A new USD 15 bn LNG facility in Sinai — with Israel?

The Fawry IPO is up and running as retail investors requested 1 mn shares on the first day of the retail offering, the local press reports. There’s still a long way to go for the offering to be fully subscribed — there are a total of 35 mn shares up for grabs until 5 August — but it’s something to keep an eye on as it tests the waters of the anemic Egyptian IPO market ahead of bigger offerings to come. Further IPO details are available here and here.

The Fab15 conference is on its second day in El Gouna, bringing together participants from over 1,600 Fab Labs worldwide. The event runs from 28 July-2 August in El Gouna, before moving to Cairo on 3-4 August.

The seventh edition of the National Youth Conference kicks off tomorrow at the new administrative capital. The last iteration of the conference was held one year ago.

The two-day Fed meeting begins tomorrow: The Financial Times is still entertaining the idea that it may go big and surprise us with a 50 bps cut. As yesterday’s Reuters’ survey and the above graphic attest, the market emphatically believes that 25 bps is all we’re getting. But some analysts — such as Steven Oh, head of fixed income at PineBridge Investments — still believe that the Fed could spring a surprise. “There’s a case to provide a more impactful insurance cut right now and then pause to see how the economic data plays out,” he says. “The market will be disappointed by a [quarter point] cut.”

EMs won’t necessarily outperform, and the USD probably won’t weaken if the Fed moves ahead with a rate cut, simply because the Fed is not the only central bank whose policy factors into global conditions, Ivan Martchev writes for MarketWatch. Europe and Japan’s “subpar economic performance … is demanding that central banks keep their [quantitative easing] policies, in effect keeping interest rate differentials in favor of the USD.” Martchev says he is “having trouble seeing light at the end of the tunnel for the great global experiment called quantitative easing” that most other developed economies’ central banks are still in the middle of.

A trade agreement between the US and China, on the other hand, could give emerging markets a temporary boost by improving global trade volumes and spurring a USD selloff “due to its safe-haven status,” Martchev says. But that very same agreement would also bode well for the US trade deficit and, by extension, the USD.

Sabic is the latest chemical giant to feel the demand shock: Saudi Basic Industries Corp’s (Sabic) net profit fell by more than two thirds in 2Q2019 as global demand for chemicals and plastics falls. Financial statements show that profits fell to SAR 2.12 bn in 2Q from SAR 6.7 bn a year ago — the lowest level since 2009. Other major chemical companies, including BASF and DowDuPont, have also issued profit warnings this year as the industry feels the effects of the global slowdown.

Apple and Intel signed a USD 1 bn agreement that will see Apple acquire the majority of Intel’s smartphone modem division, the tech giant announced on Thursday. The acquisition, which is expected to close next quarter, would see 2,200 Intel employees join Apple. The agreement covers Apple’s acquisition of the employees, intellectual property, and other equipment. Fun fact: Apple was Intel’s only modem customer, says CNBC.

Netflix shed USD 26 bn in market value after its disappointing second-quarter earnings report last week drove its shares down 20%, according to Forbes. Netflix founder Reed Hastings’ net worth also took a hit, dropping USD 850 mn to USD 3.4 bn. “The downturn comes during an otherwise positive year. Shares had risen 35% between January 1 and July 17. On that day, Netflix published its quarterly results, which showed a decline of 126,000 U.S. subscribers, compared with an expected gain of 300,000. Globally, it added 2.7 mn subscribers, far short of its forecast of 5 mn.” The streaming service is planning to offer subscriptions to India’s mobile users for less than half of the country’s cheapest rate to beef up its subscriber base.

Investors are catching on to climate change: Fights are breaking out in boardrooms as investors push companies for low-carbon solutions, the Financial Times reports. “We are saying to these companies that [climate change is everyone’s] problem. Every company, and its directors, needs to think how they will be affected,” said Natasha Landell-Mills, head of stewardship at Sarasin & Partners, a British asset manager. Pressure was initially brought on boardrooms of fossil fuel companies, but investors are now calling on executives of food producers, chemical makers and car manufacturers to adopt environmentally-friendly policies.

The nation’s talking heads had plenty to chatter about, albeit mostly non-business news.

The Let it Rust campaign has pushed car prices down some 30% or EGP 50-150k since the campaign began, campaign spokesperson Mohamed Shetta told El Hekaya’s Amr Adib on Saturday. The boycott campaign, coupled with the strengthening of the EGP against the USD, were both significant factors in the price drop, Shetta added (watch, runtime: 5:18).

Our green card luck has Amr Adib scratching his head. Egyptians apparently topped the list of citizens randomly awarded US green cards for two years in a row, Adib said (watch, runtime: 3:49). Green card recipients were selected last year via the standard lottery-style randomized computer drawing from over 14 mn qualified entries received during a 34-day application window. Egyptian and Russian nationals were awarded the most green cards in this year’s random lottery, says the Miami Herald.

Sofitel Legend Old Cataract Aswan made it to eighth place in Travelandleisure magazine’s recent update of the Top 25 Hotel Brands in the World, Adib proudly reported (watch, runtime: 4:43). The host highly recommends spending time at the hotel with your loved ones during the winter season.

Also earning some airtime yesterday:

• Investment zones: Prime Minister Moustafa Madbouly and Investment Minister Sahar Nasr talked about ongoing plans to set up special economic zones across the country, noted Al Hayah Al Youm’s Khaled Abu Bakr (watch, runtime: 1:03).
• National youth conference: Abu Bakr also picked up on the National Youth Conference that kicks off tomorrow, with the usual preface of the youth being given the chance to submit their questions to President Abdel Fattah El Sisi (watch, runtime: 6:03).
• Early payday for bureaucrats: Masaa DMC’s Eman El Hosary noted that the Finance Ministry will pay state employees early this August ahead of the Eid El Adha break (watch, runtime: 1:08).

Egyptian and Israeli authorities are reportedly considering building a USD 15 bn natural gas liquefaction facility on the Red Sea coast in Sinai to drive liquefied natural gas (LNG) exports into Asia from both countries, sources told Israeli business news publication Globes. The facility would eliminate the need for LNG vessels taking off from either of Egypt’s existing Idku or Damietta facilities in the Mediterranean to make a costly crossing through the Suez Canal to reach East Asia. Exports from the proposed facility would be destined for major economies including India, China, Japan, and South Korea, as well as neighboring countries. Together, those markets constitute 70% of the global LNG market.

Having the facility on Egyptian soil is less likely to raise environment regulators’ eyebrows: The idea of building the new facility is an initiative similar to one that was previously suggested by the Eilat-Ashkelon Pipeline Company to build an LNG terminal in Eilat. The Eilat plan was shelved amid strong opposition from Israel’s Ministry of Environmental Protection. But “in Egypt, the ability to delay such projects for environmental reasons is much more limited.” The new facility was proposed by Israeli Energy Minister Yuval Steinitz during his visit to attend last Thursday’s East Mediterranean Gas Forum talks, in which eastern Mediterranean ministers vowed to increase natural gas cooperation.

Lest we forget, Israeli gas exports to Egypt should begin within four months, Steinitz told Reuters last week. Israeli gas partners Noble Energy and Delek Drilling will be supplying Alaa Arafa-led Dolphinus Holding with gas from each of the Leviathan and Tamar gas fields under a USD 15 bn agreement signed last year. Steinitz discussed the agreement during his visit last week. He also talked of a possible future expansion, Globes said.

Putting all the pieces together raises two key points, suggests the business news service.

Point #1: The US may be waking up to a realization that it wants to be involved in the East Med playing field, at least on a political level. The US has been for two years pressuring the EU for two years to ease its dependence on Russian gas, natgas consultant Gena Cohen told Globes. The best case scenario for the global powerhouse is to persuade Europe to source their LNG from American and East Med fields. US Energy Secretary Rick Perry’s attendance of last week’s gas forum meeting has therefore contributed to Egypt’s renewed “conviviality” with Israel. The EU is planning to provide Egypt with EUR 20 mn in funding for its natural gas sector, which is meant to help the EU wean itself off Russian gas, EU Ambassador to Egypt Ivan Surkos said last week.

The US wants to see us emerge as a regional energy hub, and is tying that hope into its “Peace to Prosperity” plan. "Trump's [agreement] of the century includes a USD 1.5 bn investment in turning Egypt into a regional energy hub. This measure is designed to support the Egyptian economy and also contribute to the US effort to lessen the European Union's dependence on Russian gas,” Cohen pointed out. Another factor at play here is that our energy ambitions are putting us in direct competition with Turkey, who is not exactly the US’ best friend due to its warming ties with Russia.

Point #2: Could Israel soon start weighing its options? Globes says that a new chapter in Egyptian-Israeli relations would come following the “dismal” 2011 situation when Egyptian natgas companies halted the flow of gas into Israel, which cost our neighbors bns in direct damage to their economy. Egypt eventually agreed to pay USD 500 mn in a reduced settlement to end the dispute. However, Israel might still be wary of history repeating itself and could see the benefit of having a facility near Eilat instead of having gas from its fields liquefied at Egyptian terminals. Another option is to build a new undersea pipeline directly to either Idku or Damietta from Tamar’s production platform, an option which was reportedly discussed earlier this year.

Is Dana Gas planning to exit Egypt? Abu Dhabi-listed energy producer Dana Gas is looking to offload its Egyptian assets and has hired investment bank Tudor, Pickering, Holt & Co. (TPH) to advise it on the sale, two unnamed sources close to the matter told Reuters. Dana holds stakes five onshore exploration and production concessions in the Nile Delta and one offshore block in the eastern Mediterranean, together valued at more than USD 500 mn. A company spokesman refused to comment while TPH have yet to respond to inquiries.

North Arish well abandoned: The company said in a bourse filing (pdf) on Sunday that it is abandoning its Merak-1 well in the North Arish concession after failing to find commercial hydrocarbons, but clarified that it is not abandoning the entirety of the concession. According to the disclosure, the concession “contains at least three other independent prospects with material resource potential that are unaffected by the Merak-1 well result.” The field is thought to hold around 20 tcf of reserves, which would make it Egypt’s second biggest after Zohr. Other exploration and production operations in the Nile Delta will continue as usual, the company said.

Are ambitions to list on the LSE behind the decision to exit Egypt? Sources said that the company is looking to focus on its operations in Iraqi Kurdistan prior to a possible listing on the London Stock Exchange. In a separate bourse filing (pdf) on Sunday, the company said that its share of the Khor Mor and Chemchemal fields in Kurdistan (held through a 35% in its Pearl Petroleum JV) are equivalent to around 1 bn boe. The filing claims that this would make the gas fields the biggest in Iraq.

Background: Egypt last month paid the Emirati company USD 38 mn in overdue arrears, reducing its outstanding receivables to USD 125 mn, the lowest level since 2011. Dana Gas’ production climbed 6% y-o-y in 1Q2019 to 68.7k boepd from 65k boepd during the same quarter last year, partly due to an increase in production from its Balsam 8 field in Egypt, the company had said in April.

Speaking of natural gas: US Assistant Secretary of State for Energy Resources Francis Fannon offered to provide support to eastern Mediterranean gas producers at an AmCham event last week, without mentioning specifics. Fannon also said that Egypt will be able to use US labs under the terms of the MoU signed between Oil Minister Tarek El Molla and US Energy Secretary Rick Perry last week. More details on the agreement will be revealed at coming economic forums, Fannon said.

HHD calls on shareholders to vote on handing company management to a private partner: State-owned real estate developer Heliopolis Housing has called an extraordinary general assembly meeting on 26 August to vote on handing the company’s management to a private sector partner as part of the share sale process, the company said in a bourse filing (pdf). The company plans to sell up to 25% of its shares in a secondary offering on the EGX, 10% of them to a private equity investor or an alliance of a private equity investor and a property developer. It remains unclear whether any investors have expressed interest.

The company also published the head of terms for the management contract: The contract would last for seven years and the investor would be barred from selling more than half of their shares before three years. The managing company would nominate candidates for the board chairman and CEO positions to the Holding Company for Construction and Development.

The managing company would be authorized to supervise the executive operations of the company, hire new staff including a professional sales team, institute a new marketing plan, and implement a financial restructuring of the company.

The managing company would get share compensation through an annual percentage of HHD shares at par value with a certain ceiling for the whole contract period in return for their management services. The annual percentage will be calculated based on whether the company achieves a minimum 20% annual growth in sales, profit and share price during the current fiscal year.

HHD’s IPO should come to fruition in mid-4Q2019, Public Enterprises Minister Hisham Tawfik told Hapi Journal. The managing company will also be allowed to subscribe in the private placement but will need to establish a separate company if it purchases the 10% stake as part of a consortium, Tawfik said.

What could be the impact on HHD? “We believe that the potential change in management could be positive for the company and shareholders, in light of the announced KPIs, as Heliopolis Housing has been struggling operationally and financially,” Head of Research at HC Brokerage NematAllah Choucri said.

Background: The Public Enterprises Ministry and the Holding Company for Construction and Development have given principal approval last month to hand the management of Heliopolis Housing & Development (HHD) to a private investor awaiting shareholders’ approval. HHD was dropped from the lineup of companies in the first wave of the state privatization program in April after planning to offer a 32.25% stake on the EGX in the middle of this year.

We may be close to finishing the IMF program, but our trade balance isn’t looking much better: Egypt’s current account deficit will continue to widen over the coming quarters as the country’s trade balance deteriorates, Fitch Solutions says in a new report. The report forecasts the deficit increasing to 2.8% of GDP in FY2019-2020 from 2.5% last year due to stalling export growth and rising imports. The current account deficit narrowed significantly between 2016 and 2018 as remittances increased and tourism revenues recovered. However over the past year it has widened rapidly, increasing from USD 493 mn in 4Q2017-2018 to USD 3.75 bn in 3Q2018-2019.

Oil and gas production growth won’t continue at its current rate: Fitch’s oil and gas team expect production growth to fall sharply in 2020 to 6.6% from 16.4% in 2019. This isn’t great news considering the centrality of hydrocarbons to exports over the past few years, and attract the bulk of the country’s FDI.

Fitch sees the EGP continuing to strengthen during 2H2019, placing extra pressure on non-oil exports which grew at a meager 0.3% y-o-y in 1Q2019. The EGP has continued to gain against the greenback in 2019, rising more than 9% since the start of the year.

We’re lessening our dependency on imported fuel, but this is “far from enough.” Booming domestic gas production and the fuel subsidy cuts have reduced the fuel bill, but reliance on other imported goods means that this will have only a limited impact on the trade deficit. Fitch expects import growth to remain “relatively strong” in the short term, given the long-term process of improving domestic supply.

Tourism and remittance inflows will continue to increase in the coming quarters, helping to mitigate the effects of the poor trade balance. Stronger GDP growth in the Gulf will provide a boost to remittances, while tourism will continue its recovery albeit with a slower revenue growth.

Anemic FDI means plenty of debt financing is still on the menu: Net FDI inflows have barely moved since the government began its economic reform program two-and-a-half years ago, and remain small. Non-oil inflows fell to five-year lows of USD 400 mn in 1Q2019. “We expect [current account] shortfalls will continue to be funded by debt, given that foreign companies still seem too unsure about Egypt’s reform trajectory to commit money as direct investments,” Fitch says.

Maridive awarded USD 160 mn contract to build pipelines in India: A Maridive & Oil Services Co. unit was awarded a contract worth USD 160 mn to build pipelines in India, the company said in a bourse filing (pdf). The contract includes engineering, procurement, installation, and commissioning services for several pipelines to be delivered on a turnkey basis, the company said. Construction is expected to begin in 3Q2019 and be completed by 4Q2020.

A boost to backlog: Maridive’s backlog for 2019-2021 has now reached USD 410 mn. The group’s offshore construction services division accounts for USD 206 mn, with the remaining USD 204 mn contracted at the offshore support vessels division. “The contract not only adds to the group’s backlog, but also expands our presence across a diverse geographical footprint that now stretches from the Gulf of Mexico to the Indian Ocean, covering several major oil-producing regions,” Chairman Tarek Nadim said.

M&A WATCH- Adeptio requests regulatory approval to buy out American Egypt minority shareholders: Adeptio AD Investments has submitted a request to the Financial Regulatory Authority (FRA) for its approval to buy out minority shareholders in the Egyptian International Tourism Projects Company (Americana Egypt) through one its subsidiaries, Adeptio said in a statement to the EGX (pdf). The company said it will “comply with all capital market regulations in Egypt including a tender offer for [Americana Egypt’s] listed shares as applicable.” Adeptio, which is led by Emirati business figure Mohamed Alabbar, is already the main shareholder in Americana Egypt.

Background: Adeptio had acquired 67% in Kuwait Food Company (Americana) in June 2016 following a two-year process, giving it indirect ownership of the majority of American Egypt. The FRA had ordered Adeptio to submit a mandatory tender offer (MTO) to buy the remaining shares in Americana Egypt earlier this year, but Adeptio had argued that its indirect ownership in the company is less than 90% of its total capital and therefore does not require an MTO submission. Adeptio submitted an appeal against the order, which the FRA promptly rejected. The company then filed a suit with an economic court challenging the FRA’s rejection, but the court also dismissed the appeal.

M&A WATCH- Gulf Capital pulls away from Arab Dairy takeover plans: UAE-based Gulf Capital’s GC Equity Partners III fund has walked away from its plans to acquire 100% Arab Dairy. The cheesemaker said in a bourse disclosure (pdf) it received a letter from the fund stating that its “strategy and expansion plans are not in line” with the fund’s investment mandate. This came a few weeks after the fund asked to conduct due diligence ahead of the now-shelved bid. Netherlands-based FrieslandCampina, which was given the green light earlier this month to conduct a due diligence study on the target, is now the only prospective buyer. Arab Dairy is close to 70% owned by Pioneers Holding.

Domestic clothing manufacturers in Egypt have expressed concern that they will lose market share thanks to an initiative designed to bring Chinese textile makers into the country, the Nikkei Asian Review reports.“It is all wrong as it will put the national textile industry at stake,” Mahmoud El Daour, former head of the apparel division at the Cairo Chamber of Commerce said. “What we need is a trading city to be a marketplace for local textile production.”

Other stories worth your time:

• Women are leading a push to claim their rights in Egypt and throughout the MENA region, having been spurred on by the upheaval of recent years, writes the Times of Israel.
• Egyptian military strategists are recommending that security in the Red Sea be increased to offer more protection of maritime movement in the Suez Canal, as tensions with Iran escalate, the Arab Weekly reports.
• EgyptAir has apparently broken a world record after it flew the longest-ever sustainable flight to Cairo from Seattle “powered solely by sustainable aviation fuel,” says the National.

He may have been one of Egypt’s biggest stars, but how much do you know about Omar Sharif? Step back in time to 1978 as he shares some of his favorite pieces of music and little-known details about his life in conversation with the BBC (download and listen, runtime: 27:05).

Among the tidbits: A chance encounter at Groppi paved the way to him getting his first film role, in Siraa Fil-Wadi. Sharif never expected to play the lead in Dr. Zhivago, instead initially proposing to director David Lean that he audition for a relatively minor role in the film. He “discovered” Barry White before he was famous, in a little bar in Harlem in the mid-70s, and the singer wrote him letters for years to thank him for his early support. All his fundamental values in life, he said, could be summed up by Antoine de Saint-Exupéry’s classic book The Little Prince.

Egypt’s exports from Qualifying Industrial Zones (QIZ) rose 9.6% to USD 411 mn in 5M2019, up from USD 375 mn during the same period last year, a source from the Trade Ministry’s QIZ unit told the press. Participants in the QIZ agreement, which Egypt signed with Israel and the US in 2004, enjoy access to the US market without tariffs, provided they meet a minimum required amount of Israeli content.

Shaker, Tanzanian president break ground on Rufiji river dam: Electricity Minister Mohamed Shaker and Tanzanian President John Magufuli broke ground on the 2.1 GW Stiegler's Gorge Hydroelectric Power Station in Tanzania that will be constructed by a joint venture between our friends at Elsewedy Electric and Arab Contractors, reports Masrawy. The project is slated for completion sometime around June 2021. The JV signed the USD 2.9 bn construction agreement with the Tanzanian government late last year. The project had previously prompted concerns from conservation groups for its potential to endanger the nearby Selous Game Reserve.

Russia’s Rosatom canceled a tender for local companies to conduct site preparations for the Dabaa nuclear power plant as bids came higher than the USD 18 mn ceiling the company had set for the bids, unnamed sources told Al Mal. The company will issue another tender in the coming months.

IMKAN Properties, a subsidiary of the UAE’s Abu Dhabi Capital Group (ADCG), has been allocated a EGP 5 bn, 166-acre land plot in New Cairo by the Housing Ministry, the company said in a statement. CEO Ahmed Fathallah said that the company is planning further investment in Egypt’s real estate market.

The number of mobile subscribers in Egypt rose in March for the first time after months of experiencing a sustained downward trend, according to a CIT Ministry report (pdf). The figure climbed to 93.42 mn users, up 0.42% m-o-m from 93.04 in February. In y-o-y terms, however, subscribers fell by 5.76% from 99.13 in March 2018. The number of ADSL subscribers, meanwhile, increased 24.2% y-o-y, to stand at 6.82 mn in March, up from 6.74 mn in February 2019 and up 23.31% y-o-y from 5.53 mn in March 2018. Mobile internet users also rose to 35.44 mn by the end of the month, up 9.08% m-o-m and 12.62% y-o-y.

Egypt is planning to issue an international tender for companies to upgrade the Giza-Beni Suef railway line in the next two months, a railway authority official told Al Shorouk. French company Alstom was invited to bid for the tender last year but was recently rejected for being overpriced.

HC Securities is looking at potentially adding new services and financial instruments to its portfolio, including futures and derivatives trading, Managing Director Shawkat El Maraghy said, according to Al Mal. The brokerage recently also received license approval from the Financial Regulatory Authority to become a short seller.

The Egyptian national U21 handball team brought home a bronze medal at the Men's Junior World Handball Championship Spain, after beating Portugal yesterday to secure the third spot, reports Ahram Online. The Pharaohs delivered impressive displays throughout the championship, securing five back-to-back victories against Australia, Nigeria, Sweden, South Korea, and France in the group stage.

If you don’t think you have a lot to be grateful for this morning, be thankful an asteroid didn’t hit us: A massive asteroid — which, had it struck Earth would’ve been 30 times worse than the Hiroshima atomic blast — missed us last Thursday, Vox reported. NASA apparently only saw this one coming just hours before it passed us.

Egypt-based startup VRapeutic has landed in first place at the SingularityU GIC MENA 2019, Al Mal reported. The startup, which develops therapeutic solutions with a special focus on learning disabilities, was awarded a USD 60k scholarship to take part in the Global Startup Program at Singularity University. Proteinea, an Egyptian startup that provides food security and agriculture services, also took part in the competition.

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EGP / USD CBE market average: Buy 16.52 | Sell 16.65
EGP / USD at CIB: Buy 16.52 | Sell 16.62
EGP / USD at NBE: Buy 16.54 | Sell 16.64

EGX30 (Sunday): 13,460 (-0.4%)
Turnover: EGP 271 mn (55% below the 90-day average)
EGX 30 year-to-date: +3.3%

THE MARKET ON SUNDAY: The EGX30 ended Sunday’s session down 0.4%. CIB, the index heaviest constituent ended down 1.5%. EGX30’s top performing constituents were Heliopolis Housing up 5.5%, and Madinet Nasr Housing up 2.8%, and SODIC up 2.0%. Yesterday’s worst performing stocks were Arabia Investment Holding down 2.1% and CIRA down 1.8%. The market turnover was EGP 271 mn, and local investors were the sole net sellers.

Foreigners: Net Long | EGP +7.8 mn
Regional: Net Long | EGP +10.1 mn
Domestic: Net Short | EGP -17.9 mn

Retail: 63.6% of total trades | 57.8% of buyers | 69.4% of sellers
Institutions: 36.4% of total trades | 42.2% of buyers | 30.6% of sellers

WTI: USD 56.02 (-0.32%)
Brent: USD 63.12 (-0.54%)

Natural Gas (Nymex, futures prices) USD 2.17 MMBtu, (+0.14%, Aug 2019 contract)
Gold: USD 1,432.40 / troy ounce (+0.01%)

TASI: 8,859.32 (+0.46%) (YTD: +13.19%)
ADX: 5,348.50 (-0.73%) (YTD: +8.82%)
DFM: 2,846.07 (-0.16%) (YTD: +12.50%)
KSE Premier Market: 6,746.34 (+0.59%)
QE: 10,573.18 (-0.55%) (YTD: +2.66%)
MSM: 3,745.65 (-0.24%) (YTD: -13.37%)
BB: 1,527.68 (+0.33%) (YTD: +14.24%)