Legislative, economic reforms drive Egyptian market growth: Misr Capital

CBE's tendency to reduce interest rates created great demand from companies to finance their expansions through debt instruments

Khalil El-Bawab, co-CEO and Managing Director of Misr Capital, Banque Misr's investment arm, has spoken highly of growth opportunities that are expected in the Egyptian market this year.
In an interview with Daily News Egypt, El-Bawab said that these opportunities will be seen in various financing instruments, and are set to continue over the coming years.
What are the main challenges the capital market currently facing?
The novel coronavirus (COVID-19) crisis is still the biggest challenge now. Delaying the vaccine will cause it to remain an obstacle for growth, despite the state's efforts in economic reforms, and the recent boom in legislation which would put Egypt on the right track.
The coronavirus crisis and its repercussions have hit the world economies, and Egypt was the only country in the region still enjoying positive growth rates. If it weren't for the coronavirus crisis, the volume of the GDP growth in Egypt would exceed 5%-6%, and as soon as the coronavirus crisis ends, the economy will grow well.
How do you see and assess the investment and financing climate this year?
Before delving into this year, I would like to make it clear that during 2020, which witnessed the peak of the coronavirus outbreak, the Egyptian capital market showed great cohesion.
The year 2020 was good for many sectors and companies. It witnessed a large amount of deals and issuances. For example, the volume of securitisation bond issuances exceeded EGP 25bn, supported by the government and private sector companies' tendency towards these bonds to finance their expansions.
The New Urban Communities Authority (NUCA) has also implemented large issuances of promotional bonds in addition to the issuances of major real estate companies.
As for 2021, I believe that the beginning is very promising in terms of companies, capital market, and issuances, whether issuance of shares or securitisation bonds. It is expected that this year will witness a great surge in the volume of financing tools.
This comes especially with the general trend to activate the secondary market for fixed income tools, and the role played by the Financial Regulatory Authority (FRA) in this regard, whether in relation to the primary or secondary issuance market.
In addition to securitisation bonds and their expected growth, it is also expected that sukuk issuances will witness a big boom this year. Last year was only a starting point for them, during which the volume of sukuk issuances amounted to only EGP 5.1bn. Misr Capital managed a 49% of these sukuk.
The company also had a 60% share in managing securitization bond issues the past year. This mechanism is considered the most important mechanism for his company.
How do you view the capital market's developments over the next 10 years?
We can say that financial technology (fintech) will be the winner in the future. Everything that is digital will witness a great development in the coming years, whether at the level of financing or investment tools.
This will help accelerate the volume of operations in the capital market, and we will witness a market that is deeper and larger with diversity in financing and investment tools.
The year 2020 saw a clear shift in financing operations from equity offerings to fixed income financing. Do you think this shift will continue in 2021?
Indeed, it is a natural result of the circumstances seen by the capital market last year as a result of the coronavirus crisis and companies worrying about making any offerings.
However, this coincided with CBE's tendency to reduce interest rates, making financing through debt instruments more attractive, as that's less expensive than financing through EGX offerings.
In spite of the expectations for stock offerings to gradually return this current year, it is expected that the recovery of financing through fixed income tools would continue. Companies are also set ot increase their tendency to finance their expansion, with a general trend to reduce interest rates.
Which of the financing tools currently available would be most attractive for corporate financing in 2021?
All financing instruments will witness growth and good turnout rates this year, however, sukuk will take over and will probably have the lion's share, especially as they have multiple forms that suit different companies.
In the long term, which of the financing instruments do you believe are expected to achieve higher growth rates? Which of the inactive instruments is expected to play a major role like sukuk?
Over the coming years, we will see new financial instruments that haven't been adequately activated play a big role. Examples include s movable value funds, bonds, and short-term securities. This is expected to happen in parallel with a large increase in corporate bonds in general and sukuk of various forms. These mechanisms contribute to creating a more mature market that contains various financing instruments with large transaction volumes.