Cairo publishes IPO list, 2018/19 budget
Thursday, Apr 05, 2018
Egypt sent signals of intent to deliver on fiscal reform plans on two fronts in late March, as the government neared the second half of a policy programme. This is being delivered in return for a multi-billion dollar budgetary support programme from the IMF.

A definitive list was published of state companies planned for part-privatisation through the local bourse over the next two years – on which petroleum-related firms were prominent. Meanwhile, a draft of the 2018/2019 state budget received cabinet approval – envisaging a lower deficit in line with the Washington-mandated targets.

Cairo has been pledging to stage initial public offerings (IPOs) of shares in some of the state’s myriad corporate interests for more than two years, with President Abdel Fateh el-Sisi publicly announcing such a plan in early 2016.

In July that year, NI Capital – a subsidiary of state-owned National Investment Bank – was appointed to advise on a three-year programme of offerings. Nonetheless – despite the repeated reassertion in particular of plans for imminent sales of stakes in oil and gas contractor ENPPI and Banque du Caire – the policy has yet to bear concrete fruit.

However, on March 18, the government published a list of 23 companies scheduled either for IPOs or for the sale of additional shares in those already listed on the local Egyptian Stock Exchange over the next 24-30 months.

Stakes of between 15% and 30% would be divested – with the intent to leave the state in majority control disappointing many reform proponents and likely to dissuade some investors.

As was evident from the list and confirmed by officials, the petroleum and financial sectors are the focus of the programme.

In the former, ENPPI, Assiut Oil Refining Co. (AORC), Alexandria Mineral Oils Co. (AMOC) and Middle East Oil Refinery (MIDOR) are slated for sale, as are petrochemicals producers Egyptian Ethylene & Derivatives Co. and Sidi Kerir Petrochemicals Co. (Sidpec).

Several of the firms have major expansion plans in train, which have struggled to secure finance – although most are now proceeding after delays.

MIDOR, operator of a 100,000 bpd refinery in Alexandria, was said in 2016 to have cancelled earlier plans for an IPO after obtaining coverage by Italian export credit agency SACE and agreeing a loan from three European banks to fund a 60,000 bpd expansion.

ASORC awarded an estimated US$200 million engineering, procurement and construction (EPC) contract to ENPPI in the third quarter of last year on the long-planned addition of a naphtha-processing complex at the company’s 4.5 million tpy plant in Upper Egypt.

AMOC – one of the last companies, along with Sidpec, to be listed on the local bourse back in 2005 – was reported in mid-March to have secured funding from five lenders to enable the company to proceed with a US$500 million scheme to expand and upgrade output from the firm’s complex in the northern city. The lenders include the International Finance Corp. (IFC) and the European Bank for Reconstruction & Development (EBRD).

An IPO of 24% of shares in ENPPI – a stalwart of local oil and gas contracting while also increasingly active overseas – remains likely to be among the first to take place.

Cairo hopes both to reinvigorate the local bourse and to raise 100 billion Egyptian pounds (US$5.7 billion) through the share sales, helping ease the budgetary woes that forced a reluctant resort to IMF-monitored assistance in November 2016.

The three-year US$12 billion so-called Extended Fund Facility (EFF) requires adherence to a rigorous economic and fiscal reform programme – being pursued at the cost of considerable popular discontent. This includes progressive reduction of the budget deficit from 10.9% in 2016/17, the year the plan took effect, to 6.7% in 2018/19.

On March 18, the draft budget for the fiscal year starting in July was published by the Finance Ministry following cabinet approval.

Headline figures show an envisaged 18.5% rise in spending from the previous year’s plan – to 1.41 trillion pounds (US$80 billion) – offset by a 19.7% increase in revenues to 980 billion pounds (US$56.6 billion), reducing the deficit to 420 billion pounds (US$23.8 billion), or 8.4% of GDP, from an estimated 9.6-9.8% in the current year.

Cairo also projects an acceleration of GDP growth to 5.8% and adherence to an IMF target of inflation falling to around 13%, from levels exceeding 30% in the wake of currency reform just before the EFF was agreed.

External economic indicators have been increasingly positive. Foreign exchange reserves – a shortage of which finally induced the flotation and approach to the IMF – reached a record high of US$42.5 billion to the end of February.

In December, the Washington-based body dispensed the third instalment of the loan – worth US$2 billion – while in early March, the government announced receipt of the third and final US$1 billion tranche of a US$3 billion loan from the World Bank.

However, mounting indebtedness is causing some concern – with public debt due to swell to 88% of GDP at the end of the forthcoming budgetary period.

Cairo issued US$4 billion in dollar-denominated bonds in mid-February and plans a sale of 1-1.5 billion euros (US$1.2-1.8 billion) in euro-denominated securities by the end of April.

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