Egypt seeks funds for public projects in stock market

Egypt’s prime minister has revealed governmental plans to seek funds for public sector businesses as well as infrastructure projects through the stock market.

"Governmental plans include improving the management of public funds and their efficiency, as public assets belong to the people," said Ibrahim Mahlab, introducing the plan during the “Initial Public Offering Conference” organised by Egypt’s Stock Exchange Tuesday.

Mahlab had announced soon after he was appointed late February that privatisation was no longer an option. The government plan to revive public sector is based on private sector partnership. 

"It becomes a necessity to separate the management of public enterprises from ownership, to promote our institutions and let loyal honest people manage those assets with new visions,” said Mahlab.

Mounir Fakhry Abdel-Nour, minister of industry, foreign trade and investment, gave further details, explaining that the government is studying the creation of an investment fund to manage public sector companies.

"The restructuring process for state-owned businesses requires huge funding and is an ambitious and costly plan that the state budget cannot bear," he said during the conference.

"Commercial banks have reached the ceiling. The Central Bank financed the government intensely during the last two years. The remaining source for local finance is the people," explains Hani Guenena, head of research in Pharos Investment Bank.

The government did not reveal whether it will fix a limit for private ownership in public companies.

The government plan to launch an initial public offering (IPO) in the stock market is not limited to public sector business but will include new infrastructure projects as new regulations for companies listed on the stock exchange implemented in February allow new projects to launch IPOs while old regulations required companies to present financial statements of three years before being listed.

High speed rail

Ibrahim Al-Demery, minister of transportation, told Reuters on the margins of the conference that the government plans to hold an IPO for the first stage of a high speed train project in August.

The project is intended to be funded through contributions from military and government banks along with the IPO.

El-Demery added that the offering, which is currently being studied by international consultants, is expected to exceed $2 billion.

The investment cost for the high speed trains project is planned at around $12 billion in four stages that are expected to last 12 years.

Suez Canal

Mahlab also said that the government would seek funds in the stock market for a massive economic development project targeting the Suez Canal region. 

Companies will be allowed to submit bids for the Suez Canal development project from Thursday, Mohab Mamesh, head of the Suez Canal Authority said during the conference.

In January, out of 46 applicants 14 international firms were selected that met tender specifications for the project.

The results of the bid to put together a comprehensive plan for the economic development of the Suez Canal will be announced mid-June.

Work in infrastructure is planned to start by 2015.

Market capital

Earlier this week, head of the Egypt Stock Exchange Mohamed Omran said in an interview with Reuters that the exchange can play a role in restructuring state businesses by raising capital.

The government can keep its shares and offer a share for individuals to raise capital, added Omran.

"It is expected that IPO's for new infrastructure projects will be more attractive to investors. However, some public sector companies need slight reforms to become very attractive," says Guenena, adding that demand on IPO's for public banks, oil companies and other key public sector businesses might be considerable if IPOs are issued.

Guenena also believes that this step is possible today as the government recently eased regulations for investing in infrastructure.

In 1991, Egypt announced the beginning of a privatisation programme with the ambitious aim of privatising all of its 314 public companies before 2000.

The mission was never accomplished and 147 companies are still public.  

Moreover, Egypt's Administrative Court has ordered several private companies to be renationalised based on workers' demands and is still investigating other cases, including one company privatised through the stock market.

Some companies have returned to the public sector while the fate of others remains unclear as private investors resort to international arbitration.