Rameda to breathe life into Egyptian IPO market

Cairo-based Rameda Pharmaceuticals is set to price Egypt’s second private-sector initial public offering (IPO) of the year, revitalizing the country’s lacklustre IPO market, which has struggled to recover to pre-revolution levels, despite a healthy pipeline of state and non-state run companies.

Rameda is in the marketing phase of a listing that will value the company in a range of $214 million to $286 million on the Egyptian Exchange (EGX). It could be the largest Egyptian IPO since 2015.  

Egyptian ECM activity has been slow to pick up after index-provider MSCI cut the North African country’s weighting in May 2015, in the aftermath of the Arab Spring, prompting investors to withdraw funds.

A successful deal would be a positive signal for investors, and good news for the large IMF-backed privatization programme that is yet to begin in earnest.

“What investors are looking for is new sizeable, investible ideas, for new names to come to market, and for existing names to provide more liquidity,” says Amr Helal, CEO North Africa at Renaissance Capital.

Egyptian listed IPOs peaked in 2015 when companies raised $752 million, though this fell sharply in 2016 to $214 million. So far this year, $101 million has been raised on the EGX, according to Dealogic data.

Rameda, which has mandated HSBC and Investec as joint global co-ordinators and joint bookrunners, follows digital payments company Fawry, which completed a listing in August. The company has set aside 5% for Egyptian retail.

Books close on November 26, with trading starting on December 5. Early plans for a dual listing with the London Stock Exchange have been dropped to focus on the EGX, according to a banker on the deal.

Egypt’s strong economic growth and successful implementation of an IMF-recommended reform programme have meant it is an attractive prospect for investors, though harsh austerity measures have prompted unrest in the country. 

Liquidity is also starting to improve, and with a healthy pipeline of state and non-state owned companies looking to list, bankers expect market capacity to return.

As the reforms were happening, most corporates were restricted to borrow to finance working capital. Corporates are now in the mindset that they will look to start borrowing for capex and investment 

 – Amr Helal, Renaissance Capital

During the past several years, the devaluation of the Egyptian pound, as well as the de-listing of several large corporates, impacted the amount funds flowing into Egyptian equites.

“On average, we trade between $40 million to $50 million on a daily basis, so there is definitely room for improvement,” says Renaissance Capital’s Helal. “Pre-revolution, we traded $100 million to $150 million-plus.”

Corporate activity is now expected to pick up with the reduction in interest rates fuelling borrowing. The central bank cut rates for the third time this year on Thursday.  

“As the reforms were happening, most corporates were restricted to borrow to finance working capital,” Helal says. “Corporates are now in the mindset that they will look to start borrowing for capex and investment.”

A central bank directive to stimulate loans to the small and medium-sized enterprise (SME) sector, will also fuel growth in that segment of the economy. Banks are encouraged to lend 20% of their loan portfolio to SMEs.

Privatization is a central tenet of the government’s reform programme, with the IMF’s new head Kristalina Georgieva urging Egypt to reduce the role of state-owned enterprises in the economy.

Earlier this year, the government sold a 4.5% stake in tobacco producer Eastern Company. It is the first successful listing from a programme announced in 2016.

“We aim to complete five to six IPOs by June 30 next year from different sectors,” Egypt’s finance minister Mohamed Maait told Euromoney last month. “Two are ready to go. The listings will be domestic, but we would love to see foreign investors coming in.” 

Fertiliser company Abu Qir, Alexandria Container and Cargo Handling, and payments company e-finance have all mandated banks to lead the sales. Banque du Caire is also expected to list.

State-run Heliopolis Housing is also looking for a buyer for a 10% stake, Helal says, and has had interest from buyers already in that market, though has extended the time line for responses to the end of the year.

Egypt has proved one of the stand-out investment stories for emerging-market debt investors with attractive returns, the strengthening Egyptian pound against the dollar and liquidity tempting many into the treasury-bill market.  

Between April and August, foreign holdings of bonds have grown from $1.4 billion to $5 billion, according to research by Societe Generale.

The sovereign sold $2 billion of Eurobonds on November 14, including a $500 million 40-year note, the longest from a sovereign in the Middle East and North Africa.