Market conditions for IPOs are a fleeting thing. And it would seem, for the moment at least, that those days have passed. 2008 saw the crest of an IPO wave that has seen a handful of Egypt's most sought-after firms go public, only to flounder late in the year as economic conditions deteriorated and the Egyptian market as a whole began to struggle. "There have been two significant IPOs in Egypt this year, said Sherif Elkholy, investment principal for Actis, a private equity firm that specializes in emerging markets. Those two IPOs, which have been the year's most talked-about, have struggled mightily under the weight of investor skepticism. Palm Hills Development began issuing stock at the end of May 2008. Though it posted respectable numbers early on, it's stock price now wallows somewhere between 60 and 70 percent below its IPO price. Maradive also went public near the end of the last fiscal year. Though the stock boomed out of the starting gate, quickly doubling in price, it now languishes at about 30 percent below the price of its IPO. Loss of investor appetite in the stock market has hardly been unique to Egypt. Markets across the world have suffered as a result of the international credit crisis and investors' fear of a deepening economic recession. Experts believe that a collapse of western markets have made investors gun-shy in developing countries' stock markets even though those countries' fundamentals may be stronger than those in the developed world. The poor performance of IPOs this year, the failures of most stock markets globally, and the prevailing thought that the economic recession will drag on several years has meant, experts believe, that Egypt's IPO market is essentially shut for the foreseeable future. The global economic crisis "makes them less capable of doing IPOs to begin with because there isn't enough liquidity to cover these offerings, Elkholy said. In a time where "cash is king, as Elkholy said, IPOs will disappear until private companies regain enough confidence in the stock market to expose themselves to it. Furthermore, for many companies in Egypt, the decision to go public is more than a strategic one. Many of the country's most successful businesses have long been private, family-run operations, wary of outside investors. For a company to want to go public, therefore, there needs to be a more significant cultural shift than there might have to be with a company in the developed world. A deep market recession, therefore, may make bigger waves and deter businesses in Egypt away from IPOs longer than they might be opposed to the idea in the developed economies. "Effectively, said Elkholy, "I think the IPO market will be shut for at least two years. Today, argues Elkholy, the IPO market has lost the primary function that lured so many companies to the option in the first place. "It became a viable option for companies looking to raise capital, Elkholy noted. The IPO market in Egypt, continued Elkholy, still has a long way to grow, even putting aside the effect that the current economic turmoil is having on it. "It's still not a viable option for smaller companies, argued Elkholy. In the meantime, argued Elkholy, there is a silver lining: He believes that firms will use the economic downturn as an opportunity to reorganize and restructure their own houses so that they exit from the economic crisis stronger and ready to grow. "But I do expect to see a lot of M&A [mergers and acquisition] activity, Elkholy said. While M&A won't give frustrated investors a lot to sink their teeth into, it should be a welcome note for private equity teams across the country who have bemoaned the disappearance of the IPO market.
