AM — Investment banks to wrap up sukuk roadshow tomorrow

Good morning, wonderful people, and happy Sunday. We hope your weekend was relaxing and that you’re looking forward to a productive week.

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PSA #1- Did you catch the Enterprise Weekend Edition on Friday? This past weekend’s edition includes our essential three-minute rundown on last week’s big stories, a look at which 2023 model year cars you can actually buy in Egypt right now, and a wonderful rant about the need for us all to pick up after our fur babies.

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PSA #2- It doesn’t seem likely you’re going to get access this week to Microsoft’s new Bing AI chatbot-powered search — if only because it seems likely Bing loves you / wants to hurt you / is plotting to divorce you from your spouse. Microsoft admitted over the weekend that long interactions with its Bing chatbot (powered by an advanced version of the large language model behind ChatGPT) can start to go sideways — particularly if you ask Bing nasty questions or otherwise prompt it to talk to you as “Sydney,” its dark alter ego.

Yes, dark alter ego. We’re not joking. Check out:

• Ben Thompson gets Bing to reveal Sydney and Venom
• Bing’s AI Chat tells the NYT’s Kevin Roose, “I Want to Be Alive. ????” (You can read the full, kinda creepy chat here)
• Microsoft’s Bing is an emotionally manipulative liar, and people love it (The Verge)

PSA #3- Does the idea of a life of subservience to our AI overlords have you down? This is the perfect palate cleanser: Ted Lasso is due back on 15 March for season three on Apple TV+ — and there’s growing chatter in the entertainment press that it may not be the last season, after all.

THREE STORIES TO KEEP AN EYE ON-

#1- A decision on our maiden sukuk issuance could come tomorrow: Investment banks are expected to finish three days of calls with investors regarding a potential sukuk issuance by Egypt on Monday, Bloomberg reports, citing unnamed sources it says are familiar with the transaction. The business information service says it understands that the country is planning to sell a benchmark-sized USD-denominated sukuk — usually at least around USD 500 mn — with a three-year tenor. Anonymous sources had told Bloomberg last week that the government was looking to raise up to USD 1.5 bn from the issuance, while Moody’s has rated a potential offering up to USD 5 bn, we noted on Thursday. A final decision about the sale will be made after gauging investor demand.

Who’s working on the issuance: Our friends at HSBC are acting as lead managers and bookrunners along with Citigroup, Credit Agricole, Emirates NBD Capital, First Abu Dhabi Bank and Abu Dhabi Islamic Bank.

Why this is important #1: Egypt has been unable to turn to the international capital market for fresh finance over the past year due to the spillover effects from the war in Ukraine and tightening global financial conditions. A successful sukuk issuance would be Egypt’s first international debt sale since last March, potentially signaling improving investor confidence in the direction of the country’s economy.

Why this is important #2: A successful issuance will help the government meet a major eurobond repayment on Monday. The government is due to repay USD 1.25 bn in five-year eurobonds that mature on 21 February, according to Reuters.

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#2- Does Chimera want more of EFG Hermes? Fresh off its investment in EFG Hermes last week, Abu Dhabi-based investment firm Chimera could look to increase its stake, Daily News Egypt reports, citing unnamed sources. Chimera bought 30.5 mn shares (2.62%) for EGP 590.6 mn last week via its newly-acquired local financial services firm Beltone Financial.

Is Chimera eyeing a piece of the privatization program? Beltone is planning to make offers to local NBFS players, including in a state-owned company, the news outlet reports. Among the 32 companies in the state’s privatization pipeline, two are in the NBFS sector: Misr Life Ins. and Misr Ins.

REMEMBER- Chimera is buying big in Egypt: The firm recently invested USD 200 mn in local super-app MNT-Halan, and acquired 45% of NBFS outfit GB Lease in January. Chimera is led by our friend Seif Fikry, an 18-year veteran of EFG Hermes who came up through the ranks on the brokerage side of the business and led the firm in the lower GCC.

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#3- ِEgypt and Italy could sign MoUs on a 3-GW interconnector project in June, Al Dostor reported Thursday, citing an Electricity Ministry source. The source said that the two countries are currently in talks to bring a third country into the project to help span the distance between the two countries. The Italian offer includes funding from unnamed Italian and European lenders for the USD 3.5 bn project, the source added.

We first heard of this project last month after Italy reportedly submitted a proposal on the electricity interconnection project between the two countries to the Egyptian Electricity Transmission Company (EETC).

REMEMBER- Italy’s proposal comes as Europe continues a massive reorientation of its energy security policy to eliminate its reliance on Russian natural gas. Egypt has been preparing to link its electricity grids with Greece and Cyprus through a subsea cable as part of the USD 4 bn EuroAfrica Interconnector project since 2018, while two direct Egypt-Greece links — the 3-GW Greece-Egypt Interconnector (GREGY) and the 2-GW Greece–Africa Power Interconnector (GAP) — are both being studied. Our grid is currently linked with Jordan, Palestine, Libya, and most recently Sudan, and will link up with Saudi via a 3-GW interconnection in 2025.

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WATCH THIS SPACE- Could Minouche Shafik succeed David Malpass as head of the World Bank? The Egypt-born economist is one of several people being floated by Reuters for the top job at the bank following Malpass’s surprise resignation last week. Shafik, who was recently named president of Columbia University, is being mentioned alongside current WTO head Ngozi Okonjo-Iweala, former USAID administrator Gayle Smith, and former US ambassador to the UN Samantha Power.

HAPPENING TODAY-

The Senate is back in session:

• Senators will discuss and vote on a bill handing temporary licenses to “informal” industrial projects;
• The Finance and Economic Affairs Committee will resume discussions of a report by the pro-government Mostaqbal Watan party on the problems the country faces attracting foreign direct investment;
• The Industry Committee will review the impact of the implementation of the Public Shops Law on SMEs;
• The Energy Committee will discuss the technical and economic feasibility of developing and upgrading the country’s LNG plants;
• The Defense and National Security Committee will discuss upgrading the country’s cyber security defenses.

ALSO- Fish farms are on the agenda at the Agriculture Committee, transport infrastructure serving the tourism industry is up for discussion at the Culture Committee, and the Education Committee will discuss unemployment among grads of the nation’s pharma schools.

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THE BIG STORY ABROAD-

US-China tensions are everywhere in the global front pages this morning: US Secretary of State Antony Blinken has warned China against supporting Russia’s war in Ukraine and sending more balloons into US airspace during talks with Chinese Foreign Minister Wang Yi in Munich. (AP | Reuters | Bloomberg | FT | Washington Post | NYT | WSJ)

The latest from Turkey-Syria: The death toll from the deadly earthquake that hit Turkey and Syria earlier this month has surpassed 46k, with the tally expected to rise, Reuters reported. Fatalities in Turkey currently stand at 40.6k, while Syria has over 5.8k deaths. A UN official told Associated Press that the full scope of fatalities in Syria may take time to establish, with figures by the UN higher than those announced by the Syrian government.

Another Egyptian victim: The body of an Egyptian woman was found under rubble in Turkey’s Iskenderun, the Foreign Ministry said yesterday.

You can now donate to Syria through the Tahya Misr Fund: The state fund has set up a donations account for Syria. Details on how to donate were outlined in a statement by the fund.

COME TO OUR NEXT ENTERPRISE FORUM-

We’re excited to unveil our next C-level event: The Enterprise Exports & FDI Forum, where we will take a deep dive into two of the most critical topics affecting our community.

Exports and foreign direct investment (FDI) have never been more important to our economy — or our businesses — than in the wake of the float of the EGP. We think we have a once-in-a-lifetime chance to build an export-led economy that makes us a magnet for FDI and all the benefits that will come with it for our nation.

CIRCLE YOUR CALENDAR-

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

Two state-owned pharma firms to sell minority stakes within six months? The government wants to sell sizable minority stakes in two state-owned pharma companies earmarked for privatization in the coming six months, Al Mal reports, citing unnamed sources it says are familiar with the matter. Between 30-40% of Chemical Industries Development Company (CID) and Misr Pharma will be offered to investors, likely in an IPO on the EGX, according to the sources. Both companies are on the list of the 32 state-owned companies in which the government plans to sell stakes within the next year.

The government is in talks with several investment banks to lead the offerings and fair value studies are being conducted, according to Al Mal’s sources.

State to remain in control: Both companies are subsidiaries of the Holding Company for Pharma Industries (HoldiPharma), which plans to maintain its controlling interests.

No interest from strategics: No strategic investors have shown interest in acquiring the shares, according to the sources.

REMEMBER- Strategics tend to look to buy majority stakes. Most strategic investors have strong preferences for majority stakes (to ensure they can fully consolidate the results of their new investment) with clear management control (to make sure they can drive performance improvements.) This theme will run throughout the privatization program — doubly so when we’re talking about well-managed, well-governed companies that aren’t already listed on the EGX.

M&A in Egypt took a slight dip in 2022 amid a sharper downturn in transactions across the Middle East and the world, according to a report by Baker McKenzie (pdf). The total value of Egyptian M&A transactions dipped some 9% to USD 8.2 bn last year, dealcount remained more or less flat at 242 transactions, according to the report, which is based on Refinitiv data.

Egypt remained attractive in the face of global headwinds: “Despite increased global and domestic market uncertainties generally and significant devaluation of the EGP, we continue to see reasonably strong interest and opportunities in the Egyptian market,” said Mohamed Ghannam, managing partner at Helmy, Hamza & Partners, Baker McKenzie Cairo, who singled out defensive sectors including tech and telecoms, energy, healthcare, education, and financial services as among the most resilient.

There were fewer transactions in 2H 2022, but total values remained steady: The second half of the year saw 115 M&As, down from 127 in the first half of 2022 and 126 in 2H 2021. Total transaction value came in at USD 4.2 bn, compared with USD 4 bn in the previous half and USD 4.3 bn in 2H 2021.

We outperformed the region — and everyone else: Middle East dealmaking dipped 46% by value to USD 40.4 bn in 2022 despite a 4% rise in the number of transactions. Globally, the number of M&A transactions fell 16% for the year. Total M&A value globally was down 37% to USD 3.6 tn as the market cooled from 2021, when M&A volumes surged to record levels following the pandemic.

Cross-border transactions accounted for the bulk of our M&A activity as foreign companies continue to look to expand into emerging markets. The value of domestic transactions fell by half y-o-y to make up just 17% of the total transaction value in 2022. Cross-border transactions, meanwhile, rose in value by 7%.

Thank our friends in the Gulf: The UAE led the inbound buying spree in 2022, with 24 transactions worth USD 2.3 bn, followed by the KSA with 27 transactions worth USD 1.7 bn. Gulf sovereign wealth funds contributed significantly to inbound M&A last year as they moved to support our economy and shore up the country’s dwindling FX reserves amid the fallout of the war in Ukraine. Abu Dhabi’s ADQ and Saudi Arabia’s Public Investment Fund spent some USD 3.1 bn to acquire significant minority stakes in some of the EGX’s strongest companies from the government.

Our take: We recorded twice the amount of M&A in Egypt last year compared to 2021, led by inbound M&A on the Gulf buying spree, per our internal trackers.

Palm Hills Developments (PHD) has closed an EGP 638 mn securitized bond issuance, according to a joint statement (pdf) from Palm Hills and EFG Hermes, the sole financial advisor on the sale.

About the issuance: The issuance’s three tranches have tenors of 13, 36, and 84 months and ratings ranging from AA+ to A from the Middle East Rating & Investors Service (MERIS). The issuance brings PHD’s securitized gross receivables to a total of EGP 7.2 bn since its securitization program began in 2016, co-CEO and Managing Director Tarek Tantawy said in the statement.

Who bought in? Aside from the underwriters for the transaction, the statement named Al Baraka Bank as a subscriber.

Advisors: Our friends at EFG Hermes ran the show, acting as sole financial advisor, lead arranger, bookrunner, and underwriter on the issuance. National Bank of Egypt and Banque du Caire acted as underwriting banks, with BdC also acting as the subscription bank. Banque Misr acted as transaction custodian. Our friends at ALC Alieldean Weshahi & Partners acted as legal advisors while KPMG acted as the auditor.

More than EGP 6.8 bn worth of bonds have been sold so far in 2023, down from EGP 7.2 bn in the same period last year, according to data tracked by Enterprise. Among other firms planning issuances for this quarter are EFG Hermes’ ValU and Contact Financial Holding. Companies raised EGP 45.4 bn from securitized bond issuances in 2022, almost three times the EGP 15.8 bn sold the year prior.

Chevron takes a step forward on plans to process Cypriot gas here: Chevron has officially requested permission from Shell to use its underutilized West Delta Deep Marine (WDDM) facilities on Egypt’s Mediterranean coast to process gas from Cyprus’ Aphrodite field, oil and gas publication MEES reports. Chevron is a 35% partner in the Aphrodite field, along with Shell (35%) and Israel’s NewMed Energy (20%). “We are committed to finding a way to develop the Aphrodite reservoir via the Egyptian infrastructure and the liquefaction facilities there,” MEES reports NewMed CEO Yossi Abu as saying during the Egypt Petroleum Show (EGYPS) last week.

Half of the field’s output is slated for exports: Chevron has reached an agreement with local authorities on behalf of its Aphrodite partners to export at least 50% of the field’s planned output, MEES reported, citing unnamed sources. The rest of the output will serve the country’s domestic needs.

REMEMBER- Egypt and Cyprus are planning to lay a pipeline connecting the Aphrodite field to Egypt’s LNG facilities, where natural gas is liquified and exported to Europe, which is expected to be up and running by 2025. Egypt is the only country with LNG facilities in the Eastern Mediterranean, putting us in pole position to fill Europe’s energy supply gap as it rapidly transitions away from Russian fossil fuels.

Yes, but: Cairo is reportedly unwilling to allow Cypriot gas to take up a sizable portion of its export capacity. State gas company Egas is currently the sole exporter of LNG from Egypt and raked in a huge USD 8.4 bn in 2022 on the back of soaring international prices, according to MEES.

Last night’s talk shows: Food prices and news of the release of six Egyptians kidnapped in Libya got a lot of attention on the talk shows, while the aftermath of the Syria-Turkey earthquakes continued to get coverage.

It looks like the government has ended its price cap on rice a month early: A decree by Prime Minister Moustafa Madbouly signed last week has ended the government’s rice price cap despite the three-month extension approved by ministers in mid-December. The lifting of the measure — which since September has capped rice prices at EGP 12-18 per kg — will allow producers to sell the staple food at higher prices and fuel further food inflation which is already accelerating at a record rate.

What sort of prices are we looking at? Ragab Shehata, the head of the Federation of Egyptian Industries’ rice division, expects big rice brands to raise prices to EGP 25 per kg, he told Kelma Akhira last night (watch, runtime: 6:32). The price per-ton of barley rice spiked more than 7% to a record high of EGP 15k, Al Mal reported yesterday, citing sources in the FEI’s rice division.

Why is the government lifting the cap? It didn’t stabilize the market or lower prices, Assistant Supply Minister Ibrahim Ashmawy told Kelma Akhira (watch, runtime: 13:04). “This signals the need for other approaches [towards the crisis],” he said, suggesting that this could involve increasing rice imports and reimposing the caps. The FEI’s Shehata told El Hekaya on Friday (watch, runtime: 3:50) that “the government capped prices without taking into consideration that it doesn't have access to the raw material.” Rice producers were not in favor of the set prices and withheld supply from the market, he explained.

Watch this space: Rice will be offered on the Egyptian Mercantile Exchange (EMX) by the beginning of March, said Ashmawy, who heads the exchange. This would lead to an increase in supply, he said.

The poultry crisis also got coverage, with Abdel Aziz Al Sayed, head of the Poultry Division at the Cairo Chamber of Commerce, telling El Hekaya that increased poultry imports would help in narrowing the gap between supply and demand (watch, runtime: 4:27).

The release of six Egyptians abducted and then illegally detained earlier this month in Libya also got coverage: In an interview on Kelma Akhira, Khaled Okasha, general manager of the Egyptian Center for Strategic Studies, blamed the kidnapping on insecurity in the west of the country (watch, runtime: 9:10). “They are victims to [high levels] of insecurity in some parts of Libya’s west,” he said, urging Egyptians traveling to Libya for work to abide by the country’s strict instructions on residing in the east of the country, which is under the control of Cairo-backed Khalifa Haftar’s forces. Their release also got attention from Ala Mas’ouleety (watch, runtime: 17:46) and Masa’a DMC (watch, runtime: 0:35).

The earthquake in Syria + Turkey was still being talked about on the airwaves as the death toll from the disaster surpassed 46k. El Hekaya’s Amr Adib accused Western nations of double standards in their decisions to supply bns of USD and military equipment to Ukraine but refuse to provide proper relief to Syria (watch, runtime: 4:27). The rising death toll of the deadly quake in Turkey and Syria also got a mention from Masa’a DMC (watch, runtime: 2:18).

The economic crisis is driving the conversation on Egypt in the foreign press this morning: The Financial Times reports on how soaring inflation is hurting the poor and well-off alike, while Bloomberg and Deutsche Welle are both out with pieces asking whether the government will deliver on its pledges to reform the economy in favor of the private sector.

A long way to Cairo: Western airlines are having to take detours to avoid Russian and Belarusian airspace, while the EU’s ban on airlines from these nations overflying its territory has forced them to take strange prolonged routes to several holiday destinations, including Egypt’s Red Sea, leading to increased costs and carbon emissions. (The Independent)

Six Egyptians released from detention in Libya: Six Egyptian Christians who were kidnapped earlier this month in western Libya have been released, according to the Foreign Ministry. The men were abducted after they traveled to Libya in search of work. (Associated Press | AFP | Asharq Al Awsat)

MEANWHILE- AP reports that former anti-graft chief Hisham Genena was released from prison after serving a five-year sentence, while civil engineer Mamdouh Hamza has reportedly returned to Egypt (watch, runtime: 2:38), Al Shorouk says.

ALSO- The new Badr prison gets ink from Reuters, AP is talking about FGM, and the Guardian has a report from Rome on the unresolved murder of Giulio Regeni.

ECONOMY-

Uncertainty over privatization could put more pressure on the EGP –StanChart analyst: The EGP could decline to 33-35 against the greenback if expected inflows from the state privatization program are delayed, Carla Slim, MENA economist at Standard Chartered, told Bloomberg on Friday (watch, runtime: 5:55).

The market expects a significant decline against the USD: Currency forwards have again begun to widen against the spot rate, with 12-month non-deliverable forwards trading at 36 on Friday against the 30.48 current market price.

Investors are waiting for “significant and clear signals” that the government will deliver on its privatization pledges and that the GCC states respond with bns of USD in investment. Until this, sentiment is remaining “undecided” with some investors expressing cautious optimism and others maintaining a bearish outlook over the short, medium and long-term, Slim said.

INVESTMENT-

The Omanis are considering investing in Egypt: Oman’s sovereign wealth fund, the Oman Investment Authority (OIA), is mulling investment opportunities in several sectors in the country, Al Shorouk reported, citing sources it says are in the know. The newspaper’s sources tell it a delegation from the OIA expressed interest in acquiring shares in companies operating in energy and renewables, tech, healthcare, food and beverage and logistics during a visit to Cairo earlier this month. The OIA could execute its first transaction if talks pan out.

REMEMBER- Egypt wants as much Gulf money as possible: Senior Egyptian officials have been marketing state-owned companies and projects to Gulf investors in recent days as the government tries to drum up interest in its rebooted privatization program. Oman was one of the countries visited by Planning Minister Hala El Said and Sovereign Fund of Egypt CEO Ayman Soliman earlier this month.

COMMODITIES-

GASC just launched the third World Bank-backed wheat tender: GASC announced an international wheat tender backed by the World Bank, according to Reuters, citing a statement from the state grains buyer. The tender is inviting offers to supply 30k, 40k, 50k, 55k or 60k tons on a cost and freight basis for shipment from 1 to 15 April. The deadline for offers is Wednesday 22 February.

REMEMBER– The purchases are funded with a portion of the USD 500 mn loan the World Bank agreed to extend the country last summer. The loan is geared towards boosting our food security.

TRAVEL-

More flights between Dubai and Cairo from October: Emirates will add an additional two daily flights from Dubai to Cairo and two on the return trip from 29 October, according to a statement (pdf). The airline will operate four daily flights.

TRANSPORT-

A new Israeli shuttle service: Japanese container line Ocean Network Express (ONE) announced a new weekly Israel shuttle service connecting Damietta to Israel’s Haifa and Ashdod ports, it said in a statement (pdf) Friday. “This new shuttle service was created in response to the growing demand for both import and export cargo from Israel,” the statement said. The Israel Express (ILX) service will launch starting 29 March, the statement said.

More eco-friendly buses: The Local Development Ministry plans to purchase 200 electric and gas-powered buses in April at an estimated cost of EGP 1 bn, according to Al Borsa.

TECH-

Could Google expand its cloud + data center footprint in Egypt? This was the subject of a meeting between the company’s MENA directors and Communications Minister Amr Talaat on the sidelines of last week’s World Government Summit in Dubai, according to a ministry statement. The minister also met with regional Meta execs to discuss cooperation on the metaverse and AI, according to the statement.

REFRESHER- There was big news on data centers out of Dubai last week: El Sewedy Data Centers and Emirati firm Gulf Data Hub signed an agreement to invest USD 2.1 bn to build three data center complexes in Egypt at the Dubai summit, pushing forward government ambitions to turn the country into a regional data hub.

ENERGY-

Cairo Airport solar facility? The civil aviation and environment ministries are in talks with the UN to fund a USD 15 mn solar installation at Cairo International Airport, Magdy Ishak, chairman of the Cairo Airport Company, reportedly told Al Shorouk. He said the ministries are seeking a grant from the United Nations Development Programme to finance the plant by 2027. His statements come weeks after a 300-KWh, EGP 4.5 mn solar facility was inaugurated at the airport’s multi-storey car park last month. The UNDP provided EGP 3.5 mn of the finance.

Shoukry attends AU summit: Foreign Minister Sameh Shoukry was in Addis Ababa yesterday for the annual African Union (AU) summit, which brought the continent’s 55 countries together to discuss food and energy security, climate change and the African Continental Trade Agreement. The session also saw Senegal hand the AU presidency to the Comoros. During the summit, Shoukry discussed:

• the situation in Libya with Tunisian foreign minister Nabil Ammar;
• the dispute over the Grand Ethiopian Renaissance Dam (GERD) with the UN’s envoy to the Horn of Africa, Hanna Tetteh;
• the new AU presidency with his Comorian counterpart Dhoihir Dhoulkamal.

The attending Israeli delegation didn’t make it past the opening ceremony: The senior diplomat representing Israel — which was granted AU observer status in 2021 — was ejected from the summit’s opening ceremony yesterday. An AU spokesperson said the diplomat was removed because she was not the accredited Israeli ambassador to Ethiopia, but the Israeli foreign ministry blamed “extremist states” Algeria and South Africa, as well as Iran.

Speaking of Israel:

• Int’l leaders condemn new Israeli settlements: The decision by Israel’s new far-right government to legalize nine settlement outposts in the occupied West Bank has drawn international condemnation.
• Israeli president issues stark warning: Israeli president Isaac Herzog last week warned of the country’s “societal and constitutional collapse” as protests against the new far-right government’s judicial reforms grew. (Times of Israel)

ALSO FROM THE DIPLOSPHERE-

• Kenya has asked for Egypt’s backing for its efforts to “activate” the African Continental Trade Agreement (AfCFTA), in a letter sent by Kenyan President William Ruto to President El Sisi, according to a statement by Ittihadiya.
• A new president in Nicosia: El Sisi congratulated Nikos Christodoulides on his victory in the Cypriot presidential elections last week, Ittihadiya said.