NEW YORK, (Reuters) – Egypt is competing for foreign investors’ stock listings at a time when risk tolerance is thin and turmoil in the global economy has reduced confidence that there will be a swift recovery.
Despite investors’ aversion to risk, Egypt’s stock exchange plans to launch a new derivatives product during the second half of next year. Recently, the exchange launched Egyptian depositary receipts, or EDRs.
“The Egyptian depositary receipts product allows foreign companies to list in our exchange, exactly like ADRs in the New York Stock Exchange,” Maged Shawki told Reuters on the sidelines of investment bank Beltone Financial’s sponsored conference on the Middle East.
Egypt, an emerging market country, with a growth rate close to 5 percent even at a time of global economic downturn, “has the second best stock market performance in the emerging world, according to MSCI,” Shawki told investors in New York.
Egypt is likely to attract $7.5 billion in foreign direct investment in the fiscal year 2009/2010 and could reach $10 billion in 2010/11, according to government data.
Egypt’s stock exchange, with a market capitalization of $90 billion, has 213 companies trading a daily volume of 150 billion shares.
LIQUIDITY BOOST
The first company to list its shares as EDRs on the Egyptian exchange was Swiss-based Orascom Development Holding (ODHN.S).
Its chief executive, Egyptian Samih Sawiris, told Reuters that by issuing EDRs traded in Egyptian pounds, it creates more liquidity for the company’s shares, of which he owns 61 percent.
The firm would enjoy more liquidity because only 12 percent of Orascom’s total shares free float, as most shareholders, including hedge funds, “hold the stock for years, and buy when the price falls,” Sawiris said. “They don’t sell.”
The stock exchange hopes to attract companies from the Gulf Cooperation Council, or the GCC. Egypt’s stock exchange is in discussion with two regional firms, but its CEO would not specify details.
“It’s a new product and we started this product in the peak of the crisis,” Shawki said.
Sawiris, a billionaire investor who is also Orascom’s chairman, said the economic downturn had a positive side because it cleared speculators from the market.
Orascom has projects in major resort towns in Romania, Montenegro, the United Kingdom, Switzerland, Oman, the United Arab Emirates, Jordan, Morocco and Egypt.
“It is a simple formula. The land is for free and we pre-sell all of our real estate before we begin to construct. The carry cost of that is nothing,” Sawiris told Reuters on the sidelines of the conference.
The firm has four existing projects, El Gouna being the flagship project, a full-fledged town on the Egyptian Red Sea coast that houses 25,000 people on a permanent basis.
“Governments don’t risk anything and the upside is huge,” Sawiris said “Give me a piece of desert and I will give you tourism.”