AM — Hassan Allam Utilities + Agility to build logistics parks in Egypt

Good morning, wonderful people, and happy hump day. We have an absolutely packed issues dominated by investment news, another potential privatization sale, rising tourism numbers … and that small matter of bank failures in the United States roiling global capital markets. But first:

BUDGET WATCH-

Maait + Madbouly review draft FY 2023-24 budget: Prime Minister Moustafa Madbouly and Finance Minister Mohamed Maait looked over the new state budget ahead of forwarding it to the House. The Finance Ministry expects to send the draft budget to the House of Representatives for discussion during the week of 26 March. President Abdel Fattah El Sisi would then typically sign off on the budget before the start of the fiscal year on 1 July.

What can we expect from the new budget? It have to balance the need for fiscal reform with increased social spending to soften the impact of soaring inflation on the general public. The government last week approved a EGP 150 bn in new social spending for the coming year.

SOME GLOBAL PLAYERS SEE EGP SLIDING, RATES RISING-

Talk of a “fourth devaluation” continues ahead of the IMF’s first review of the USD 3 bn loan program this month. Non-deliverable forwards declined for a tenth consecutive week last week — the first time that has happened since 2007 — while CIB’s London-listed global depository receipts are trading at a 14% discount to their shares in Cairo, Bloomberg says. Abrdn’s head of EM sovereign debt, Edwin Gutierrez, told the news outlet that authorities will need to let the currency slip “sooner, rather than later,” claiming the EGP is still being managed. The EGP lost about 3% of its value since the beginning of February to nearly 31.00, according to the official rate.

The pace at which the privatization program is rolling out and the ongoing FX shortage are keeping capital flows from reentering the country, a key step to meeting the growing demand for FX and ending the import backlog, which according to Citigroup has increased to USD 4 bn from USD 2.5 bn in January.

All signs are pointing to a huge rate hike this month: February’s blowout inflation print will likely force the central bank into a huge rate hike when it meets later this month, which Goldman Sachs thinks could be as large as 300 bps. Meanwhile, JPMorgan is penciling in a 200-bps increase this month and 100 bps in May, taking the deposit rate to 19.25% — its highest level in 30 years. “We do not rule out additional liquidity tightening measures from CBE, such as a further hike to the required reserve ratio” at commercial banks, strategists wrote in a note last week. The bank now expects inflation to average 24.3% this fiscal year and 20.7% next year.

We’re not the only North African country facing pressure right now: Investors are continuing to dump Tunisia’s bonds, raising fears that the country could default on its debt, according to Bloomberg. The sell-off has accelerated after the IMF expressed concern at recent anti-migrant comments made by President Kais Saied, which triggered a spate of attacks against sub-Saharan Africans. A loan agreement with the IMF is seen as crucial as helping the country avoid default.

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WHAT’S HAPPENING TODAY-

The Danish PM is in town: It’s the final day of Danish Prime Minister Mette Frederiksen’s visit to Cairo. We have more on her talks yesterday with PM Madbouly and President El Sisi in this morning’s Diplomacy section, below.

The SCZone is in Vietnam: Representatives from the Suez Canal Economic Zone (SCZone) are in Hanoi where they will meet with local businesses and investors in a bid to attract investment. The roadshow lasts through to Friday, 17 March.

US inflation data lands amid banking crisis: The US will release February’s inflation data today amid a banking crisis that is complicating the Federal Reserve’s efforts to tackle inflation. A hotter-than-expected print is the last thing the central bank needs right now, which is facing having to pause its tightening cycle to avoid increasing instability in the banking system.

TOMORROW-

Preparations begin for Safi + Wataniya stake sales: The government will start preparing to sell stakes in military-owned bottled drinks firm Safi and fuel retailer Wataniya on Wednesday, with unnamed advisor or advisors set to start marketing the firms to strategic investors.

THE BIG STORY ABROAD-

Washington’s emergency measures weren’t enough to prevent a global bank sell-off: Emergency measures announced by US regulators on Sunday failed to prevent a selloff of bank shares triggered by the collapse of Silicon Valley Bank (SVB) and two other lenders, with investors yesterday dumping bank shares at a faster pace. US regional banks were hit hardest, with First Republic Bank plunging 62% and Western Alliance losing 47%, though large banks also saw significant declines, with Citigroup and Wells Fargo shares falling more than 7%. All in all: Some USD 465 bn has been wiped from financial stocks across the world since last week, according to Bloomberg.

ICYMI- Three major US banks with heavy tech and / or crypto exposure have collapsed in less than a week. SVB and Signature Bank became the second- and third-largest bank failures in US history, sparking fears that the country’s banking system could be thrown into turmoil. In a bid to calm nerves, US authorities have taken emergency measures to cover all deposits and supply liquidity to lenders, while an intervention by President Biden yesterday pledged to do “whatever needed” to end the crisis.

EGX WATCH- Egyptian banks were not spared: Shares on the EGX slid to a nine-week low yesterday as the impact of the US banking crisis rippled across the world. A sell-off of Egyptian bank stocks sapped market sentiment, sending the benchmark EGX30 down by as much as 4.1% before it pared some of its losses to close off 3.1%. The index has fallen almost 6.3% this week alone and is down more than 14% from its recent high.

Banks led declines: CIB — by far the largest constituent of the EGX30 — fell almost 4% during trading while Credit Agricole Egypt lost 8.5%. The Central Bank of Egypt was out with a statement on Sunday saying no Egyptian bank has investments or deposits with SVB.

European markets were particularly hard hit: It was a sea of red in the European equity markets yesterday as the banking sell-off continued. Credit Suisse fell as much as 15% to a record low, Italy’s Unicredit lost 9%, and HSBC shares fell 4%, a day after the bank agreed to acquire SVB’s UK arm.

Investors rushed to safe havens: Two-year US treasuries fell by more than 50 bps and gold jumped almost 2% as investors looked to safe assets. US stocks erased earlier gains to finish slightly in the red, while the USD and oil both fell.

What does all this mean for interest rates? Some analysts — including at Goldman Sachs and Pimco — now think the Federal Reserve will press pause on its tightening cycle when it meets next week to prevent the crisis from intensifying. Chairman Jay Powell had last week indicated that the central bank could accelerate the pace of rate rises to curb hotter-than-expected inflation, but the market is now giving less than a 60% chance that it will raise rates by 25 bps.

The sell-off is continuing in earnest in Asia this morning: Bourses across Asia are down this morning, with the Nikkei and the Kospi (both down more than 2%) leading declines. Mitsubishi UFJ Financial Group fell as much as 8.3% in Japan while Hana Financial was down almost 5% in Seoul.

The story is dominating the international headlines this morning: Associated Press | Reuters | Bloomberg | Financial Times | Wall Street Journal | Washington Post | New York Times | CNBC.

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CIRCLE YOUR CALENDAR-

Ahlan Ramadan: The government’s Nasr City Ahlan Ramadan discount supermarket expo will kick off on 15 March and will run through to 21 March.

The Finance Ministry will host the Public-Private Partnerships MENA Forum on 19-20 March at the Nile Ritz-Carlton, according to a Finance Ministry statement.

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: We take a closer look at green fuels: what are they, where does the industry stand, and what more needs to happen to develop it in Egypt?

Hassan Allam Utilities + Agility to build logistics parks: Hassan Allam Utilities has formed a joint venture — dubbed Yanmu — with regional warehousing and industrial developer Agility to set up and operate logistics parks in Egypt, the companies said in a joint press release (pdf).

The parks will offer storage and distribution warehouses to companies operating in sectors including e-commerce, manufacturing, consumer products, food and beverages, tech, automotive, energy, industrial goods, healthcare, and pharma, the release reads. They will incorporate sustainable features including solar rooftops. The facilities will offer lower carbon footprints, lower energy costs, and a 35% space savings compared to traditional warehouses, a company exec told us.

Hassan Allam will project manage and build the parks. Hassan Allam Construction will build the parks under an engineering, procurement and construction (EPC) contract, Hassan Allam Holding co-CEO Amr Allam told Enterprise. Hassan Allam Holding subsidiary PGESCO will act as the project management consultant, he added.

The first park: Yanmu East Logistics Park will be located on the new Cairo Suez road close to Cairo International Airport and the Ring Road. It is expected to open by August 2023. It will cost some USD 100 mn to build and will be jointly financed by the two partners through a mixture of debt and equity, Agility said in a disclosure (pdf) to the Kuwaiti stock exchange.

A data center tie-in: Yanmu will also develop data center campuses at its warehouses, tying in with the MENA-wide data centers project Agility launched last week. Yanmu East will include a data center featuring 25 MW of IT load, Allam said. Readily available energy will cut delivery time for international data center developers, who have significant appetite for green power at data centers. Egypt is well-positioned as a data center hub given our geographical location and the multiple subsea cables crossing our borders.

Tenants are already lined up: Hassan Allam Utilities has already secured long-term lease agreements with local companies for 50% of the first park’s warehouse space, Allam told us. The park’s design will save on average 35% of the space required by traditional warehouses to store the same amount of goods, he added.

The second park: Yanmu West Park is set to launch in 2024 at a yet-to-be-finalized “strategic location,” Allam said.

More to come: Yanmu is eyeing further locations in the Nile Delta and Upper Egypt, and is also considering building “export facilities from key ports,” he added.

Both firms are active in our logistics sector: Agility last year said it would invest USD 60 mn to set up and operate two customs and logistics services hubs in Ain Sokhna and East Port Said in the Suez Canal Economic Zone. Hassan Allam Utilities signed EGP 4 bn in final contracts alongside Orascom Construction and Samcrete to together build four warehouses for grain and other basic commodity storage for the Supply Ministry.

Does ADQ want a piece of Delta Sugar Company? Abu Dhabi sovereign wealth fund ADQ is reportedly in early talks with the government to snap up a 10-15% stake in the state-owned Delta Sugar Company, CNBC Arabia reports, citing unnamed sources. ADQ would buy shares owned by an existing shareholder, according to the news outlet. Information about the value of the potential sale wasn’t disclosed.

No offers received: The EGX-listed company has not yet received any acquisition offers, it said in a bourse disclosure (pdf) hours after the report surfaced. This is the second time in less than eight months that Delta has denied receiving acquisition bids by ADQ.

Could Delta be the latest to join Madbouly’s privatization program? The company isn’t on the government’s list of 32 companies in which the government hopes to sell stakes over the next year under its relaunched privatization program. State-owned entities hold almost 86% of the sugar maker, including the Egyptian Sugar and Integrated Industries Company’s majority 55.7% stake, according to the company’s 2022 report (pdf). The remainder are publicly traded on the EGX.

Performance indicators: The company’s bottomline more than doubled to EGP 850 mn in 2022 amid soaring global sugar prices, even as production dipped. Its topline grew c. 19% y-o-y to EGP 3.8 bn in 2022, up from EGP 3.2 bn in the previous year. DSC’s production of beet sugar fell 15% y-o-y in 2022, molasses production was down 21%, and fodder production fell 13%, according to the report.

Market reax: DSC’s share price remained more or less steady, dipping 0.1% to EGP 24.75 by yesterday’s close.

The FRA is out with new regs for the upcoming futures exchange: The Financial Regulatory Authority (FRA) has issued amendments to rules on the establishment of the company that will manage the new futures exchange and its clearing company.

REMEMBER- The futures exchange could launch by 4Q 2021. The FRA, EGX, and Misr for Central Clearing and Depository (MCDR) are aiming to launch the long-anticipated futures exchange within 6-8 months, FRA boss Mohamed Farid was reported as saying earlier this week. Some technical issues around futures contracts still need to be studied and reviewed, including “determining risk ratios and volatility rates,” Farid said. Authorities had initially hoped to launch the exchange by the end of 2021.

The amendments in short:

• The futures exchange company will need to pay in a minimum EGP 12.5 mn in capital to register with the regulator and have a total minimum capital of EGP 50 mn (or the equivalent in hard currency);
• The company’s board will sit for a minimum three-year term;
• A 10% limit on the stake each shareholder can own in clearing companies has been scrapped;
• The clearing company that will serve the futures exchange needs to pay in a minimum EGP 25 mn (or the equivalent in hard currency) in capital to register with the regulator and have a minimum capital of EGP 100 mn to start operations.

The players: The regulator has allocated at least 75% of the exchange to financial institutions that meet solvency standards and / or with experience in futures contracts. The National Bank of Egypt, Banque Misr, Banque du Caire and United Bank all reportedly want a piece of the potential exchange. State-owned banks and the EGX will also be allowed to own stakes in the clearing company for the futures exchange.

Futures trading? The plan is for the exchange to initially allow traders to buy and sell index futures contracts, before launching stock futures and stock and index options at a later date. Futures are derivative contracts where a buyer and a seller exchange an asset at a future date at a price they both agree upon in advance. Check out our explainer on all things futures here.

Natural gas price for electricity plants unchanged: Natural gas will continue to be sold to electricity plants affiliated with the Electricity Ministry at USD 3 / mmBtu, according to a decree published in the Official Gazette.

REFRESHER- Natural gas is a strategic source of FX: In a bid to maximize its exports of natural gas and lock in much needed hard currency. Egypt is on a drive to reduce electricity consumption and ration its use of gas for domestic power production. Power plants have been resorting to other types of fuel in order to free up more gas for export.

The global gas market is still running hot: Europe is still looking to lock in replacements for Russian natural gas, which before the war in Ukraine provided around 40% of its gas consumption. Natural gas prices in global markets have fallen back from the peaks seen in the direct aftermath of the war’s outbreak but remain well above pre-pandemic averages.

Egypt, Greece to select a consultant for EuroAfrica electricity interconnector: Egypt and Greece are in the process of selecting a consultant to conduct feasibility studies for the USD 4 bn EuroAfrica Interconnector that will link their electricity grids, Asharq Business reports, citing three sources it says are familiar with the matter. The consultant will assess the finances, technical implementation, and the cable’s route before a final investment decision is made and construction contracts are signed.

The candidates: More than 10 energy consulting firms are in the running, including French EDF, Belgium-headquartered Elia Grid, Italy’s CESI, Norwegian-German firm DNV, Germany’s Lahmeyer, Ireland’s ESB, and 4 other unnamed firms that hail from Greece, Belgium, China, and the US.

What’s next? The state is expected to sign agreements with a consultant sometime during 2H 2023, a source at the Electricity Ministry told us yesterday.

Why the delay? The devaluation of EGP has prompted a re-study of the project’s costs, our source tells us, pointing towards import issues — thanks to our backlogged ports — and global disturbances as other factors behind the delay. The EuroAfrica interconnector is among a slew of infrastructure projects in Egypt that have been held back by exchange-rate volatility.

Background: The Greece-Egypt connection is part of the wider USD 4 bn, 3-GW EuroAfrica project that will link the electricity grids of Egypt, Greece, and Cyprus.

EuroAfrica is just one of three Egypt-Greece interconnectors on the table: Another two direct Egypt-Greece links are being discussed: the 3-GW Greece-Egypt Interconnector (GREGY) being managed by Greek infrastructure investor Copelouzos, and the 2-GW Greece–Africa Power Interconnector (GAP), on which US contractor McDermott is taking the lead.

Why the dash for Egyptian electricity? The war in Ukraine and the severing of Europe’s gas links with Russia has forced the EU to go in search of new sources of energy. Egypt is in close proximity to Europe, has huge potential for solar- and wind-power generation and already generates surplus electricity, making it a potentially important partner for the EU as it looks to bolster its energy security in the coming years.

Karim Helal (LinkedIn) is now president of Concord International Investments Group. He also serves as the chairman of Sequence Ventures, a venture capital platform investing in deep tech start ups, chairs the Asia Egypt Business Association, and is the non-executive country director of real estate firm Colliers International in addition to sitting on the boards of Oriental Petrochemical Company and Egyptian Hydrocarbon Company. Helal has previously served as CI Capital’s CEO and was chairman of ADIB Egypt Capital.

Foreign affairs led the conversation during last night’s talk shows. All eyes were on President Abdel Fattah El Sisi meeting with Danish Prime Minister Mette Frederiksen, who discussed boosting Danish investments in green energy, logistics, and transportation, among a handful of other topics, which we dive into in this morning’s Diplomacy section, below. The meeting received coverage from Al Hayah Al Youm (watch, runtime: 3:00), Masa’a DMC (watch, runtime: 1:19), Kelma Akhira (watch, runtime: 6:03), and Ala Mas’ouleety (watch, runtime: 22:23).

The latest victim of the SVB collapse: The EGX. “The EGX dipped during yesterday’s trading as a result of global fear that the banking sector is heading towards a financial crisis,” EGX board member Rania Yacoub told Ala Mas’ouleety (watch, runtime: 7:12), which also hosted analyst Anwar El Kasem to weigh in on the issue (watch, runtime: 17:05).

How are EMs doing amid the chaos? “Emerging markets are seeing outflows due to the SVB collapse, adding pressure on their currencies to lose even more of their value, and on interest rates to increase even more,” Wael Ziada, executive chairman of Zilla Capital told Kelma Akhira (watch, runtime: 7:24). Capital markets expert Wael Enaba told El Hekaya (watch, runtime: 9:47) also joined El Hekaya’s Amr Adib to discuss the crisis.

We have the latest updates on the SVB story and its impact on the EGX in this morning’s What We’re Tracking Today, above.

ALSO- A record number of vessels crossed the Suez Canal yesterday: Some 107 vessels transited the canal yesterday, setting a new daily record for the canal. The news got coverage from Masa’a DMC (watch, runtime 0:43), Al Hayah Al Youm (watch, runtime: 15:55), and Ala Mas’ouleety (watch, runtime: 6:20).

Leading the conversation in the foreign press this morning: Liverpool star Mohamed Salah’s Cairo home has been broken into and robbed of cable TV receivers. Authorities are investigating the break in. (Reuters | The National)

ALSO making headlines:

• The HoggPool crypto scam is getting regional attention. (Al Monitor)
• World No. 1 squash player Mostafa Asal’s season has been dogged by controversy amid accusations from rivals of bad sportsmanship. (The Telegraph)
• Egypt’s first amputee football league kicked off on Friday with the participation of four clubs: Arab Contractors, Zamalek, Pyramids, and Z Club. (Xinhua)

AND- Reuters and the Associated Press are picking up a Human Rights Watch report on Islamists abroad having trouble renewing personal identity documents and the Wall Street Journal reviews My Egypt Archive.

TOURISM-

It’s already looking like a good year for tourism: The number of tourists coming into Egypt jumped 34% y-o-y during January and February, Tourism Minister Ahmed Issa told CNBC Arabia. Tourists from two of our key markets, Russia and Ukraine, saw a significant drop on the back of the ongoing war on Ukraine, dipping 40% and 80%, respectively, he said. Fitch Solutions forecast that Egypt’s tourism revenues will rise 18% to a record USD 13.6 bn this year, while the number of tourists visiting the country will jump 46% to 11.6 mn.

AUTOMOTIVE-

Madbouly meets GM: Representatives of General Motors and Al Mansour Auto — the company’s local partner — sat down with Prime Minister Moustafa Madbouly yesterday to discuss investment in Egypt, according to a cabinet statement. GM and Al Mansour are planning to launch electric Cadillacs in Egypt later this year.

ENERGY-

Egypt-Saudi subsea electricity cable installed by the end of the year: Italian cable manufacturer Prysmian is expected to finish manufacturing the EUR 221.6 mn subsea cable that will link the power grids of Egypt and Saudi Arabia and have it installed by the end of December, Asharq Business reports, citing three sources it says are in the know. Egypt is set to chip in 48% of the cost, with the Saudis covering the remainder.

REFRESHER- Prysmian was awarded the contract to install the electrical cables back in October 2016. Trial operations for the 3 GW, USD 1.8 bn interconnection are set to begin in May 2025 with an official operational launch set for later in the same year. The first 1.5 GW phase will go live in June 2025, followed by the second and final 1.5 GW phase in November 2025.

Egypt and Denmark have extended a bilateral energy cooperation agreement through to 2025, cabinet said in a statement yesterday. Under the agreement, Denmark will help Egypt transition towards cleaner energy. This came during Danish Prime Minister Mette Frederiksen’s visit to Cairo yesterday, where she held talks with President El Sisi and Prime Minister Moustafa Madbouly.

Could Denmark help with our green hydrogen ambitions? During his meeting with Frederiksen, Prime Minister Moustafa Madbouly talked about expanding relations to include green hydrogen projects and pharma, according to a statement. Frederiksen also highlighted her country’s desire to boost cooperation with Egypt across the board, in energy, maritime transport and logistics, among other fields.

Frederiksen + Sisi talk energy and immigration: President Abdel Fattah El Sisi wrapped up his meeting with the Danish PM with a 15-minute presser (watch, runtime: 14:23), highlighting the most important topics of discussion — new and renewable energy, illegal immigration, and water security. “Egypt is ready to provide any facilities needed to attract Danish companies to Egypt,” El Sisi said. The president also reiterated the need for Egypt, Sudan, and Ethiopia to reach a binding agreement on the filling and operation of the Grand Ethiopian Renaissance Dam.