Egypt Business Network

Egypt Business Network

Posts 1-1 of 1
  • Dr. Nilgün Birgören
    Dr. Nilgün Birgören    Premium Member   Group moderator
    The company name is only visible to registered members.
    Change in SMEs
    "A much-delayed new exchange hopes to stoke the growth of small- and medium-sized businesses."



    When EGX chairman Maged Shawky rang the opening bell on June 3 to inaugurate the Nilex, the region’s first exchange for small and medium enterprises (SMEs), Mansour El-Barbary was nowhere to be found. His company, Barbary Investment Group (BIG), is the largest listing on the new index.

    Instead of taking part in the opening ceremony, El-Barbary was rushing to file paperwork that would allow BIG to participate in trading. Although his company was among the first to be accepted into the new exchange almost two years ago, a new law was brought to his attention just days before the opening that prohibited his company from selling shares.

    “We registered the company a year and a half ago. And they allowed us to register,” says El-Barbary. “Then a new law comes in from the Capital Markets Authority that has nothing to do with the Nilex but says that the owners of original stocks cannot sell anything within two years. But this is after we already registered. Why did they let us into the Nilex if they won’t allow stocks to be traded?”

    The frenzied and confusing moments leading up to June 3 are emblematic of the process that was originally set to see the Nilex launch by the end of 2007. But administrative obstacles and the onset of the global financial crisis delayed the EGX’s plans to channel much-needed funding into the country’s most promising sector. Now that the worst of the crisis has passed, there appears to be a cohesive effort to finance the country’s future heavyweights.

    And for El-Barbary and his colleagues on the Nilex, those efforts are beginning to bear fruit. After narrowly meeting exchange deadlines, BIG led trading on the opening day with a trade volume of LE 7 million.

    In October 2007 Minister of Investment Mahmoud Mohieldin and Maged Shawky announced their plans to start the Nilex, joining an elite group of economies offering SME exchanges that includes India’s BSE Indonext, Britain’s AIM and the US’s NASDAQ. SMEs represent 80% of Egypt’s GDP, and with the economy then growing 7% per year, shifting the focus to the country’s cash-starved start-ups was a logical choice. But few anticipated that the process would take years.

    “I lost faith at one point or another,” says El-Barbary. But aside from the ramifications of the financial crisis, the Nilex was hindered by small enterprises that lacked the resources and experience to meet regulatory standards for trading.

    “At that time there weren’t really listed companies, and almost six months to a year after, we had only three or four companies, each of which had to do lots of restructuring internally to come to the market and be traded,” says Shawky. “It wasn’t really appropriate to open trading for companies that were not ready.”

    For companies that fall below the Nilex’s original capital ceiling of LE 25 million, the steps required to prepare for listing and meet transparency protocols are both complex and costly.

    The EGX is aware of the difficulties facing companies listing for the first time. To that end, companies listing on the Nilex must work with an EGX-nominated sponsor corporation to help them navigate the process. But the major institutions that hold these nominations stand to benefit little from the process themselves, particularly when compared to their work with other clients.

    “They’re telling us that they’re going to spend the same effort and time on a $2 million (LE 11 million) company as a $200 million (LE 1.1 billion) company, but they’re not getting any money. It’s a challenge,” says El-Barbary, who switched nominated advisors three times throughout his listing procedures.

    Although the process may have seemed arduous for the 10 original companies, their experiences stand to contribute to the next wave of Nilex applicants.

    “Ten companies is not a small number. The fact is that they have prepared the paperwork, therefore it should be easier for them to communicate with the market. And it does provide a roadmap for other SMEs for how to get listed and interest people in trading in their stocks,” says Reham El-Desoki, senior economist at Beltone Financial.

    By delaying the launch, regulators are optimistic that they have created a more stable exchange that will not only attract investors, but other small companies.

    “It is an evolutionary process,” says Shawky, “This is a new market, and it is a learning process. We don’t want to start something that will fail in a very short time.”

    While market authorities have come under some criticism for choosing to launch a fragile exchange before the country’s economy has fully recovered, others believe that waiting longer would have been counterproductive.

    “The sooner, the better,” says El-Desoki. “People in the market need to be aware of what the opportunities are in terms of investing in the SME sector. And at the same time, it’s about time that the SMEs started becoming more involved in the financial aspects of the stock market.”

    Though less than a month old, the Nilex is already beginning to make an impact. On June 20, the EGX decided to increase the capital limit for companies from LE 25 million to LE 50 million to attract a more diverse array of companies.

    But like any new financial experiment, patience is required. Investors need time to get to know the newly listed companies, and companies need to continue to increase transparency to attract investors.

    One difference that will require adjustments from investors is the Nilex’s unique trading format. Auction style trading takes place for just one hour each day, with brokers registering asks and bids during the final 10 minutes of the session. Transactions are completed based on the value that assures the maximum trading volume.

    But unlike most large exchanges, placing a buy order does not guarantee the purchase of stocks because there is the possibility of being outbid.

    In light of the small size of the listed companies, the system was selected to ensure stability within the market and eliminate the initial possibility of drastic price and trade fluctuations.

    Those involved in the new exchange see it as a potential stepping stone to the country’s larger indices.

    In a region filled with economies that rely heavily on natural resources, there is wide consensus that a market promoting corporate growth is a progressive step towards fostering the next generation of entrepreneurs.

    “That’s the structure of the non-hydrocarbon economy,” says El-Desoki. “It’s mostly made up of SMEs, not large corporations, as people might tend to think.”

    “The focus should be on SMEs because they’re the bigger base, and eventually the SMEs should be where a lot of growth is.”


    Source: BusinessToday
    • 28 Aug 2010, 1:27 pm