Political instability hinders Egyptian stock exchange's hunt for new firms

Reuters
A soldier stands next to an armoured personnel carrier (APC) near the Egypt stock exchange near Tahrir Square in Cairo
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A soldier stands next to an armoured personnel carrier (APC) near the Egypt stock exchange near Tahrir Square in Cairo, September 17, 2013. REUTERS/Mohamed Abd El Ghany

By Asma Alsharif

CAIRO (Reuters) - Egypt's stock exchange is taking measures to attract new companies to replace the loss of some of its biggest listings over the past three years, but the country's uncertain politics may foil a quick solution, its chairman said.

The exchange is revising listing regulations, developing new mechanisms for exchange traded funds (ETF) and rights issues and working to spur trade on its fixed-income market, Mohamed Omran said in an interview.

"Any steps taken are only cosmetic, ameliorative frills. The main criterion in this issue of trade is related to the economic situation as a whole," Omran said. "The bigger effect will come from change of the political environment."

The Egyptian economy has not yet recovered from the popular uprising that toppled autocrat Hosni Mubarak in 2011 and prompted foreign investors and tourists to flee, straining the country's foreign reserves and currency.

The government says it is still on track to rewrite the constitution and hold parliamentary and presidential elections in early 2014, part of a political roadmap the army announced after it removed Islamist president Mohamed Mursi in July.

A $12 billion (7.5 billion pounds) economic aid package pledged in July by Saudi Arabia, Kuwait and the United Arab Emirates has helped bolster confidence, but investors remain worried by a budget deficit that rose to nearly 14 percent of gross domestic product in the fiscal year that ended in June.

"We are trying to attract new blue chip companies to be listed in the stock exchange and trying to revise the listing rules and requirements to facilitate and make the procedures easier," Omran said.

Among changes they are working on are to make it easier for companies to be listed through initial public offerings and to draw up rules for big investors who want to exit the market.

"We don't have a system for when big shareholders leave. They could leave and you wouldn't realise it. (We want) to put a provision with a transparent mechanism with the aim of regulating and disclosing the departure of big shareholders."

At least one firm, Arabian Cement Company, has responded positively. In September, it expressed interest in being listed on the exchange and is discussing the necessary steps.

Omran said a bond trading platform that has been 10 years in the making could start early next year.

"I believe that this file has started moving," he said. "From what I saw in the last meeting there is an understanding and a will to take real steps in this issue ... If we continue in this spirit without any hindrances it could happen in the first quarter of 2014."

ATTRACTING INVESTORS

The bourse was hurt when foreign-based companies bought majority stakes in three of its biggest firms - telecoms provider Mobinil (CAI:EMOB), National Societe Generale Bank (NSGB) (CAI:NSGB) and Orascom Construction Industries (OCI) (CAI:OCIC) - leaving only residual shares on the market.

The flight of foreign investors and an economic slowdown since 2011 have also nearly halved the amount of trade on the exchange, which has 234 listed firms.

The daily average value of trades over the last three months, excluding special transactions, plunged to 412 million Egyptian pounds ($60 million) from 803 million pound in the three months before the 2011 uprising, said Refaat Mahmoud, an analyst at EFG Hermes Research.

The benchmark index has fallen to 6,095 points from a January 2011 peak of 7,248.

"All these measures help, without a doubt, but there is a primary need to restore the status of the state, and the complete stability of the political situation," Omran said.

(Editing by Patrick Werr and Toby Chopra)

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