total IPO of $25 billion. ABC went public on July, 2010 and achieved a near $22 billion. Number of global IPOs �uctuates,
however, according to economic and political events. Volume and value of global IPO’s has fallen, for instance, on a global scale
by about a third in 2016 compared to the same period of 2015. Turbulence, both political and economic, has undermined the
attractiveness of new listings and discouraged new equity investor’s entry. (Financial Times, Oct 2016). UK decline amounted to
60 per cent as companies shied away from coming to the market before the EU referendum. Europe and the US demonstrated a
similar decline with volumes contracting by close to 45 per cent.
Figure – Global IPO markets 2017
Market
2016 proceeds
$ Billion
Market shareNumber ofissues
HK 24.35 18 71
Shanghai 16.01 12 110
New York 11.87 8.8 33
Nasdaq 7.45 5.5 74
Tokyo 5.91 4.4 8
Copenhagen 5.90 4.4 3
London 5.72 4.3 15
Frankfort 5.46 4.1 7
Australia 5.17 3.8 66
Shenzhen 3.99 3.0 81
Source: Reuter, Global equity capital markets review, 2015.
III – Why Egypt?
State of the capital market
State of the capital market
Egypt’s capital market is modest in scale and scope. Egypt’s stock market or Exchange (EGX) had, in April 2016, 261 companies
listed with a market capitalization of about LE 500 billion (about $ 70 Million at pre devaluation exchange rates). This is modest
compared to other emerging economies as, for example, Thailand (584 listed companies with a combined market capitalization
(https://en.wikipedia.org/wiki/Market_capitalization) of 15,030 billion baht (https://en.wikipedia.org/wiki/Thai_baht) or 460
billion USD in 2015). FDI in�ow into Egypt averaged 2.35 USD Billion between 2002 and 2016 but amounted to $ 6.885 Billion in
2015 (compared to $ 10.844 Billion for Thailand $ 11.8 Billion for Vietnam in the same year (IMF, 2016). Total investment, measured
as a percentage of gross capital formation in GDP, was 14.2 percent in 2015, compared to 19.5 percent in 2010. The country’s
benchmark index, the EGX 30 has been erratic with a downward trend all through 2016. Egypt’s June 2015 national budget
de�cit amounted to 11.5% of GDP.
Laws conducive to foreign investment �ows do not seem to have had a signi�cant long term stimulatory impact on capital
market scale and scope. Laws as the Capital Market Law granting foreigners full access to capital markets and authorizing the
establishment of Egyptian and foreign companies to provide underwriting , brokerage, mutual funds management, security
transactions, and venture capital are all there but their impact seems to be mild if compared to other emerging economies . A
Supreme Council for Investment, chaired by the President, was recently established in order to supervise state’s investment
policies.
Declared intentions to go market have been repeatedly made but actual ful�llment failed to materialize. Yet this seems to be the
only effective road to capital market enhancement and capital asset growth stimulation.
What does the process imply?
The conduct of a global IPO for a State asset in Egypt will present the decision makers with an opportunity as much as a delicate
and complex problem. The idea is frowned upon by many and policy makers will have to do some serious selling to the non-
believers. They may have to deal with the misgivings of past privatizations and, possibly, go a long way explaining the difference
between the two. Global IPO candidates in Egypt could include nationally treasured assets and the debate could revive strong
feelings, let alone fears, of a repeat e of yesteryear events. One has only to observe the ongoing domestic and international
political currents surrounding KSA contemplated Aramco IPO to feel the intricacy of the process. Similar processes, elsewhere,
opened the door for delicate probe of sovereign rights, foreign political intervention, government loss of control and what
constitutes a genuine capital market gain.
Identifying global IPO candidates will also provide a challenge given vested interests and power struggles within the
administration. This may explain objections expressed by the Ministry of Public Enterprise, who controls 125 State enterprises,
against the IPO-like views expressed by the Ministry of Investment. The specter was raised by the ministry of investment of
selling stakes in a number of government companies as a mean of increasing investment, energizing the stock market and help
plugging the budget de�cit (The National, June 1, 2016). Yet those views were not shared by the Ministry of Public Enterprise.
Objections aside, one may consider several industries, and strategic business units (SBUs) located within those industries,
appropriate targets for foreign investment. They could also prove to be conducive to the ultimate goal of enhancing Egypt’s
capital market and investment. Those could include:
The oil and gas industry
The air travel industry
The Suez economic cluster
Telecommunication industry
The banking industry
The pharmaceutical industry
Each of those industries represent a cluster with a multiple of strategic business units (SBU) located within. Suez economic
cluster could, for example, include a management SBU, a physical asset SBU, a supply chain SBU and a transportation SBU.
The oil and gas industry cluster could include extraction SBU and a marketing SBU. The air travel industry cluster could include
a carrier SBU and a ground services SBU. Each and every SBU could represent a target for a global IPO.
Preparatory measures and actual launch.
Seldom is a business unit ready for a global IPO without a measure of restructuring. Egyptian State assets may require even
more restructuring than others given their history and the evolving State environment. The process is elaborate and requires
familiarity with foreign investor expectations and the very process of marketing equity within a foreign investment market.
Issues demanding immediate attention would include:
Capital structure especially liquidity, debt and retained earnings.
Management team performance and possible shifts within a restructured ownership pro�le.
Strategies pursued in the past and strategies contemplated for the future.
State of plant technology and need for technology shift or upgrade.
Company and country credit rating both historical and perspective.
This type of restructuring requires careful planning and tight implementation. Actual launch of the global IPO could become
dependent on the completion of the recon�guration process.
The �nal launch, on the other hand, would involve the selection of a recognized global investment bank of syndicate of banks as
Morgan Stanley (https://en.wikipedia.org/wiki/Morgan_Stanley) (MS) and JP Morgan
(https://en.wikipedia.org/wiki/JPMorgan_Chase) (JPM) in the United States, who would undertake to approach investors and
allocate (sell) the shares to retail clients or institutional investors or both. A critical element here is the price setting as well as
the promotional effort.
IV – What could Egypt gain?
Egypt is bound to achieve considerable gains from a global IPO or IPOs within the framework described above. Those IPO
candidates represent considerable volume of assets and a strong capital potential. Egypt s gain could, in the �nal analysis,
depend on the ultimate market value of the business unit, the slice that Egyptian administration wants to offer to international
investors, investor’s interest and the way the price setting is managed. An independent analysis is to be conducted in order to
establish the possible volume of this gain.
V – Summary and conclusions
Going to market through an IPO, an Initial Public Offering, is one way of enhancing capital base and providing businesses with
sought capital. The practice is, it goes without saying, common but drew great attention when the size and recognition of the
corporations involved reached global dimensions. Agricultural Bank of China or ABC ($ 22.0 Billion), Industry and Construction
Bank of China or ICBC ($ 19.1 Billion) , Facebook ($16.00 Billion) and General Motors ( $ 15.00 Billion) all belong to what we may
term “global” IPO’s that broke many records. . Global IPO’s outcome did, in those and other cases, add low cost capital to the
investment base, rewarded entrepreneurs for their entrepreneurial zeal, opened the door for many to acquire solid assets and,
probably more importantly, allowed the corporations in question to explore new investment opportunities
Given those obvious advantages one may wonder whether the global IPO route could provide an answer to Egypt s investment
capital needs. And whether a global IPO for some of Egypt s existing business entities may provide an opportunity and a
solution. Those could include strategic business units within the Suez Canal entity, the banking industry, the telecommunication
industry, the pharmaceutical industry and last but not least, the air transportation industry.
The article starts with an identi�cation of the framework and distinct features of global IPOs. It, then, proceeds to answer the
question: why Egypt? This is discussed in terms of need, process, candidates and possible outcome.
The article is novel in terms of contribution to Egypt’s capital market strategies and investment framework.
References
Global IPOs fall by a third, amid volatility and uncertainty, Financial Times, Oct 2016
Stock Exchange of Thailand, 15 February 2012, Management Discussion and Analysis, 2011(http://www.set.or.th/en/about/annual/昇les/MD_A_En2011.pdf).
Global equity capital markets review,, Reuters, 2015
Egypt plans to sell shares in state-owned companies, Reuters, Jan 19, 2016
Top 10 Largest Global IPOs Of All Time |, Investopediahttp://www.investopedia.com/articles/investing/011215/top-10-largest-global-ipos-all-time.asp#ixzz4baxYLBM9 (http://www.investopedia.com/articles/investing/011215/top-10-largest-global-ipos-all-time.asp#ixzz4baxYLBM9)
State-owned 昇rms of Egypt are not going to market, The National, June 1, 2016
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About the author
Prof dr m s s el namaki is the Dean, School of Management at Victoria University, Switzerland. Previously, he was Dean, Maastricht
School of Management, MSM, And The Netherlands. He can be reached at [email protected].
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