August, 2019. An eleven year old fintech company, Fawry, was about to do the unthinkable. Its headquarters in Cairo, Egypt was just a stone’s throw (3 minutes away) from The Egyptian Exchange, the country’s stock exchange where shares and other securities of companies are bought and sold, publicly. Everything had been planned out, and barring any last minute changes, the company founded by a fifty-something-year-old man who quit his job at the peak of his career, would be going on a major exit through Initial Public Offering (IPO) on the exchange. This would be some overwhelming moments for investors —the Egyptian-American Enterprise Fund (EAEF), the pan-African private investment firm Helios Investment Partners, and the International Finance Corporation — who had acquired a majority stake in the company far back in 2015. It would also be some exciting moments for the company’s management and employees who owned 8% of its shares. Exciting because, if the company’s shares on offer were sold at EGP 6.46 per share as it had been planned, they would, most likely, become overnight millionaires.
But the unexpected happened, instead, when the exchange opened for trading that day: Fawry’s share price soared 31 percent higher than the planned IPO price, to close at EGP 8.48 on the first day of trading.
Reports would later come in that the IPO had been oversubscribed by 30 times.
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And as though that was not enough, barely a year after in 2020, at the heart of the coronavirus pandemic, Fawry became a unicorn — a golden billion dollar company, aided by a further rise in the company’s price per share, to EGP 22.69.
Now, here are the quick takes:
Fawry’s listing was the first IPO of that year and so the thirst was understandable; but perhaps knowing that the feat was uncommon makes it even more interesting:
- In 2008, when Fawry was founded, there was no single technology company listed on The Egyptian Exchange. In fact, so devastated was the exchange that its 30 most active stocks incurred 56% losses that year.
- And to make matters worse, the financial services sector (excluding banks) which Fawry could have, at least, laid claims to saw a major decline of 64% in trading activities, one of the highest in years.
- And so, judging by the company’s IPO success, this was a big win for early investors who threw their weight behind Fawry against the odds, as well as huge sighs of relief for founders, Ashraf Sabry and Mohamed Okasha.
“In 2008, I left my job and had limited time to convince investors that customers would trust paying their bills electronically at a grocery store. The challenge was establishing the company before my financial resources got depleted,” CEO and co-founder, Ashraf Sabry, said in an interview.
“Overcoming the challenge needed a thorough understanding of the business model, sharing experiences in other markets, committing to invest 80% of my personal financial resources in the same project and, finally, not giving up quickly. [This also involved] … trying to find new investors all the time,” he added.
“The second challenge was convincing the first biller to join the network; I still remember, it was Vodafone,” he said. “The problem was that Vodafone had to allocate resources to develop the integration with their systems and had to introduce a new competitor to their valuable distribution network. So many of the stakeholders resisted the idea.”
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“I think I managed to overcome [that] … challenge by deciding to carry the cost of the implementation, to find a champion within Vodafone to support me, [putting together an] … appealing commercial deal and, most importantly, never giving up,” he further said.
“Other challenges include being almost bankrupt after three years, as well as attracting and retaining good people. I think the one factor in overcoming all challenges is, never give up and be persistent,” he concluded.
The Egyptian Exchange And Tech Startups
Going on IPO on The Egyptian Exchange, which has two branches across the country— one in Cairo and another in Alexandria — is not complicated at least for non-Arabic-speaking investors and companies.
A company may list on the exchange, either through the main board or the SME board.
The major difference between the two lies in the paid up capital requirements. That is, while a company listed on the main board is required to have not less than 100 million Egyptian pounds ($6.4m), a company listed on the SME board can have less.
A company listed on the main board is also required to have a financial history (written purely in Arabic) of not less than three years.
It is also required to offer not less than 5 million of its shares ( which must represent not less than 25% of the total shares of the company) for public sale.
The company must not also be worth less than 200 million Egyptian pounds ($12.8m).
For its part, a company listed on the SME board must have been in existence for at least two years, and must engage a contractor registered with the exchange which shall assist it to list its shares for purposes of trading.
In addition to having less than 100 million Egyptian pounds ($6.4m) paid up capital, the SME must also ensure that not less than 1 million pounds is fully paid up.
The company must also offer not less than 100 thousand shares for public subscription, which shall not be less than 25% of the company’s shares.
Furthermore, at all times, the company’s net worth must not exceed 200 million Egyptian pounds ($12.8m).
And so, it was easier for Fawry. After 11 years in operation, it had the metrics: it had received a valuation of EGP773 million (US$100 million) following investments made by the investors in 2015. It had made core profit of 152 million pounds ($9.8m) in 2018, up 41.2% on the previous year. Its network had also processed 600.1 million transactions in 2018 alone with a total value of 34.2 billion Egyptian pounds ($2.1 billion).
But for startups who don’t have these metrics, IPOs are still a long shot from reality.
“So far, I don’t think that Egypt Exchange can offer an exit opportunity for Egyptian tech startups, even if we’re offering exchange for small to medium size stocks called NILEX EXCHANGE,” Soliman S. AlTayyar, an Egypt-based capital markets and investment expert told Afrikan Heroes.
“This is because investors’ mentality won’t digest such companies at early stages…Therefore, venture capital (VC) funds are the best way to fund these “startups” until acquisitions or other exit routes, including IPOs,” he said.
International Investors Are Interested In Egypt’s IPOs
The greatest insights into the depth of investors’ interests in Egyptian tech stocks are not in the figures trailing Fawry’s performance on the stock exchange.
The greatest insights, and the key to understanding the future of startup exits through IPOs on The Egyptian Exchange lie in the investors’ demographics.
Of the investors who participated in Fawry’s public listing, Egyptians represented 80.3% of the IPO and 50% of the private placement; while Arabs and Foreigners represented 19.7% of the IPO and 49.3 of the private.
This was expected; while the private placement was done by a foreign firm -Netherland Holding BV — the IPO was local and closer to Egyptians via the exchange.
But what is even more intriguing is the demographics of the participants in all the four IPOs that held on The Egyptian Exchange in 2019.
Valued at EGP 5.14 billion (compared to EGP 5.2 billion in 2018), the four IPOs saw 67.36% participation of foreigners, and only 32.64% of Egyptians, although Egyptians dominated total annual transaction deals (67.06% to 32.94%).
Overall, while investors from the United Kingdom accounted for 30.09 percent of total foreigner transactions in 2019, the United States of America, Luxembourg, and the Kingdom of Saudi Arabia, each had a share of 13.28 percent, 10.98 percent, and 7.17 percent, respectively.
The Space For Tech Companies Is Still Small On The Egyptian Exchange
Compared to other sectors, there are currently only about six companies classified as tech on the Egyptian Exchange, out of over 220 companies listed on the exchange. And out of the six, only Fawry may rightly be classified as a digital company in the true sense of the word.
However, even though there are only a few tech companies listed on the platform, they have outperformed other sectors in terms of trading volume.
For instance, the total trading value of the shares of tech companies listed on the exchange amounted to 3.7 billion Egyptian pounds in the first quarter of 2021, compared to 5.6 billion Egyptian pounds which accrued to listed banks, even though there are 14 banks currently listed on the exchange.
What Do Sarwa Capital And Fawry’s IPOs Mean For Egyptian Tech Startups Desiring To Exit Through IPOs On The Egyptian Exchange?
It is interesting to note that apart from Fawry, Sarwa Capital’s initial public offering (IPO) was oversubscribed 30.1 times in 2018.
In fact, apart also from Fawry, Sarwa Capital recorded the biggest IPO in The Egyptian Exchange’s two year history (2018–2019).
The company raised $13.9m through IPO and $121 million through private placement.
Sarwa is anonline investment platform owned by Egyptian American Enterprise Fund “EAEF’’.
Although fraught with allegations of fraud and described as failed, Sarwa’s IPO together with Fawry’s could be said to be the closest representation of what tech startup IPOs in Egypt could look like, all things being equal.
However, while it could be said that investors’ interests in Egyptian tech stocks could be seen more in Fawry’s IPO, the interests particularly became clear and defined following the outbreak of the coronavirus pandemic.
The first day of trading in 2019 put Fawry’s market capitalisation at EGP 6 billion or $366 million.
But investors’ interests swung unsteadily thereafter, including dipping to the lowest of 7 Egyptian pounds per share in March 2020, before surging by over 300 percent resulting in a cap of EGP 16 billion or $1 billion or unicorn status (for the first time).
“FAWRY is…the only fintech company in the Egyptian stock market aligned with Egypt’s vision towards a cashless society,” Soliman said.
“The company’s stock performance, especially the increase in its price per share from IPO price EGP ~6/ share to current EGP ~40/share was aided by a number of factors. First, Egypt’s digital payments to GDP is 3% and government is aiming to increase this to 10% in 2–3 years. Second, the coronavirus pandemic now also accelerates the pace of digitization, especially the adoption of e-payments,” he said.
“Similar fintech companies could find an opportunity to list on the exchange, but similar record-setting performance of FAWRY is not guaranteed,” he said.
“If similar companies to FAWRY tried to list today, they may not perform like FAWRY because competitive landscapes change a lot…But still, IPO could be a way to go,” he concluded.
NB: 1 Egyptian Pound equals 0,064 United States Dollar, as at 11th May, 2021
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer