Despite the reactivation of the country’s stock markets in 1991, the Egyptian private sector still is reluctant to look to public subscription in order to raise capital, reported Al-Ahram, in an article looking at the anemic performance of the country’s security markets.
Why the reluctance? According to Sameh El-Torgoman, head of the Cairo and Alexandria stock exchanges, when looking to raise capital, many companies are reluctant to comply with a set of requirements, which are different from those demanded by the banks. By having to meet the typical standards of transparency and disclosure demanded of publicly owned companies, companies feel that they will lose their freedom.
"You must remember that for 40 years there was no stock exchange and so you are talking of a 'culture' which has been absent Such a culture cannot be created overnight," El-Torgoman toldAl-Ahram..
Even some of Egyptian most prominent companies have showed a marked reluctance to practice full disclosure. Orascom Telecom, an affiliate of the publicly traded was recently criticized for not revealing how it calculated profits in its financial results for the 1999-2000 financial year. But the Central Depository law, which was ratified in July, is supposed to change all this. It is directed specifically toward enforcing transparency in the market.
Another problem in the Egyptian market is the strength and competitiveness of local companies. But E-Torgoman believes that this could change. "Most Egyptian companies still do not have a strong presence in the regional market, nor have they gone into large scale projects. When they expand and have to deal with competition, they will come to appreciate the value of the lower cost [of financing through the] capital market and will definitely turn to it more," he told Al-Ahram.
Before the end of the current year, El-Torgoman said, a new electronic system will be implemented in the Egyptian stock exchange system, whereby information on all companies traded on Egypt's bourses will be made available via the Internet. Furthermore, data about the top 100 companies will be provided on a CD ROM, which can be bought by investors.
The stock exchanges are also readying an educational program, which will teach investors how to read companies' financial statements.
Regarding state-owned companies undergoing privatization, the ministry of public enterprise plans on using the services of three international investment banks, to ensure that the valuation of the companies will be more in line with their market-value. According to El-Torgoman, this also is meant to improve public confidence in the stock market.
“If part of a company is offered for subscription and this is over-valued, its [stock] value will drop, thereby impacting on the market capital for the entire company. If however it is [valuated at a price which later rises] this will raise the market capital with it," he told Al-Ahram. – (Albawaba-MEBG)
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