By Mohamed Ahmed
Mohammed Omran, Chairman of the Egyptian Stock Exchange (EGX), said that consultations with several government agencies, including the Suez Canal Authority, are taking place to discuss ways of utilising the stock market as a reliable source of funding. The stock market is to be used within several channels of funding packages for the development of the Suez Canal project.
Omran noted, in an interview with Daily News Egypt, that the legislative structure of the stock market is entirely appropriate to finance the Suez Canal projects, especially with the allowance of initial public offerings (IPOs) for financing without restrictions of profitability terms, the number of shareholders, or a waiting period of two years after the foundation. Moreover, the stock market will allow the government and the private sector to compare between more than one funding source and then choose the most appropriate financing terms.
What is the role of the stock market in financing the Suez Canal projects, in your opinion?
The stock market has began negotiations with various parties, whether governmental or private, a long time ago. This was done to demonstrate that the role of the stock market is not limited to stock exchange, as many believe. However, the more important aspect is the role the stock market can play to secure financing for companies of all sizes, thus helping them expand and grow and provide more job opportunities.
This role is not limited to only private companies, but also includes public sector companies, as well as giant national projects, such as the Suez Canal project, the 1m Acres project, the Road Network project, and other infrastructure projects.
In this context, I emphasise once again the importance of the expansion of the government to rely on the stock market as a source of financing. From one side, it brings back the idea of public financing on which the Egyptian economy was based at the beginning of the last century. This allows citizens to become the owners of the wealth of the country, in addition to helping reduce the cost of funding from the state due to the presence of more than one source of funding. Altogether, this allows the government to put competitive financing conditions, and then compare between funding sources based on these conditions.
The stock market’s role will expectedly be highlighted in the mega-projects of the Suez Canal Axis for the existence of different funding sources. It is also possible to combine between more than one source, whether banks or strategic investors, or by offering shares for public subscription.
What is the role of amendments made to the admission requirements for listing on the official market that allow the admission of Egyptian companies established by public placement, in support of the Suez Canal development project?
When the Egyptian Financial Supervisory Authority (EFSA) began making several substantial amendments to the Listing Rules more than a year and a half ago, it developed a vision for the future of the Egyptian economy and how to subdual the stock market as a tool for economic development. This was the point at which the stock market realised that the coming period will be full of development projects needed by the state to support and increase the competitive capabilities of the economy, and at the same time achieve a significant improvement in the lives of citizens.
So a part of the amendments were focused on the possibility of allowing the financing of the giant national projects, such as the Suez Canal projects. Such projects require financing without prior conditions, such as profitability, the number of shareholders, and other conditions that may be an obstacle to financing these projects.
In my opinion, the legislative, technological and organisational structure owned by the Egyptian Stock Exchange is now able to provide funding for these projects to achieve the desired goals of the plan, and without increasing the burden on the state budget.
Were there any discussions with the Suez Canal Authority on the establishment of new joint-stock companies to be included in the stock market after the issuance of new amendments to permit this upon the request of President?
In fact, we launched extensive discussions some time ago with various entities, and ministries, whether the Suez Canal Authority or others entities with company portfolios. This was meant to utilise the stock market as a mechanism of financing those companies and increasing their capitals in a way that increases their competitiveness. I expect to see a significant improvement in this file during the upcoming period. Especially with the government support, represented by the Prime Minister and a large number of ministers who support the idea of using the stock market for financing companies and public projects.
In your opinion, what are the most prominent economic sectors that are nominated to utilise the stock market as a channel of funding?
The EGX enjoys sectoral diversity. Between industrial, agricultural, commercial, building materials, and telecommunications, the market is obviously open to all sectors. There is always an investor for each sector.
I believe that the Suez Canal Axis includes many projects that are nominated for public placement. The reason behind that is that the axis will have more than charging and discharging projects; it is an integrated developmental axis on the banks of the canal that facilitates the transformation of the canal into a global centre for logistics and industries, befitting the important location of the canal.
And then, there will be opportunities to start major industrial projects, as well as furniture, shipbuilding and repair, handling and storage of containers and assembly of cars and other giant infrastructure projects.
Could the downward trend that has controlled the stock market since the beginning of the year have a negative impact on the attractiveness of the stock market as a source of funding for Axis development projects?
I do not think so. Last year, IPOs returned back to the EGX again, after four years of stagnation of big placements. These placements proved that investors within the stock market have a great thirst for liquidity and are ready to engage in mega-projects.
The first months of this year have seen IPOs to increase companies’ capital value at almost EGP 10bn, and with a high coverage number, which means that there is a strong liquidity awaiting promising investment opportunities.
On the other hand, the stock market announced the launch of exchange index EGX50 as an indicator of price equal weights. What are the criteria that determine the shares of the index?
EGX50 is a new addition to the family of indexes launched by the stock market, which is approaching 20 indexes so far. This gives an opportunity for investors to get to know all the tendencies on the performance of the market from a different perspective.
I think that the index methodology, which relies on 50 shares with a weight of 2% for each company at the launching phase of the index, gives an image of a different perspective. This could be of interest to a side of investors to whom other indexes may not be suitable. This index gives equal weight between a large numbers of stocks.
As for the standards of companies’ selection, it is focused on liquidity by sorting companies according to the last six months circulation. This way, the index will already be expressing the market due to its focus on stocks of interest to investors, with the exclusion of companies that don’t commit to the rules of registration and disclosure.
The stock market will review the index four times a year. Two of the four times will be in February and August to add or remove companies, while the other two reviews will be to adjusted companies’ weights and bring them back to the level of 2%.
After the registration of the Kuwaiti Al Salam Holding Company by issuing Egyptian certificates of deposit, are there other companies that have expressed desire to repeat the experience?
I expect that the EGX will see the issuance of similar Egyptian certificates of deposit in the coming period, especially with our focus on the promotion of the market, internally and externally. I imagine there will be other similar cases during the coming period.
I believe that the issuance of certificates of deposit copes with the ongoing change taking place in the Egyptian stock market structure. Now, we have double-entry companies, and Egyptian certificates of deposits to foreign companies. There are also other tools besides stocks and bonds, such as index funds. This is a development that reflects the market move to deeper stages, which will help in attracting more investments to the Egyptian market.
Are there new companies seeking to register their shares in the stock market?
There are strong companies already on their way to register in different sectors, such as food. Our role is to facilitate the registration procedures as much as possible without affecting shareholders’ rights. I would imagine that the Listing Rules amendments have contributed to this.
This can be invoked by the success of the stock market during the last fiscal year. We succeeded in registering 22 companies with paid capital that exceeds EGP 6bn, a record rate higher than any past years.