Egypt, new dimensions, new frontiers

Dr. Sameh El-Torgoman

Cairo & Alexandria Stock Exchanges

Interview with:

Dr. Sameh El-Torgoman

Cario, April 13th, 2000

4A, El-Sherifein Street, CAIRO-EGYPT
P.O. Box 358 Mohamed Farid
Tel: (202) 395 92 00
        (202) 392 84 26
Fax: (202) 392 85 26
My first question is related to the revision and amendments that are currently being introduced in the Law 95. There are some opinions that the Stock Exchange does not need new regulations, but that it needs more privatisations and more IPOs. Do you think there is a need for these changes, and if so, why?

We believe that there is a need to change the law, especially in the area of takeovers and mergers and acquisitions. This is important because we expect to see more mergers and acquisitions coming into the market, and we need to have the framework for it.

In the area of corporate governance, especially for minority shareholders, we need to address new developments in the capital market. It needs to be more advanced, and there need to be sanctions against insider trading. We are working with the capital market authority and the Minister of Economy, and we have an American firm working with the committee to introduce new amendments to the capital market.

In fact, what we are doing is laying down the legal framework to attract more investment.

Last year the stock exchange suffered a low evaluation, yet nevertheless there were positive signs that we have witnessed, such as the private IPO's which have been issued. Do you think these facts, together with a new round of privatisation, will take the stock exchange to a new phase of development. Do you also think that this will mark a new trend in the way of doing business in family owned companies?

Definitely. If we reduce the regulatory amendments we are talking about for the capital markets, it will have a very important legal framework which will make investors more comfortable, especially the minority shareholders. What we are witnessing in Egypt right now has already occurred in other major markets; we are shifting from a centralised economy to a free market economy. We are shifting from companies which have been working for a long time, either as private or public institutions, without the concept of shareholders.

This will definitely change the business of family owned companies, because they now have shareholders and they need to be more transparent. We are talking about corporate governance, and shareholders which will be asking for certain rights. Now we are talking about a new era in the Egyptian economy, and for the private companies as well. Now they understand that they need to compete in order to succeed. Shareholders will continuously question management policies, and this will in turn oblige corporate managers to think in a different way.

You mentioned something very important: transparency together with compliance and regulations. How much of a concern are these two issues for the Egyptian capital market and how is the CASE contributing to educate the market ?

We believe that transparency and fully disclosed requirements should be addressed by the firms listed on the stock exchange. What we are doing is to introduce new listing rules. In order to develop these rules we have an international advisory committee, which includes Goldman Sachs, Merryll Lynch and other international firms, to develop these listing rules, which will then be sent to the CMA in order to obtain their approval. These listing rules are being developed according to international standards, and we are focusing on issues such as the publication of corporate information such as background, disclosure requirements, members of the board and owners of the company. Then we will sit with the CEOs of the companies and start to phase the implementation of this listing, and we will announce the plan for phasing. Then we will announce the plan for phasing in, because quite often they are not be able to make the necessary changes overnight.

We have also established a disclosure department at the Stock Exchange. Our staff has been trained abroad, and they are knowledgeable about how to monitor the disclosure. This department will ensure that our disclosure rules are being followed, and ensure that all the information needed by investors is available. Moreover, we will be in a position to impose fines on companies and officers if they do not apply these rules. We will have the power to do this. In this manner we will be able to enforce all disclosure rules.

The most efficient tool of information disclosure nowadays is the internet. Do you plan to disclose this information using the stock exchange web site?

We are creating a program which will have a database with all companies listed on the stock exchange. Through our web site we will disclose all the information which we have available for investors.

You are apparently improving your technological system. Your project with the Canadian software company EFA will increase the efficiency of the trading system, and Raya Holdings will modernize the CASE network. What is the status of these projects, and how will they change the operations and security of the CASE?

We have finished all the necessary work for the new trading system, and it should be ready to go live by the end of May 2000, but we want to make sure that training is done and facilities are in place. Having said this, two weeks from now we will start training on the new system, and we expect to train approximately 700 to 1000 participants. This will take us three months to complete. We are also renovating our trading floor, and we expect that it will be finished by June or July, and we will then be formally introducing the new system by the end of the summer.
We have also developed a surveillance system, which will be working together with the new trading system. It is a very advanced surveillance system, equivalent to the system used in NASDAQ.

How will the new Bill for depositing and central listing on the stock exchange increase trading and investor confidence?

The New Bill for central Depository and Listing will first make sure that all listed companies have dematerialized shares so that the market will have scrip less instead of physical shares.  This will abolish all current obstacles associated with physical shares and in turn enhance trading. It will also allow, for the first time, to have both beneficiary and registered owners of shares.  The registered owner must be licensed either as a Depository bank or as bookkeepers or as portfolio management firms.

The law also allows, for the first time, to mortgage securities and allows the borrowing of securities among members of Depository Company. Of course to become members the firm must have a minimum capital requirement, professional experience and good internal administrative systems. It is expected that all these additions will facilitate trading and increase investor confidence.

What is the role of the CASE in the Egyptian economy? How can the CASE encourage local Egyptians to contribute to the stock exchange and assist local companies to raise capital for new projects?

CASE's role in the economy is the same as any other stock market, which is to have efficient allocation of resources i.e. efficient prices that reflect all available information. The stock exchange matches the needs of buyers and sellers for capital. Buyers are providers or suppliers of capital (investors) and Sellers are borrowers of capital or represent the demand side and in this case the issuers or firms that want to raise equity. By providing an efficient, orderly and fair market the exchange would encourage both buyers and sellers to use it as an intermediary.

In order to perform its role, the exchange has recently reviewed and updated its listing rules in order to attract both local and international profitable companies to list and raise capital. On the other hand the exchange established a new department "Information Disclosure" to make sure that the companies' financials and corporate actions are disseminated on time to investors which will increase their confidence in the market and accordingly make them invest more in equities

Merril Lynch recently said that the Egyptian stock exchange is one of the most important stock exchanges in the world thanks to its ability to attract international investment. Could you tell us more about your strategies/plans to attract foreign capital into Egypt?

Merril Lynch quoted the Egyptian Exchange as one of the most important in attracting international investment in terms of having well diversified industries, attractive low P/E ratio (8.0 times) and a high divided yield almost 12 % ( end of April 2000 ) which compares well with other MENA and emerging markets tracked by the IFC. It is not only the duty of the exchange to attract foreign investments but a collaborative effort wit the Ministry of Economy, the CMA , the MCSD along with various other entities.

On the part of exchange, the following has been done to position CASE as an efficient, orderly and transparent market in the region:

  • Reforming the regulatory framework (finalizing trading and listing rules).

  • Enhancing information disclosure by issuing various publications, establishing an investors club to be followed by an information center the end of this year.

  • Establishing a new state of the art order-driven Automated Trading System. provided by EFA software services, a Canadian software company. This enables us to integrate the trading, clearing and settlement. The trading component of the system will be implemented by the second half of this year.

  • Now that the CASE is modernising and adopting to new electronic trading systems, what do you foresee as the future developments and expansion plans of the CASE?

    CASE's new electronic system, provided by EFA, is also bought by other Arab countries in the region (S.A., Kuwait and Bahrain) this would allow and facilitate cross- trading/ listing between Arab Exchanges. On the other hand, being a part of the COMESA, Egypt's exchange can play a pivotal role in listing and trading blue chip African companies, given the robust capabilities of its trading system.

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    © World INvestment NEws, 2000.
    This is the electronic edition of the special country report on Egypt published in Forbes Global Magazine.
    August 7th 2000 Issue.
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