Egyptian bourse clean-up should benefit the Case

16 May 2008
When the market experiences a downturn, investors will know the remaining firms will follow the rules.

The Cairo & Alexandria Stock Exchanges (Case) has picked a good time to overhaul its corporate listings. About 800 companies have been delisted from Egypt’s main market since its chairman, Maged Shawky, started work at the stock market in 2005. Case says they have all been guilty of corporate governance abuses, including failure to disclose financial results and preventing their shares from trading.

Shawky expects to delist about 100 of the 373 companies remaining on the market by the end of the year. Mostly, these will be the smaller stocks on the market. As the market capitalisation of Case is based on the shares that each company lists on the exchange, the overall size of the market is unlikely to fall greatly as a result of the delisting campaign.

The delisting campaign is more interesting for what it says about Egypt’s transition from an economy dominated by opaque family-owned businesses to one where transparent investor-focused companies set the pace. The campaign also shows that Egypt’s government - Shawky reports to Investment Minister Mahmoud Mohieldin - wants the Case to compete with the exchanges in the Gulf in the long term.

The campaign to get rid of rule-breaking businesses has been a big challenge. Case has been fortunate to carry out the move during a bull market. When the market inevitably experiences a downturn, investors will at least be reassured that the remaining companies have to follow the rules.

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