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FRA issues new EGX listing requirements

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The Financial Regulatory Authority (the “FRA”) passed on 12 September 2021 decree No. 142 for the year 2021 amending Decision No. 11 of 2014 which regulates the rules for listing and delisting securities (the “Listing Rules”) on the Egyptian Stock Exchange (the “EGX”) (the “Amendments”).

In an attempt to facilitate the listing of large companies on the EGX, the FRA amended Article 7 of the Listing Rules concerning listing requirements (the “New Listing Requirements”). The Amendments were officially published in the most recent edition of the Listing Rules on 17 November 2021.

The Amendments target listing shareholding minimum percentages in an IPO scenario as well as for free float shares.

We highlight below the New Listing Requirements as well as the FRA’s rationale behind the Amendments:

The Amendments

Pursuant to the New Listing Requirements, it is now possible to meet the listed share minimum requirement by offering shares equivalent to 1% of the freely tradable market capital on the EGX. This requirement was previously only met by either offering at least 25% of the total registered shares of the company or by offering at least a quarter per thousand of the freely tradable market capital on the EGX (i.e. free float shares), including at least 10% of the company shares.

Further, free float shares may also be offered through valued at least at 0,5% of the freely tradable market capital on the EGX. Likewise, this requirement comes in addition to the previous conditions which consist of either offering freely tradable shares comprising at least 10% of the total company share capital or at least 1/8 per thousand of the freely tradable market capital on the EGX, including no less than 5% of the company’s share capital.

Rationale of the Amendments

Said Amendments come in preparation of expected major projects with huge capital liquidity and assets. Dr. Mohammed Omran, Chairman of the FRA has cited the recent government announcement of the decision to list the New Administrative Capital Company on the EGX in the next 2 years.

The Amendments further ascertain the general effort exerted by the FRA to raise the capital of the EGX and the liquidity volume circulating on the Stock Exchange in order to increase the competitiveness of the Egyptian Stock Exchange both within the Middle East and Africa as well as on a more global scale.

FRA Deputy Chairman Islam Azzam further notes the main benefit of the Amendments is linking the minimum volume of offering on the EGX to the market capital, instead of the number of shares in a company, in an effort to render the Listing Rules less detrimental to companies with a large capital value.

In light of the above, the New Listing Requirements thus pave the way for companies with exceedingly large capitals (notably government owned entities) to list shares on the EGX sacrificing a large ownership stake.

Market Reaction

Reactions to the Amendments have been largely positive, albeit muted, within the trading sphere. Traders and experts have mostly praised the Amendments for boosting the attractiveness of the EGX by increasing the flexibility of listing requirements.

Both Hisham Hassan, an investment manager at HD Securities, and Saeed El Feki, branch manager of Osoul Securities, agree that the Amendments constitute a logical step for the EGX which will help attract large investors and align the Listing Rules with already existing mechanisms in global trading.

Other experts, such as Amer Abdel Qader, Head of Brokerage development at Pioneers Securities Brokerage Company and Hossam Eid, investment manager at International for securities trading, note the preparatory role said Amendments must have for the future listing of large government entities.

The above, of course, raises questions as to the role the EGX has in servicing and the prioritization of public efforts through stock trading, as opposed to private listings.