KEY THEMES
Yesterday, the Financial Regulatory Authority (FRA) amended two articles of the Egyptian Exchange’s (EGX) listing rules in attempt to pave the way for what we may call mega cap companies to list on the exchange. In simple and brief words below, we paint the full scenario for privately-held companies, demonstrating the minimum requirements needed during and after their IPO:
For a company to maintain its listing on EGX, it must meet at least one of the three requirements below for during and after IPO:
First, during the IPO, a company must float a stake that (a) is at least 25% of its issued shares, (b) has a market value of 0.025% of the EGX’s free float-adjusted market cap, provided that the floated stake is a minimum of 10%, or (c) has a market value of 1% of the EGX’s free float-adjusted market cap.
Second, post-IPO, a company must maintain a free float that (a) is at least 10% of its issued shares, (b) has a market value of 0.0125% of the EGX’s free float-adjusted market cap, provided that the floated stake is a minimum of 5%, or (c) has a market value of 0.5% of the EGX’s free float-adjusted market cap.
Source: FRA, Prime Research.
This amendment has two main implications:
(1) Shareholders of any privately-held mega cap company can now see their companies go public in an IPO without having to offload a stake in excess of 10%. In fact, a company can now IPO even 1% of its stake as long as the market value of that stake is at least 1% of the EGX’s free float-adjusted market cap.
(2) The Egyptian government and other sovereign-related entities can float any of their mega cap companies without having to give up much of their ownership stakes.
In other words, companies such as the New Capital for Urban Development and e-Finance can go public with say only 5% stakes floated or even less. To put things in context, the EGX’s current market cap is around EGP725bn, while the weighted average free float is less than 40%, or some EGP280bn. So, if the Egyptian government wants to sell a 5% stake in e-Finance (i.e. less than the minimum 10% stake size), it must be floating shares that are worth at least 1% of the EGX’s free float-adjusted market cap or EGP2.8bn. In such a case, the overall valuation for e-Finance could theoretically fetch as high as EGP56bn, which is almost twice as valuable as Fawry [FWRY].
The bottom line is the EGX could now start targeting mega cap companies that are as large as EGP280bn in terms of market value with only a 1% free float stake.