IPO flop sounds alarm before Egypt’s $6bn selling push

Cairo, Egypt - A bleak debut for Sarwa Capital’s stock would have been bad enough but it may also be an omen for Egypt’s plans to raise over 100bn Egyptian pounds (US$6bn) in its state divestment drive.

The private investment firm plunged as much as 18.5 per cent in debut trading, despite the hype surrounding its initial public offering which raised about 2.2bn pounds. Sarwa recouped some losses on Monday, but resumed its slide the following day on concern over the IPO pricing. It closed up 0.3 per cent on Tuesday.

With the volatility in global equity markets derailing IPOs from Spain to Hong Kong, the Egyptian government now faces an uphill battle if it moves ahead with plans to offer stakes in over 20 state-run firms. The first sale could come within ten days.

“It is likely that the government is only trying to sell the stakes because it wants to save its reputation, regardless of the cost,” said Naeem Aslam, chief market analyst at ThinkMarkets in London. “We do not think it is the right time for the government to sell them, and launching them now could actually create some panic in the market.”

Delaying the programme that has the full backing of President Abdel Fattah al-Sisi runs the risk of sending the wrong signal to investors at a key time. Turmoil across emerging nations has caught Egypt in the midst of a sweeping economic overhaul, even as it grapples with weaker foreign appetite for its debt.

“The state needs to divest in order to assist the liability side of the government’s balance sheet,” said Stephen BaileySmith, senior economist and investment strategist at Global Evolution Funds AG in Denmark. “If they postpone because they have second ideological thoughts, that would be taken badly.”

The government is looking to sell shares in four to five companies already this year in an effort to streamline the bloated public sector and turn around lossmaking state enterprises. It’s an extension of a broader economic reform program that started in November 2016 with the lifting of currency controls.

Given the unfavourable outlook and losses in Egypt’s benchmark stock index, even some officials are lowering expectations.

Public Enterprise Minister Hisham Tawfik is expected to hold meetings to pick a final date for the sale of an additional 4.5 per cent stake in state-run monopoly Eastern Tobacco, AlBorsa newspaper reported Tuesday. He had earlier set the time for October 21-25. The talks involve investment bank EFGHermes, which is overseeing the IPOs, as well as other officials.

In comments earlier this month, Tawfik warned bluntly that ‘the government will lose with the price at which it will offer’ the stake.

The government is looking to sell shares in four to five companies already this year in an effort to streamline the bloated public sector