El Garhy, Amer are in DC for IMF talks, bond sale –sources

Waiting for Janet: If you had CNBC on yesterday, you likely couldn’t help but notice the massive “Countdown to Yellen Speech” ticker on the set. US Federal Reserve chair Janet Yellen will speak tomorrow at a meeting of central bank governors in Jackson Hole, Wyoming. Market watchers will be scouring her remarks for clues on whether the Fed will hike rates, CNBC notes, but JP Morgan thinks it’s rather unlikely the cautious chair will say much of note tomorrow: “The market is hoping that she’s going to give us clarification, not only on long-term monetary policies, but also some clarity on current monetary policy. [However], it’s likely that the market is going to be disappointed. [It] would be wise not to expect too much from Janet going into Friday,” said JPM’s Priscilla Hancock, whose firm is calling a December rate hike. The Fed next considers interest rates on 20-21 September, and the Central Bank of Egypt’s Monetary Policy Committee will follow suit on 22 September.

Worth reading if you’re a central bank nerd: The Telegraph’s Matthew Lynn on Three questions central banks must ask themselves. Namely: Is quantitative easing actually working? Have we broken the banking system? And: Isn’t it time to update economic models that no longer tell us much about the real world?

Earth-like planet found orbiting “the star next door.” Writes the Associated Press this morning: “After scanning the vast reaches of the cosmos for Earth-like planets where life might exist, astronomers have found one right next door. It is probably in the not-too-hot, not-too-cold Goldilocks Zone where liquid water — a key to life — is possible, if the planet has an atmosphere.” It’s 4.22 light-years from Earth — close enough that it “could be reachable by tiny, unmanned space probes before the end of the century, in time for some people alive today to witness it.” The planet was not directly observed, but its existence was deduced indirectly by calculating its gravitational pull, which is the standard method used to find planets.

Electricity Minister Mohamed Shaker will hold a press conference next week to discuss the fate of the embattled feed-in-tariff program. The presser comes after Shaker met this week with Prime Minister Sherif Ismail and Investment Minister Dalia Khorshid to discuss the state’s insistence on domestic arbitration and a condition that phase-one companies lock-in 85% of their funding from foreign sources — conditions that have effectively derailed phase one. The three are also believed to have discussed a request from phase one FiT companies to extend the deadline for financial close beyond October, Electricity Ministry sources tell Al Borsa.

Parliament to debate VAT, wheat corruption reports: The House of Representatives is widely expected to begin its debate of the Planning and Budget Committee’s report on the value-added tax (VAT) on Sunday 28 August. The next day, MPs will discuss a fact-finding report on alleged fraud in the domestic wheat harvest. The report condemns Supply Minister Khalid Hanafy and holds him ultimately responsible, though not directly implicated in the fraud. There is a strong chance that the House may begin proceedings for a no-confidence vote following the session.

Representatives of 12 Egyptian companies are expected to accompany President Abdel Fattah El Sisi on his trip to China from 4-5 September for the G20 meeting. El Sisi is expected to sign bilateral agreements worth several bn USD while in Beijing. The president make a stop in India on 1 September en route to China accompanied by a trade delegation that is expected to sign USD 100 mn in agreements with Indian companies.

Four scenarios for devaluation could play out: Egypt could float the EGP, use “shock therapy,” move the EGP to managed float regime, or implement a gradual devaluation, Bloomberg’s Ahmed Namatalla and Ahmed Feteha believe (autoplay video). None of the economists surveyed by Bloomberg expect Egypt to move directly to a free float straight away. Shocking the market by weakening the EGP is risky given its history of failure — and would need to bring the EGP as close in value as possible to its real market rate to have a chance of success. EFG Hermes’ Mohamed Abu Basha predicts the CBE will use foreign funding to support a one-off devaluation and move back to a managed-float regime like the one implemented between 2003 and 2012. Exotix economist Alan Cameron sees the country weakening the EGP in incremental amounts, saying, “the question is, can you close the gap to an acceptable level? Something around 10 percent?” Cameron said. Doing nothing is an option, on paper, but it will be just delaying the “inevitable,” possibly blocking IMF funding and making borrowing more expensive. (One spot of advice: Read the very well-reported story. Skip the vapid autoplay video with some talking head spouting paper-thin analysis as he cribs from Namatalla and Feteha’s piece.)

El Garhy and Amer in DC for another round of IMF talks? Finance Minister Amr El Garhy and CBE Governor Tarek Amer are currently in Washington, DC, for a round of talks with senior executives from the IMF on the USD 12 bn extended fund facility, officials tell Al Masry Al Youm. The meeting will likely focus on the USD 5-6 bn in funding from “friends and allies” that the IMF has asked Egypt to line up as a condition of the facility. Amer reportedly flew there following negotiations with the UAE government that secured a six-year, USD 1 bn deposit, the sources added. The pair are also expected to promote the upcoming USD 3 bn eurobond issuance. The trip has not been officially announced.

The trip comes amid reports the central bank is in talks with Saudi Arabia for a USD 2 bn deposit that could arrive before the end of the year, government sources told Al Borsa. The deposit was promised by Saudi Arabia in April during King Salman’s visit to Cairo. The negotiations will determine the time frame of the deposit, the annual interest, as well as whether it will be made in one or two tranches, the source added. Egypt needs to secure c. USD 6 bn in funding separate from the USD 12 bn extended fund facility from the International Monetary Fund as a condition of the IMF package.

The flip-flop continues: The government has no intention of raising the price of fuel products in FY2016-17, a Finance Ministry source told Al Mal. The agreement with the IMF did not go beyond what was presented in the year’s budget, namely implementing the value-added tax and “moving” electricity prices. The source also refused to comment on how much of the cost of producing refined product is covered by the price at the pump, saying this issue is firmly within the Oil Ministry’s remit. An Oil Ministry spokesperson added that the plan to phase out fuel subsidies will be implemented gradually over five years, not by 2020, and will include measures to protect the most vulnerable households, according to Al Masry Al Youm. Both sources effectively denied a report by Reuters that the government was going to increase fuel prices in the current fiscal year with the target of removing the subsidy altogether by 2020.

Finance Minister Amr El Garhy apparently told the House Economic Committee that 57 goods and services have been exempt from the value-added tax (VAT), committee member Ahmed Farghal tells Al Mal. Among the items: media (including TV shows and radio programs) as well as air and sea travel, said Farghal. As we noted yesterday, El Garhy had been quoted as saying on Tuesday that 52 items were “completely exempt” from a VAT. The ministry issued a statement on Wednesday explaining once again that fuel products will not be subject to VAT.

Meanwhile, the head of the Tobacco Division of the Federation of Egyptian Industries is claiming that the Finance Ministry approved exempting some local brands of cigarettes “popular among Egypt’s poor” from the VAT, Al Masry Al Youm reports.

The rate debate continues: El Garhy persisted in calling for a 14% baseline VAT rate during what’s been described as a contentious debate at the House Economics Committee on Monday. Committee members were apparently pressing for a 10% rate. This comes as the Union for Egyptian Investors Associations continued to push for a 12% tax rate on Wednesday, publishing its list of recommendations for the VAT legislation. These include a 20% tax on luxury goods, exempting capital goods from any taxes, exempting projects in free zones from the tax, eliminating the minimum EGP 500K requirement to register for the VAT, and swift rebates on exports.

EFSA is considering listing mutual funds on the EGX, Chairman Sherif Samy said, according to Al Borsa. The listing would allow investors to paying into the funds and withdrawing from them through brokerages instead of limiting them to bank branches as is currently the case, potentially increasing their attractiveness as an investment vehicle. Mahmoud Gebril, CEO at Amwal Financial Investment, says that while the listing would expand the market for mutual funds, it could also harm risk-averse investors who would be more exposed to speculators. Because the Nanny State.

Danish wind turbine manufacturer Vestas will begin procedures to construct a 250 MW EUR 250 mn wind farm by December 2016, a source told Al Borsa. The company is looking to install 2.2 GW in generation capacity over the next five years at a cost of some USD 2.3 bn, as we noted yesterday. The project will be implemented on an EPC+finance basis.

Egypt’s 10 best-selling cars year-to-date: The Hyundai Verna, Nissan Sunny and Hyundai Tuscon are three best-selling passenger cars in YTD, with the first two running neck-and-neck. This Al-Borsa infographic breaks down the top 10.

**Earnings watch: Orascom Construction reported (pdf) yesterday consolidated net profit worth USD 26.4 mn in 2Q2016 and a USD 7.5 by backlog led by USD 2.2 bn in new awards in the three months ending 30 June. Backlog growth was slower than a year ago, a period that included the award of major power plants in Egypt, but reflects 17% growth at its US subsidiaries.

The Coptic Orthodox Church and the Anglican Church have reached an agreement with the government on the draft law on church construction. According to a statement by the Holy Synod of the Coptic Orthodox Church which ran in AMAY, the Church has approved the final draft of the law and its most recent amendments. The law is expected to go before the House of Representatives within the week. The government had approved proposed changes to the law introduced by the Anglican Church which would legitimize existing churches, retain the status of a church as a religious building if a Governor chooses to shut down the church, said Father Andre Zaki head if the Anglican Church in Egypt in a separate statement. He added that the cabinet is expected to approve the law today. As we noted on Sunday, both churches had criticizing the draft law on Thursday, following their meeting on Wednesday with state representatives.

Jordan’s King Abdullah II stopped by for a cup of coffee. The monarch arrived yesterday at Ittihadiya for a meeting with President Abdel Fattah El Sisi, according to Al Ahram, to discuss both economic and political ties. International Cooperation Minister Sahar Nasr told Al-Mal yesterday in the wake of the visit that 20 MoUs will be signed during an upcoming Egyptian-Jordanian Commission meeting set to take place 29-31 August.

Speaking of Jordan: The International Monetary Fund approved a USD 723 mn extended fund facility for Jordan on Wednesday, Reuters reported. The three-year program aims to support Jordan as it seeks to reduce public debt to 77% of GDP by 2021. We’d noted at the end of last month that Jordan had signed a letter of intent for the loan. “The IMF [agreement] could help the kingdom tap more aid pledges from participants in last February’s Syrian donor conference in London to ease the impact of accommodating over a mn refugees from Syria. Although their presence fueled consumption and provided a pool of cheap and skilled labor, the refugees put pressure on meager resources and strained government finances,” Suleiman Al Khalidi writes for Reuters.

What do private equity investors know that public market types don’t? We noted earlier this week that inflows into emerging-market equity funds had hit a 58-week high, rebounding nicely after hitting a nadir early this year. Along comes the Financial Times this morning to rain on our parade, writing that “Fundraising by private capital funds specialising in emerging markets fell sharply in the first half of 2016, even as investors poured money into public markets. … However investors in private equity, private credit and infrastructure and real asset funds are shying away from emerging markets. EM-focused private capital funds raised just $15.1bn in the first six months of 2016, 33 per cent less than in the same period last year.”

Qatar has bought (a stake in) the Empire State Building: Qatar’s sovereign wealth fund has bought a 9.9% stake in the iconic New York building for USD 622 mn, the Wall Street Journal reports this morning.

Tests show Canada’s West Orphan Basin holds 25.5 bn barrels of oil and 20.6 tn cubic feet of gas, according to a statement by the premier of the Canadian province of Newfoundland and Labrador, World Oil reported on Wednesday. For comparison, the Egyptian offshore supergiant gas field Zohr is believed to hold a potential 30 tn cubic feet of gas. All Canadian exports of natural gas are currently shipped to the United States by pipeline, but a share of exports is expected to start to shift: The planned construction of LNG export terminals on Canada’s western coast will see sales to Asia begin by 2019, according to Canada’s National Energy Board.

Despite growing interest in emerging markets for investors in search of yields against the backdrop of zero or even negative interest rates in developed economies, emerging markets took a hit on Wednesday, led by concerns of political risk in South Africa and Turkey and expectations of a possible US rate hike, Reuters reported. “Fears are growing for South Africa’s economy and its credit rating after Finance Minister Pravin Gordhan, popular with investors and business, was ordered to report to police in relation to an investigation into a surveillance unit in the tax service,” Reuters’ Sujata Rao reports. Turkish shares and the lira fell on news that Turkish tanks have launched attacks in Syria against Daesh militants supported by warplanes from the US.

US inventories of crude oil and gasoline both posted unexpected increases in the week ending 19 August to reach their highest levels since February 2015, Reuters reported, citing data from the US Energy Information Administration on Wednesday. Analysts had expected inventories to decrease by 455k barrels over cuts to refinery output. Rising inventories should continue a downward pressure on oil prices.

There’s a brewing scandal in the US about Egyptian cotton — and it’s India’s fault, not ours. Major US retailers including Wal-Mart, Bed Bath & Beyond, Target and JCPenney are pulling “Egyptian cotton” sheets and other textile products off their shelves after suggestions that a major supplier hasn’t been selling them products made of Egyptian cotton, after all, the Wall Street Journal reports. The story takes the time to remind us that Egyptian cotton accounts for just 0.3% of the global market compared to India’s 27% and China’s 23% — and that annual output is shrinking. Bed Bath & Beyond has opened an investigation into the supplier, a company known as Welspun.

Coptic rights organization files Olympic complaint: An NGO by the name of Coptic Solidarity has filed a formal complaint to the International Olympic Committee (IOC) and FIFA regarding religious discrimination against Coptic athletes, according to a statement posted on PR Newswire. The complaint alleges there are no Copts in Egypt’s premier football league and that Christians were excluded from the Olympic delegation, saying they are examples of the “product of deep-rooted discrimination that exists in the administration of athletics and football in Egypt, and in Egyptian society at large.”

The Al Masry Al Youm columnist who writes under the pseudonym Newton criticizes the way the state deals with tourism as if it is begging. When international tourism rates dropped, the state turned to Arab tourism. When Arab tourism rates dropped, the state turned to domestic tourism. Newton draws on how Dubai was able to attract tourism with as little as shopping, while Egypt is unable to revive tourism with a wealth of attractions.

Al Ahram columnist Makram Mohamed Ahmed praises the old garbage collection system from before the outbreak of the H1N1 virus, which saw kids with no medical benefits serve as collectors. The kids sorted the garbage into biodegradables for pig farms, recyclables, and burnables, a system he commends for its efficiency.

Regionally, Egypt and Saudi Arabia stand to lose a lot from the Tiran and Sanafir debacle in light of growing influence of Iran and Turkey as the key players in the region, writes leftist Al Shorouk columnist Abdullah El Sennawy. “The shifting policies on the war in Syria, and the issue of a Kurdish state has led to the semi-marginalization of Egypt’s regional role, which in turn led to the semi-isolation of Saudi,” he says.

The be’a-fication of Egypt continues: Some individual with no education, class, taste or common sense thought it would be a really great idea to paint over the Umm Kolthoum statue in Zamalek. (View the new and “improved” Umm Kolthoum statue via Cairo Scene)

Fry from Futurama gets some bad news following his Thanaweya Amma results. (Watch animated gif, running time: 6 seconds, by Youssef Mohsen Taha and Hussein Mohamed)

The Agriculture Ministry and the cabinet’s Information and Decision Support Center have denied reports that claim that Egyptian strawberries exported to the U.S. have caused several hepatitis A cases in Virginia, AMAY reported on Wednesday. They added that the Agriculture Ministry had not received any formal complaints from the U.S government regarding the matter and had conducted studies on samples from shipments to the U.S. where they found that they adhered to international health standards. The Tropical Smoothie Cafe chain had issued a statement this week claiming that “they pulled all strawberries sourced from Egypt from every cafe in our system, not only the Virginia cafes,” following the claims.

International Cooperation Minister Sahar Nasr signed an agreement with Austrian Ambassador Georg Stillfried to extend the terms of a EUR 50 mn financing package to 2018, the Ministry announced in a statement carried by Al Borsa. The two parties discussed areas of mutual cooperation. The ministry also signed two grant agreements with the Italian Development Cooperation worth a combined EGP 90 mn, Al Mal reported. The grants are meant to fund the Demo Integrated Technical Education Cluster in Fayoum, and a new educational complex in Abu Ghaleb, Giza. Nasr reportedly said the Italian funding underscores good relations despite the ongoing diplomatic flap over the murder in Cairo of Italian student Giulio Regeni, Al Mal reported.

The ministry is also readying for a state visit by Azerbaijan’s president, Ilham Aliyev, in October, Al Masry Al Youm reports. International Cooperation Minister Sahar Nasr met with the Azerbaijani ambassador to Cairo on Tuesday to prepare for Aliyev’s visit.

The Foreign Ministry is developing a comprehensive strategy to combat illegal immigration in Egypt in conjunction with the Armed Forces and state security, according to a ministry statement picked up by Al Masry Al Youm. The strategy will take a multi-pronged approach beyond the security element by pushing for the Illegal Immigration Act to be passed by the House of Representatives, in addition to an awareness campaign and social program for immigrants, said Nayla Gabr, head of the National Coordination Committee to Combat Illegal Immigration. Gabr had met with multiple House committees and other government officials to press forth the upcoming strategy.

“We’re going to see increased production in both oil and gas in Egypt – to the point where hopefully they can [become] a net exporter of at least LNG,” SDX Energy CEO Paul Welch told Rigzone. Welch believes the oil and gas sector will grow over the coming five years driven by Eni’s Zohr discovery, and BP’s Nile project. SDX Energy has stakes in four concessions including North West Gemsa and Meseda. The company completed a workover program in the former, which grew production from 5,500 bbl/d to 7,000 bbl/d, he added. SDX plans to complete a second workover develop in the Meseda by end of year, which would double production to 8,000 bbl/d, said Welch.

The General Authority for Supply Commodities (GASC) is set to issue a tender today to import 50,000 tonnes of sugar for eventual distribution through the supply smartcard program, Al Borsa reported on Wednesday. This is part of wider plan to import 300k tonnes of raw sugar in an effort to cope with the increased demand and to lower prices which have seen a sharp rise of late.

Solb Misr Group, majority stakeholder of Misr National Steel (ATAQA), is in talks to sell its stake in the latter to an unnamed investor, according to a company statement. No further details were disclosed as the outcome of the negotiations remains unconfirmed.

The Health Ministry is set to sign an MoU with the Arab Company For Drugs Industries & Medical Appliances (ACDIMA) to build facility to produce consumables including glucose, saline and ringer’s solutions, Health Minister Ahmed Emad said, Al Borsa reported on Wednesday. The move comes as a response to reports that there has been an ongoing shortage of the solutions in the domestic market following the shutdown of Al Mottahedoon Pharmam, which previously met 60% of domestic demand. Emad, however, said that there is no “crisis” despite claims that black market prices for some solutions have increased from EGP 80 to EGP 200 per pack.

Capital Group Properties has signed MoUs with Smart Village, SABIS, Africa Crest Education, El Sawy Culture Wheel, food company Al Bustan, and Medical Park Redcon to develop projects Alburouj, which it is billing as an EGP 40 mn integrated community, Al Mal reported on Wednesday. The firm will build an EGP 200 mn school complex set to include a new school under the SABIS network, which manages the International School of Choueifat. The project will also include an EGP 400 mn medical complex, a culture centre, a 70 feddan organic farm and a 100K sqm administrative complex, the latter which will be built by Smart Village. Capital Group, an Egypt-based JV between UAE companies Abu Dhabi Capital Group and Al Ain Properties, received approval from the cabinet on Tuesday to build the 1,200-feddan project.

Qatari Diar is reportedly considering exiting the EGP 6.1 bn City Gate project in New Cairo after claims that construction had stopped for two months as result of repeated equipment theft and vandalism at the site, sources told Al Borsa. Diar is in talks with Egyptian real estate developers to sell the project, cut its losses and leave, the newspaper claims. Diar had reportedly stopped accepting installments until it can resume construction or repay them in the event the project shuts down. NUCA had sent warnings to Diar for not keeping up with the construction schedule. Workers had apparently refused to work on site for fear of attacks. Only 30% of the first phase of the project had been completed and around 500 homes have been sold so far.

The Endowment Ministry’s subsidiary, El Watania Group for Awqaf Investments, has reportedly reached a preliminary agreement with Six October City Authority to buy 34k feddans to be used to build an EGP 300 mn housing project, an unnamed source told Al Borsa on Wednesday.

Turkish Airlines will resume flights to Sharm El Sheikh airport from Istanbul on 10 September, Al Masry Al Youm reported. Turkey halted flights to Sharm El Sheikh on 31 October 2015 after the Metrojet crisis, and will become the first airline to resume flights. Turkish Airlines will run four scheduled weekly flights between the two cities.

The Transportation Ministry is reportedly studying several incentives to attract more public-private partnership on road development projects, an unnamed ministry official told Al Mal on Wednesday. These include allowing investors to collect a portion of revenues from gas stations, cafeterias and other services provided on roads that cost them EGP 1 bn to build. The move was prompted by the private sector’s weakening appetite for road development projects. Among the complaints raised by investors was that toll fees from trucks were not enough to cover their costs. The source added that the ministry is set to bring up the matter with the House of Representatives.

Capital Intelligence Ratings (CI Ratings) affirmed Commercial International Bank (CIB)’s long-term FCR at ‘B-’ and short-term FCR at ‘B’ with a ‘stable’ outlook, according to CPI Financial. The bank’s FSR rating also remained at ‘BBB-’. The piece added that the bank’s main areas of strength are its profitability and excellent operating efficiency.

Orascom tech arm A15 and digital solutions outfit Kijami will form a new group independent of Kijami and Tattlr, one of A15’s portfolio companies, Al Mal reported. “A15 will be our launch pad for regional expansion especially in KSA, UAE, and Qatar,” said Kijami’s CEO, Bassem Elhady. “The new social media group will have wide regional reach through 4 main regional offices in Egypt, KSA, UAE and Qatar,” said A15 CEO Fadi Antaki.

Eversheds LLP was chosen as the legal consultant on the establishment of JV between UAE’s Masdar and the New and Renewable Energy Authority (NREA) in January to build and operate a USD 250 mn 200 MW wind farm in the Gulf of Suez, Al Borsa report. PricewaterhouseCoopers was chosen to provide the financial studies for the project, which was announced last year. NREA’s contribution to the project will come from a USD 50 mn loan from the African Development Bank.

Egypt held an exceptional sale of three-year treasury bonds worth EGP 31 bn carrying a fixed annual yield of 16% payable every six months, according to a bourse statement. The bonds were sold in an exceptional auction that was exclusive to state-owned banks, three bankers told Reuters. The transaction essentially sees the CBE providing the banks with capital on the one hand, then the government withdrawing it with the other, creating an asset in the process that improves the state-owned banks’ capital adequacy ratio. Al Borsa reports that Banque du Caire, Banque Misr and National Bank of Egypt all participated in the sale.

The Local Development Ministry will redraw the borders of governorates following the passing of the Local Administration Act and the holding of local elections, a ministry source told Al Borsa on Wednesday. The government had originally set to make these changes in August of 2014, changes which included increasing the number of governorates from 27 to 30. No date for local elections has yet been set.

Egypt may use cloud seeding (a technique that involves infusing cloud with chemicals to increase water condensation) to provide a new source of water,the people at the Meteorological Authority suggest, according to a report in Ahram Online. That’s right: Cloud seeding. Not desalination. Not water conservation. Not “fix relations with the Nile Basin countries.” Cloud seeding. Perhaps the Met could stick to predicting the weather and not making policy? Maybe someone could forward them a link to Scientific American’s piece from 2009 after China announced it was controlling the weather through cloud seeding. One of the things to emerge: Cloud seeding doesn’t work when you’re effectively in drought. If it did, perhaps places like California would be using it today? There’s a reason it ain’t rainin’ in Cairo, folks.