AM — GB Auto to sell 45% of GB Lease to the UAE’s Chimera

Good morning, wonderful people, and happy first hump day of the new year. The news cycle is gently easing us back into work mode this morning — though there’s a little more time off just around the corner.

We’re getting two long weekends in a row: Sunday, 8 January, will be a public holiday for both the public and private sectors in observance of Coptic Christmas, which falls on Saturday, 7 January, according to a cabinet statement. Any school and university exams will continue as scheduled, the statement reads. You can expect the central bank and EGX to follow suit with announcements soon.

Today is the first “full” trading day of 2023 worldwide as traders return to their desks in the US, UK and elsewhere — many global markets were closed yesterday in observance of the New Year. Here at home, the EGX started the year in the green, with the benchmark EGX30 closing up 2.5%.

Your next holiday here in Omm El Donia will be at the end of the month, when we observe Revolution / Police Day on Thursday, 26 January.

THE BIG STORY here at home: GB Auto has agreed to sell 45% of subsidiary GB Lease to our friends at Au Dhabi-based Chimera Investments for EGP 855 mn, valuing the company above the figure given in a fair value study.

THE BIG STORY ABROAD: Scores of Russian soldiers were killed in a Ukrainian strike on a military barracks in eastern Donetsk in the first hours of 2023, in one of the deadliest attacks on Russian forces since the war began. Moscow said 63 of its troops were killed, while the Ukrainian military put the death toll at some 400. (WSJ | Guardian | CNN | WaPo | AP | Reuters | FT)

IN MEMORIAM-

Our friend Karim Ragab (LinkedIn) has died in a car accident on the Red Sea coast. Karim was a well-known entrepreneur, executive coach, business advisor, school builder, and investor who co-founded Tabibi 24/7 and, with his wife, Carmen, Kompass Education. In recent years, Karim worked as a part-time operations advisor to the private equity firm Ezdehar, as well as with leadership transformation outfit Aberkyn, a unit of McKinsey. We’ve known Karim since his days at Qalaa Holding (when it was called Citadel Capital) and have always admired his passion for his family and for building businesses that could put a dent in the universe. In addition to Carmen, Karim leaves behind three wonderful boys. God rest your soul.

WHAT’S HAPPENING TODAY-

IN THE HOUSE- Supply Minister Ali El Moselhy faces questions from MPs on how the ministry plans to ensure the availability of key commodities in the lead-up to Ramadan amid soaring prices, as well as on bread subsidies and ration cards.

No price sticker? Big problem: The two-week grace period that was given to retailers to clearly display prices on their products has elapsed, Alaa Ezz, secretary-general of the Federation of Egyptian Chambers of Commerce (FEDCOC), reportedly confirmed to Al Borsa.

REFRESHER- Under new rules introduced last month to tamp down on food price inflation, retailers who don’t comply with pricing rules are now at risk of having their shops shut down and their stock confiscated and sold to citizens. In parallel, we’re still waiting to hear more on the suggested price list the government is drawing up for certain essential foods.

WATCH THIS SPACE #1- Egypt plans to operate its two gas liquefaction plants at full capacity throughout the year, Oil Minister Tarek El Molla reportedly said. We still had spare capacity at the Idku and Damietta liquefaction facilities as of June last year, El Molla said at the time.

REMEMBER- The value of our natural gas exports jumped 140% y-o-y to reach USD 8.4 bn in 2022, while volume was up 14% to hit 8 mn tons — 90% of which was directed to Europe. Maximum capacity for LNG exports could reach 12 mn tons per annum in the next three years, El Molla said in May. The government has been working to up production in a bid to boost LNG exports, as the country looks to capitalize on hot markets amid the loss of Russian fossil fuel supply to Europe and cement itself as a regional energy export hub.

WATCH THIS SPACE #2- A boost for North Coast tourism in time for summer? El Alamein International Airport will start receiving scheduled flights starting in March, Civil Aviation Minister Mohamed Abbas told reporters yesterday at a presser, according to Ahram Online. The North Coast airport started receiving charter flights in August last year, according to the news outlet.

CIRCLE YOUR CALENDAR-

The key news triggers as we start a new month:

• December’s Purchasing Managers’ Index for Egypt will land on Wednesday, 4 January.
• Foreign reserves figures for December should be out later this week.
• Inflation figures for December will be released on Tuesday, 10 January.
• The national dialogue will kick off on Saturday, 14 January.
• The government’s fuel pricing committee will meet this month to decide quarterly fuel prices.
• Global movers and shakers will descend on Davos for the World Economic Forum’s annual meetings on 16-20 January.
• The IMF will publish an updated World Economic Outlook towards the end of the month.

The EGX will be trialing an update (pdf) to its trading platform on Wednesday, 4 January and Thursday, 5 January from 3pm to 4:30pm. The update includes changes to the way stocks’ daily closing price is calculated and approved.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

*** It’s Going Green day — your weekly briefing of all things green in Egypt: Enterprise’s green economy vertical focuses each Tuesday on the business of renewable energy and sustainable practices in Egypt, everything from solar and wind energy through to water, waste management, sustainable building practices and how you can make your business greener, whatever the sector.

In today’s issue: The year ahead. What can we expect from the green economy in 2023?

GB Auto approves GB Lease stake sale: GB Auto’s board has approved plans to sell a 45% stake in GB Lease to our friends at Abu Dhabi-based investment firm Chimera Investments for EGP 855 mn, after approving the results of a fair value study (pdf), the company said in an EGX disclosure (pdf) yesterday.

REMEMBER- GB Auto unit GB Capital last month greenlit the transaction, which will see it retain the remaining 55% stake in the company. We were expecting the acquisition to wrap up before the end of the year.

Chimera’s offer is generous, as you’d expect it to be in seeking a stake of that size in a large, high-margin business, with Baker Tilly’s fair value study suggesting Chimera’s offer is at a double-digit premium.

Not their first rodeo: GB and Chimera are already partners after GB Auto sold a 7.5% stake in MNT Investments to Chimera in November as part of a larger agreement that will see Chimera acquire a 21.7% stake in the Netherlands-based payments company.

BACKGROUND- Chimera has been in talks with GB Auto to acquire the shares since September. GB Capital has been considering a partial sell-down in its leasing business for over a year, during which time the company had received offers from several firms.

Advisors: Arqaam Capital is acting as the sell-side advisor to GB Capital, while Matouk Bassiouny & Hennawy are legal counsel. Adsero-Ragy Soliman and Partners are buy-side counsel.

The Madbouly government agreed in December to purchase hedging contracts to guard against volatility in the oil markets, Bloomberg Asharq reported yesterday, citing two government sources. “The oil and finance ministries are waiting for the appropriate timing to contract and implement hedging contracts,” one of the sources told the news outlet.

The move comes after oil prices saw extreme volatility in 2022 on the back of a supply squeeze thanks to the war in Ukraine, dwindling demand from the world’s largest crude importer China, and fears of global recession. Brent climbed to its highest level since 2008 in the wake of the war’s outbreak but has since fallen back to around USD 86 per barrel. (Read more on what swings in the markets meant for Egypt in 2022 in our year in review on the energy sector.)

Why this matters: As a net oil importer, higher crude prices are putting pressure on public finances.

• The state is spending more on imports than it anticipated: The price of Brent spent most of the first half of FY 2022-2023 above the USD 80 per barrel benchmark used for the state budget.
• The subsidy bill is rising: The government spent EGP 31 bn on fuel subsidies during 1Q FY 2022-2023, more than 4x its spend during the same period in FY 2021-2022, a source at the Egyptian General Petroleum Corporation (EGPC) told Bloomberg Asharq in November. The fuel subsidy bill for FY 2021-2022 was up to EGP 59.6 bn, more than triple the EGP 18.4 bn estimated in the budget.

This isn’t a one-off: Hedging against oil price risks has become a common practice by the government in recent years. It took out hedging contracts with international banks in FY 2019-2020.

Misr Italia Properties has closed its second EGP 986 mn securitized bond issuance, transaction advisor EFG Hermes said in a statement (pdf) yesterday.

The details: The issuance is backed by a receivables portfolio from two of the real estate developer’s subsidiaries. Its three tranches received ratings ranging from AA+ to A from Middle East Rating and Investors Service, according to the release.

This is the second issuance in an EGP 2.5 bn securitization program, which kicked off early last year with an EGP 794 mn bond sale. The money raised in the first issuance helped the company “achieve its project development objectives in 2022, having constructed over 2.5k units and delivered units with a total value of EGP 3.1 bn,” Misr Italia CEO Mohamed El Assal said.

2022 was a record-breaking year: The issuance takes the total value of bonds sold in 2022 to EGP 46.4 bn, up from EGP 15.8 bn in 2021, by our count.

Advisors: EFG Hermes acted as the sole financial advisor, bookrunner, and underwriter for the issuance. Al Ahly Pharos was the lead arranger, while CIB and the National Bank of Egypt were underwriters. Dreny and Partners was lead advisor and KPMG was the auditor.

MPs greenlight port development, oil exploration + green hydrogen bills: MPs signed off on several bills yesterday, including legislation paving the way for the government to bring in private companies to develop container terminals and Eni to explore for oil in the Western Desert. Among the bills approved yesterday:

#1- Ports: Two bills that would allow the government to grant a concession to a consortium of foreign and local companies to develop two container terminals at the ports of Ain Sokhna and Dekheila. Hutchison Ports last year signed initial agreements with the government to build new container terminals at the two ports alongside COSCO, CMA CMG, and MSC. The container terminals would be built on a build, operate, transfer (BOT) basis, said Alaa Abed, head of the House Transport Committee.

#2- Oil exploration: A bill to allow oil exploration by the Egyptian General Petroleum Company (EGPC) and Eni’s local subsidiary in the Western Desert.

#3- Hydrogen: A presidential decree approving a EUR 500k grant agreement from the French Development Agency (AFD) to develop our green hydrogen sector.

#4- Railways: Amendments to a 2019 agreement that would see the Hungarian Export-Import Bank supply 1.4k railcars to Egypt.

AND- Tax breaks inch closer for the builders of Dabaa: The House Energy Committee gave its final approval to amendments to the law regulating the Nuclear Power Plants Authority (NPPA), which would fully exempt from taxes all parties involved in building and operating nuclear projects. The legislation comes to speed up the implementation of Rosatom-built Dabaa, the country’s first nuclear plant.

Elsewedy Electric wants to build an industrial park in New 6 October City: Elsewedy Electric is in talks with the government to build a new industrial zone in New 6 October City and will soon look to draw up contracts for the project, according to a cabinet statement. The three-phase project could attract investments worth EGP 20 bn, create 150k jobs, and add EGP 5 bn to the country’s annual GDP once complete, Elsewedy Electric CEO Ahmed El Sewedy said in the statement, without giving a potential timeline for its construction.

The details: The 5-mn-square-meter industrial zone would be among the country’s largest, housing more than 400 factories, 100 logistics and commercial facilities, a park, and a technical training academy, according to Elsewedy. It would be located near the 6 October dry port, which began trial operations in November, and linked by railway to Alexandria port. The company set up to build and operate the 6 October dry port is 70% owned by Elsewedy Electric.

It was a mixed bag on the talk shows last night, as the pundits celebrated the repatriation of a looted sarcophagus as well as another record-breaking year for Suez Canal revenues.

The Grand Egyptian Museum will be inaugurated “within a few months,” Secretary-General of the Supreme Council of Antiquities Mostafa Waziri told Ala Mas’ouleety’s Ahmed Moussa in a phone call (watch, runtime: 3:24). Waziri did the rounds on the talk shows last night to talk about the successful repatriation of a looted sarcophagus to Egypt from the US (more on that in our Egypt in the News section, below.)

Suez Canal registers record revenues in 2022: Revenues from the Suez Canal increased 25% y-o-y in 2022 to reach around USD 8 bn, while the number of transiting ships increased by 14% y-o-y to 23.6k vessels, according to an Ittihadiya statement. Suez Canal Authority boss Osama Rabie phoned in to Al Hayah Al Youm to discuss the record results, as well as ongoing plans to develop the canal and offer new services (watch, runtime: 7:55.)

A looted ancient sarcophagus displayed at the Houston Museum of Natural Sciences was handed over to Egypt by the US, the Associated Press reports. The sarcophagus was returned last week, more than three months after an investigation by the Manhattan District Attorney’s Office revealed that it was illegally smuggled into the country from Abusir Necropolis in Cairo back in 2008. The sarcophagus will be moved to the Egyptian Museum in Tahrir Square to undergo restoration work, Secretary-General of the Supreme Council of Antiquities Mostafa Waziri said in a phone call with Al Hadath Al Youm (watch, runtime: 5:02.)

This is the latest success in repatriating stolen artifacts back to the country: Egyptian authorities managed to get 5.3k antiquities returned to the country in 2021.

More than a happy hour: Dubai rang in the new year by ending its 30% tax on alcohol sales and making it possible to obtain personal liquor licenses without charge in a bid to boost its status as the Gulf’s leading business and tourism hub. The move was announced in ads (here and here) by the city’s two state-linked alcohol distributors and official suppliers of police-issued liquor licenses that non-Muslims are legally required to hold in order to purchase alcohol. The AP has more.