CAIRO: The announcement that the Suez Canal expansion project will be financed by investment certificates instead of offering shares for an IPO, has been welcomed by some capital market experts and economists, while others have criticized the prohibition of foreign contributions, citing the “dire need” to raise foreign reserves.
The step is “a sovereign and right decision as it eventually ensures state possession of the vital water way,” said Hany Tawfik, head of the Egyptian Private Equity Association.
In a televised statement Thursday, Prime Minister Ibrahim Mahlab announced that investment certificates would be issued to Egyptians citizens with a lifetime of five years at a 12 percent interest rate to be paid quarterly.
Certificates are set to be issued in local currency for citizens inside the country and in U.S. dollars for those working abroad, Mahlab said following a meeting with President Sisi, the governor of the Central Bank of Egypt (CBE), and the ministers of international cooperation, finance and investment.
Tawfik, however, criticized government’s decision to limit the investment certificates to Egyptians in light of the current decline in foreign reserves, hurt by the significant slide of tourism revenues along with foreign direct investment (FDI,) which represent two key sources of Egypt’s hard currency.
“There are no security concerns as foreign investors will not possess anything if they get Suez Canal investment certificates that are just a lending tool like treasury bonds,” said Tawfik.
Egypt is in “dire need” to increase its foreign reserves and reduce pressure on the state budget which enforces the government to borrow from banks to fill the budget deficit, hindering private sectors attempts to get big loans for their projects, Tawfik said, adding that foreign investment should be allowed with extra regulation.
The decision to offer investment certificates to finance the Suez Canal expansion was intended to ensure state ownership of the waterway, Tawfik Securities Brokerage trading head and capital market expert Mohamed Gaballah said.
“This is a good solution in my opinion to maintain the canal’s property for the Egyptian state,” Gaballah told The Cairo Post.
He added that the new step will have a positive impact on EGX on the short-term as traders will not eye banks’ interest rate on investment certificates which is not much higher than interest rate on deposits.
Dr. Ghada Ibrahim, financial analyst at Capital Securities Brokerage, said the investment certificate finance is the “best” tool to provide the needed funds for such a mega project without putting national security at risk.
“Investment certificates provide the highest revenue in both the local currency and the hard currency with a three percent interest rate on certificates issued in dollar. The government will lure Egyptians abroad who prefer to invest their money through banks rather than buying stocks,” Ibrahim told The Cairo Post.
“Offering the IPO through Egypt’s stock market could be a risk with possible attempts to dominate the share from certain groups to push its price either up or down,” she added.
Ibrahim continued; “Financing through the stock market was an inappropriate means at this time as foreign capital was likely to try and enter the market under local names or institutions to control stock performance.”
Meanwhile, the investment certificates will have a short-term and limited impact on the stock market during the subscription period which will attract small proportion of cash liquidity, added the analyst.
Ibrahim reiterated that EGX however still has potentials to attract new liquidity and achieve profits through dividends or capital gains.
Certificates issued in local currency will be offered in three categories: 10 EGP, 100 EGP and 1,000 EGP at a 12 percent interest rate. Those issued in US dollars will be offered at multiples of $1,000 at a three percent interest rate, CBE governor Hisham Ramez told Youm7.