CAIRO: As the excitement over Telecom Egypt's initial public offering (IPO) settles, the Cairo and Alexandria Stock Exchanges Chairman Maged Shawky spoke to The Daily Star Egypt about recent developments and future plans for the stock market. The Telecom Egypt offering was generally considered a success, but several investors complained that they did not receive their fair share of the allocation despite completing the necessary formalities. According to Shawky, the fact that the IPO was close to ten times oversubscribed is an indication that such problems were isolated issues. Significant upgrades to the exchange's computer systems were made prior to the offering. There are also some 120 brokers working in the stock market. Failures in the subscription process are therefore not the result of an insufficient system or broker capacity. "The capacity of the system itself has been increased significantly, said Shawky."And this has been tested practically when we traded [in] the first two or three days almost 45,000 transactions per day on average. Previously, we were doing 15,000 to 20,000 transactions per day. The failure ultimately relates to the fact that most investors filed their orders in the last two days of the subscription period. Since 50 percent of the subscription amount must be paid as a deposit, investors are motivated to file at the last minute to avoid leaving the deposit funds idle. This places a heavy burden on brokers, whose staff must manually enter a large quantity of order information into their systems in a very tight time period. In order to ease this pressure on brokers, Shawky confirmed that the Capital Market Authority is taking steps to increase the subscription period of future offerings. The Telecom Egypt IPO is the third in a series of major offerings of state-owned companies this year. Shares in Sidi Krir Petrochemicals worth LE 1.5 billion were offered to the public in June followed by Alexandria Mineral Oils Company shares worth LE 378 million in September. Minister of Investment Mahmoud Mohieddin said last week that he expects further government stakes in stateowned companies to be offered on the stock market at regular intervals of six to eight weeks. "[Such privatizations] are very necessary to our market, said Shawky, "because they add more companies of good quality and they are representing different sectors. The publicity associated with these privatizations also indirectly markets the stock exchange to foreign investors, with the participation of a number of investors from the Gulf and elsewhere. With regards to the composition of investors, Egyptians carry out an average of 60 to 70 percent of total trades with the balance primarily from investors in the United States, Europe and the Gulf.This composition reflects the external economic environment. "Before the significant increase in oil prices, the presence of Arab investments in the stock market was a bit minimal compared to now, said Shawky, adding that the increased participation of American and European investors in the Egyptian stock market is the result of a recent general revival of emerging markets. While foreign investment is important, domestic investors and the local economy are "the real strength of any market with listed companies being a product of the latter. In view of Egypt's recent admission to the World Federation of Exchanges (WFE), Shawky described this development as "very significant. WFE is an association of 54 stock exchanges around the world that account for 97 percent of global stock market capitalization. Membership in the WFE requires a thorough review of the exchange's structure, regulations, systems and procedures, a process that took Egypt three years to complete. Admission to this body therefore demonstrates that the stock exchange meets a minimum standard of governance and transparency, adding credibility with the international investor community. The WFE also coordinates amongst its members to exchange information and advice. "In a sense, you have a sort of advisory or consultancy group that is constituted of the 50 major markets with different experiences and with different exposures, said Shawky. Admission to the WFE follows the adoption of new corporate governance and disclosure rules in 2002 based on a framework created by the Organization for Economic Cooperation and Development. Approximately 50 percent of companies on the exchange, including some state-owned enterprises, were de-listed as a result of the new rules. In terms of plans for new products, regulations are in place for short-selling and Shawky expects this to begin in the first half of 2006. The situation for derivatives is more complex; while derivatives are not prohibited by law, new regulations will need to be introduced and simple derivatives contracts are planned for 2007.
