Egypt opens book on latest eurobond offering

It’s a (not-unpleasantly) slow news morning as we head into the final couple days of the week.

The Solar Show MENA 2019, which kicked off yesterday, will wrap up today at the Nile Ritz Carlton in Cairo. Tap or click here for the official website or here for the agenda.

Flights to Bahrain will be packed with fintech types today as the Middle East & Africa FinTech Forum gets underway. A delegation from the Central Bank of Egypt will be among the attendees chewing over financial inclusion, innovation and how artificial intelligence will impact the financial industry.

Speaking of which: Robots are going to take over jobs in banking, part XXIII: The chief executive of America’s fourth-largest bank by assets says many call centers jobs are going to be taken over by robots: “Citigroup chief executive Mike Corbat has suggested that ‘tens of thousands’ of people working in the US bank’s call centres are likely to be replaced by machines that can ‘radically change or improve’ customers’ experience while cutting costs,” the Financial Times reports.

Around the region:

2019 is looking like a really good time to buy that hideaway in Dubai: Bad news for developers is good news for homebuyers: S&P says home prices in Dubai, already at levels unseen since the financial crisis a decade ago, are set to “fall a further 5-10% in 2019 before a gradual stabilization in 2020, though without a meaningful recovery in 2021.” Bloomberg has chapter and verse.

The UAE has a lesson for Saudi on privatization: BlackRock and KKR are reportedly in advanced talks to acquire a stake worth up to USD 5 bn in the Abu Dhabi National Oil Company (ADNOC)’s pipeline infrastructure.

Arab NATO? Not so likely, as it turns out. Remember The Donald’s proposal to create a “new alliance of Middle East nations to counter Iran”? The so-called Middle East Strategic Alliance is not exactly coming together, regional and US officials tell the Wall Street Journal.

Across the pond: US Senator Bernie Sanders has entered the 2020 presidential race and will bid for the Democratic nomination, the New York Times reports. Supporters raised USD 1 mn just hours after his announcement. The question, as the NYT puts it, is whether “the 2016 Democratic primary runner-up whose populist agenda has helped push the party to the left … retains his anti-establishment appeal or loses ground to newer faces who have adopted many of his ideas.”

Fashion icon Karl Lagerfeld died yesterday in Paris. The eccentric designer was also the most prolific of the 20th and 21st centuries, transforming luxury fashion at Chanel and inventing the Fendi brand as it is known today. The New York Times has a great obit, fashion lovers will want to head to Vogue, and industry nerds will need to head to the Business of Fashion.

Walking meetings are now a thing in the US of A: The ‘pediconferences’ made famous by Aaron Sorkin’s West Wing TV show (watch, runtime: 7:05) are now officially a ‘thing’ in corporate America, rising to the attention of the WSJ. They are not proving popular.

For coffee nerds, the Journal offers a package with over a dozen very short stories, tips and other recommendations on the beverage that powers the people who bring you Enterprise every morning.

Wait? (Beef) bacon is really going to kill us? So will an endless list of processed meats including turkey bacon, ham, pepperoni, salami, smoked turkey, hot dogs, and sausages. An NYT Well column looks at why MDs now think you really need to limit your exposure to processed meat.

*** Have we thanked you, lately, for reading? We have the most amazing readers. And you send us the most wonderful words of encouragement and of constructive criticism — to say nothing of story ideas. Want to get in touch? Email us on editorial@enterprise.press — we read everything that comes in.

As we anticipated yesterday, the terrorist bomber who killed two police officers near Al Azhar mosque on Monday dominated last night’s talk shows.

The security services’ pursuit of the bomber, who was responsible for an attempted attack on police on Friday, earned the praise of former assistant interior minister Mohamed Zaky (watch, runtime: 12:21). Yahduth fi Masr’s Sherif Amer was also full of praise for security forces, who he compared to American police during the 2013 Boston Marathon bombing (watch, runtime: 06:59). The state is working to nip terrorism in its bud through development projects in underserved areas and drying out terrorist groups’ sources of funding, former assistant interior minister Osama Tawel explained to Hona Al Asema’s Lama Gebril (watch, runtime: 01:43). Masaa DMC’s Osama Kamal took note of the incident as well (watch, runtime: 03:36).

Elsewhere, CIT Minister Amr Talaat had a chat about his ministry’s initiative, Wazeefa Tech, which trains people for jobs in the IT industry. Under the initiative, the trainees are provided with a job at the end of the three-month training period, Talaat explained (watch, runtime: 06:49). The EGP 100 mn initiative is meant to support 3,300 young citizens, Social Solidarity Minister Ghada Wali told Hona Al Asema (watch, runtime: 08:15).

Egypt opens book for USD-denominated eurobonds: Egypt marketed its USD-denominated eurobonds to international investors in Luxembourg yesterday, Finance Minister Mohamed Maait told Reuters. “We started in the morning and will continue to receive offers from investors everywhere in the world until late [on Tuesday],” he said, declining to reveal the value or maturity date of the bonds. The domestic press said on Monday that the ministry is issuing USD 5 bn-worth of USD-denominated bonds this week. Egypt opened book on a three-tranche offering made up of 5-year, 10-year, and 30-year bonds. The 5-year bond carried an initial yield of 6.60%, the 10-year 8.00%, and the 30-year 9.10%, Reuters reports. You can check out the prospectus (pdf) for the issuance here.

Advisors: Citigroup, Goldman Sachs, HSBC, and JP Morgan.

Europeans are also cleaning up on sovereign issuances: France, Italy, Belgium, Austria and Spain have all brought to market oversubscribed long-dated bonds of 10-30 years in the past month or so, the most recent of which was a French 30-year offering that found EUR 31 bn in orders for EUR 7 bn of debt, the Financial Times writes. “Investors [are] seeking solid yields while central banks around the world seem committed to keeping rates low,” the paper says.

DISPUTE WATCH- Cairo court slashes antitrust fine against Ibnsina Pharma execs: The Cairo Appeals Court issued a ruling yesterday reducing an antitrust fine imposed on executives from Ibnsina Pharma to EGP 160 mn, down from an original EGP 2.04 bn fine handed down by the Cairo Economic Court, a source close to the matter told Enterprise. Ibnsina’s executives are permitted to appeal yesterday’s verdict with the Court of Cassation, which can order a retrial for the case, according to our source.

Why it matters: First, reducing the fine to a reasonable figure signals to the wider business community that the court actually listened to arguments — always welcome news. Second, a settlement in the case is now a viable option and would eliminate the pronounced overhang over an otherwise very interesting share. EFG Hermes recently initiated coverage of Ibnsina, saying it was “well-positioned to capture Egypt’s rising … demand and continue outperforming the market.” EFG Hermes put a “buy” on the company’s shares with a target price of EGP 14.00 — and room to run to EGP 15.40 if the antitrust case was resolved. The company’s stock closed yesterday at EGP 10.90.

Background: The Egyptian Competition Authority had brought a case against four distributors including Ibnsina, Ramco, Multipharma, and United Company for Distribution and Trade on allegations they colluded to cut credit periods and slash discounts to small retail outlets.

DISPUTE WATCH- The Damietta LNG plant may not be reopening in April after all: Damietta LNG plant operator Union Fenosa Gas (UFG) poured cold water on reports this week that the facility will be reopened in April. An Oil Ministry source claimed this week that UFG, 50-50 owned by Union Fenosa and Eni, had agreed to drop its USD 2 bn arbitration claim against the Egyptian government, paving the way for the resumption of LNG exports. UFG has since confirmed talks are ongoing, but denied having reached an agreement with the state: “Progress has been made but the guarantees offered are not sufficient to reach the comprehensive agreement required to bring the dispute to its end,” the company said in a statement (pdf).

Background: UFG has been seeking compensation from the Egyptian government after the latter cut gas supplies to the Damietta plant in 2012. In September, the World Bank’s International Center for Settlement of Investment Disputes ordered the government to pay a USD 2 bn settlement to the European JV. However, a ministry source claimed this week that UFG had agreed to drop the claim in return for a share of EGPC’s profits generated from its ownership in the plant. UFG owns an 80% share of the Damietta facility though subsidiary SEGAS, in which state energy companies EGPC and EGAS hold 10% each.

DISPUTE WATCH- Petroceltic claims EGPC owes it USD 30 mn: UK energy company Petroceltic is filing for international arbitration to recover USD 30 mn in overdue payments it claims it is owed by the state-owned Egyptian General Petroleum Corporation (EGPC), Chairman Angelo Moskov told the domestic press. The overdue payments date as far back as 2015. “We do not threaten international arbitration lightly, but equally we are at the end of our patience with EGPC: the current situation is totally unacceptable,” Moskov said in a statement earlier this month.

INVESTMENT WATCH- Actis-backed Lekela wants to build two wind plants in three years at a cost of USD 500 mn: Lekela Power is planning to invest USD 500 mn in two wind energy projects with a combined production capacity of 500 MW over the next three years, the company’s Egypt General Manager Faisal Eissa said. One project is a 250 MW, USD 325 mn plant in Ras Ghareb, which will be completed and at full capacity by 2020-end. The facility will be one of the largest single-site wind power projects in North Africa. Lekela has already secured USD 240 mn in financing for the project from the International Finance Corporation (IFC), the EBRD and the US government’s Overseas Private Investment Corporation (OPIC). The company is also bidding in a tender for another 250 MW plant in West Nile Delta under the BOO (build, own, operate) framework, Eissa said.

Background: Background on the Ras Ghareb project is here (pdf). Lekela is 60% owned by emerging markets private equity giant Actis, which has invested and committed c. USD 1 bn to Egypt in sectors including energy, consumer, healthcare and financial services.

INVESTMENT WATCH- PM discusses energy investments with Blackstone’s Zarou: Prime Minister Moustafa Madbouly met with Sameh Shenouda, CEO of Blackstone’s MENA-focused energy development company Zarou to discuss potential commitments to projects in Egypt’s energy, water desalination and wastewater treatment sectors, according to a cabinet statement.

INVESTMENT WATCH- From Italy, with love: Seven Italian companies are kicking the tires on possible investments in Egypt, company execs told Investment Minister Sahar Nasr in Rome yesterday, according to a ministry statement. Among them:

• Italgen — renewable energy
• Maccaferri Corporate — infrastructure
• Getra — energy
• Ferrovie Dello Stato — transportation
• Mapei — new facility to produce adhesives, sealants and chemical products for building
• AC Boilers — energy
• Saipem — says it sees Egypt as a strategic market

Also in Rome: Egypt signed a USD 62 mn agreement with the International Fund for Agricultural Development(IFAD) to support agriculture development and small-time investors in Marsa Matrouh, the Investment Ministry said in a separate statement.

Mohamed Alabbar’s Dubai-based e-commerce platform Noon is moving into Egypt, announcing yesterday that it has launched in Egypt in beta, marking the Arab world’s largest consumer market its third country of operations. The company already has a fully operational fulfillment center in Cairo, per Gulf News.

EXCLUSIVE- Companies operating in USD can pay 0.25% healthcare tax in USD or EGP: Foreign companies operating in Egypt, and those domiciled in Egypt but presenting their financial statements in USD, will be allowed to pay the 0.25% healthcare tithe this year in EGP or USD, a senior government source tells Enterprise. The tithe is earmarked to fund the new national healthcare system under the Universal Healthcare Act. Giving companies the option to pay in USD or EGP should make it easier for all to pay the tax, the official said.

EARNINGS WATCH- Abu Dhabi Islamic Bank Egypt (ADIB) reported a 35% y-o-y increase in 2018 consolidated net profit to EGP 850 mn, up from EGP 631.6 mn in 2017, the bank said in a regulatory filing (pdf).

The Egyptian data satellite Egypt Sat A will launch tomorrow, local press reported. The satellite manufactured in Russia in cooperation with Egypt will be launched from Russian spaceport Baikonur in Kazakhstan.

The EGP 500 mn first section of the fourth phase of Cairo Metro Line 3 is also due to open by the weekend, sources from the National Authority for Tunnels said, according to Akhbar El Yom.

100 leaders of the biggest Saudi companies are expected to attend a Cairo meeting of the Saudi Egyptian Business Council on 23 February, according to the domestic press. The meeting is expected to discuss ways to further cooperation in infrastructure and agriculture projects as well as how to make the best of Egypt’s one year presidency of the African Union.

The UN Technology Innovation Lab Egypt, Egypt Technology Innovation & Entrepreneurship Center, UNDP, and IBM Egypt are hosting on 26 February a talk to introduce blockchain and its uses outside of cryptocurrencies. You can find more details and register for the event here.

A Russian delegation will visit Sharm El Sheikh and Hurghada airports in the second half of February to run a final security sweep ahead of a decision on whether to allow the resumption of direct flights, AMAY reports.

The gov’t will begin rolling out its debt control strategy next month, Finance Minister Mohamed Maait told Al Mal. The four-year strategy aims to bring down Egypt’s public debt to 80-85% of GDP by the end of FY2021-22.

Execs from 50 Japanese companies will be in Cairo in March to discuss potential investment opportunities, Youm7 reports.

Egypt will be ready to supply Sudan’s power grid with up to 40 MW of electricity by end-March, Electricity Ministry Mohamed Shaker said, according to a Cabinet statement.

Expect draft law to regulate real estate developers in two months: The final draft of proposed legislation which will regulate real estate development should be ready in two months’ time, Prime Minister Moustafa Madbouly instructed relevant officials. The proposed legislation is pending approval from the House of Representatives’ Housing Committee.

Egypt has been tapped to host the 2020 Sustainable Blue Economy water security conference, according to the domestic press.

Non-OPEC oil producers are failing to meet their supply cut targets: The 1.2 mbd oil production cut agreement made between OPEC and non-OPEC countries last year is falling by the wayside as new Bloomberg data reveals that just 10 of the 21 signatories met their production targets in January. OPEC more or less upheld their end of the bargain, making 86% of the required cuts. In comparison, non-OPEC countries only managed 25%. Some countries, such as OPEC members Iraq and Nigeria, even increased their output.

Why are oil producers cutting their output? The current six-month agreement, signed in December last year between the so-called OPEC+ alliance of oil producers, is designed to support oil prices following a 30% market plunge during the final quarter of last year. This is the second such agreement, the first of which was introduced in January 2017 in response to the 2014-15 downturn.

What next for OPEC+? In a Bloomberg article earlier this week Julian Lee described the agreement as “standing on one wobbly leg” due to the substantial gap between the two biggest producers: Saudi Arabia and Russia. Saudi Arabia has heavily reduced its output, shouldering more than half of OPEC’s cuts. Russia meanwhile has opted to inch towards its targets, stating they will hit them in May (just one month before the current agreement expires). As OPEC looks to form a more permanent partnership with the Russian-led non-OPEC countries, the current disparities call into question whether such a plan is actually workable.

NYT’s David Kirkpatrick denied entry to Egypt: Former New York Times Cairo bureau chief David Kirkpatrick was barred from entering Egypt after he landed in Cairo on Monday evening, according to the New York Times’ Declan Walsh. Kirkpatrick was reportedly held “incommunicado for hours before forcing him onto a flight back to London without explanation” on Tuesday morning. No explanation was given for the move, according to Walsh. State Information Service boss Diaa Rashwan said the move was the “right of any state” and added that similar incidents have occurred in Western countries, according to the Wall Street Journal. Kirkpatrick released last year his book, Into the Hands of the Soldiers, which details his coverage of the popular uprising against Ikhwan-era president Mohamed Morsi and its handling by the Obama administration.

The story is beginning to pick up steam in the foreign press, with the Associated Press and the Washington Post.

Other headlines worth noting in brief:

• Tourism: After contemplating whether it’s safe for tourists to visit Egypt in 2019, The Week concluded “yes, but only with due diligence.”
• Death sentences handed to nine men convicted of the 2015 assassination of the prosecutor general are making headlines as Amnesty International calls for their release citing “unfair trials.”

Combating terrorism is the topic du jour for Egypt’s state-owned dailies, with the front pages of Al Ahram and Al Akhbar featuring statements from President Abdel Fattah El Sisi stressing the importance of anti-terrorism efforts, and Al Gomhuria taking note of the death of 16 militants yesterday. Al Ahram and Al Gomhuria also feature the latest developments on Egypt’s power linkage project with Sudan.

Perpetual bonds to boost Chinese capital. Here’s why you should care: China’s commercial banks are due to issue a fresh round of perpetual bonds in a bid to boost capital, Sherry Fei Ju and Don Weinland write in the FT. The Bank of China’s first issuance in January proved popular with investors and generated RMB 40 bn (USD 5.9 bn) at a yield of 4.5%. Defined as a “non-redeemable bond with no maturity date that pays regular interest rates indefinitely,” a perpetual bond shares some qualities with an ordinary bond and some with equity. It pays a steady stream of interest payments forever, but also offers no mechanism for control over the issuer.

Risk is high…but so is the appetite: The need to replenish capital in China’s commercial banks comes ahead of an anticipated slowdown of the country's economy, and perpetual bonds may prove to be a serviceable way of achieving this. Although BNP Paribas notes that the risk attached to a perpetual bond is “considerably greater than that in a classic bond,” January’s bond still “received a widespread welcome from market investors.” It may not be the only place where appetite for the security is high. In the US, there is apparently a school of thought that perpetual bonds could be more efficient for the government to issue than ordinary bonds, as the lack of maturity dates means refinancing costs could be avoided.

Fun fact: One of the oldest examples of a perpetual bond was issued in 1648 by the Dutch water board of Lekdijk Bovendams, and the interest is still being paid today. Perpetual really does mean perpetual.

Emerging markets keep traders, investors and analysts on their toes: Emerging markets have seen a rapid increase of inflows this year, across both equities and fixed income, BlackRock’s head of iShares EMEA investment strategy, Wei Li, said on Bloomberg TV on Monday (watch, runtime: 2:40). Li characterizes emerging markets as a “bright spot” amid a broadly risk-averse global investor base. This contrasts with news earlier this week that local risks are starting to dominate trader concerns more than worries about global growth.

What are we to make of this? One takeaway is that, with chances of a China-US trade agreement increasing, so too is investor optimism — a sentiment that is undoubtedly driving emerging markets as a whole. JP Morgan concurs, calling valuations “quite attractive” in a report published this month, and estimating an aggregate five-year return of 14% for EM shares.

The public enterprises, investment and health ministers will head a delegation of companies into Chad soon to explore investment prospects, Public Enterprises Minister Hisham Tawfik tells Al Mal. The heads of the Holding Company for Construction and Development and HoldiPharma will accompany the ministers, and a delegation of Egyptian businessmen will likely accompany the delegation.

Egypt paid USD 200 mn in arrears to international oil companies in December, bringing its total arrears down to USD 1 bn, Masrawy reported. It is unknown which companies received payment from the government. The ministry said last year that it expects to pay its arrears in full by the end of 2019. The government has been working over the past few years to pay down its arrears bill, which reached USD 6.3 bn following the 2011 revolution.

Global Lease has allocated EGP 100 mn to fund small solar power plants through an agreement with Enara and Infinity with repayments over 3-5 years, said CEO Hatem Samir. Global Lease is also in talks with four local banks, including Attijariwafa and United Bank, to increase its financing portfolio by EGP 500 mn over the next two months to reach a total of EGP 3.5 bn, Samir recently told the domestic press.

German consultant Lahmeyer International will complete next month feasibility studies for UAE’s Masdar and the New and Renewable Energy Authority’s 200 MW, USD 250 mn wind farm, sources said, without providing specific details on the project. Unnamed Arab funds and foreign banks have agreed to provide USD 150 mn in financing, the sources added.

Egypt’s Arab Contractors plans to increase its African business volume to EGP 1 bn (USD 57.2 mn) in 2019, according to Mubasher. The construction and contracting company reportedly has a strategic plan to expand at the regional level by executing infrastructure projects in multiple African states, such as Tanzania and Côte d’Ivoire.

The New Administrative Capital Company for Urban Development (NACCUD) is in talks with Électricité de France (EDF) to sign a 10-year partnership to develop and manage the city’s electrical power system, NACCUD boss Ahmed Zaki Abdeen said, according to Amwal Al Ghad. Developing utilities in the new capital is estimated to come at a cost of EGP 4 bn. EDF will share revenues with the government for the 10-year period, following which a holding company will be set up to take charge. Separately, NACCUD has received requests from five companies, four of which are Arab and one Spanish, for land plots in the new capital under a profit-sharing framework, according to the local press.

The Delta Sugar Company hopes to boost sugar output to 310k tonnes this year compared to 270k in the previous season, board chairman Ahmed Abu Al-Yazid tells Reuters. This comes with as the area allocated for sugar beet cultivation in Egypt has increased to 600k feddans, up from 485k in 2018, as the government aims to save water by reducing dependence on water-intensive sugar cane production.

The Ismailia governorate has approved four new projects in its freezone with total investments of USD 6.7 mn, MENA reported. The projects will manufacture products in a variety of sectors including textiles, clothing, home appliances, and medical equipment.

Real estate developer Beta Egypt for Urban Development has announced it will invest EGP 1.5 bn this year into two projects in 6 October City and El Mostakbal City, according to Mubasher. The first phases of development in each location were launched in 2015 and 2017, respectively.

A delegation from Visa Inc. discussed with Transport Minister Hisham Arafat cooperating on developing the infrastructure necessary to digitize payments in the Egyptian transportation sector, according to a ministry statement.

The Transport Ministry expects to receive technical and financial offers next month for the high-speed rail connecting Alamein and Ain Sokhna via 6 of October, Minister Hisham Arafat said, according to the local press. According to the minister, 10 out of 23 consortiums have qualified for the tender.

CIB is arranging a USD 80 mn loan to Qalaa Holdings’ Egyptian Refining Company (ERC) with a tenor of one year, unnamed sources told Reuters’ Arabic service. ERC is a major public private partnership (PPP) megaproject led by Qalaa, and is scheduled to come online later this year.

An Egyptian-Russian company will be set up in April to operate and manage the planned USD 7 bn Russian Industrial Zone (RIZ), Suez Canal Authority boss Mohab Mamish said in a statement. The Suez Canal Economic Zone and the Russian authority for exports will also set up a joint committee to oversee the project, Mamish — who is currently in Moscow to finalize the agreement for the zone — added. RIZ will be operational by June and will include pharma, agricultural equipment and other industries.

Antaradous for Touristic Development has brought an arbitration case against Amer Group to litigators, Amer Group said in an EGX disclosure (pdf). The dispute dates back to 2008 when the parties entered into a partnership to develop a Porto-style project in the coastal city of Tartous. Amid project delays, the Syria-based company took the case to commercial arbitration in 2014. The arbitration process went on for four years, until the court ordered to stay proceedings last May, according to Al Mal. Amer Group appealed against the order to resume arbitration.

Security forces killed 16 suspected terrorists during raids in Arish, North Sinai, Ahram Online reported yesterday.

China: In search of the sunny side of the moon? The era of next-level tech innovation is seemingly upon us, and China looks set to lead the way — with plans to build the first ever solar power plant in space as part of its USD 8 bn annual budget for its space program. The idea? To have a power station rotating around the Earth between 2021 and 2025, followed by a fully operational 1 megawatt-level solar facility by 2030. Bloomberg has the full story.