Fund run by Rachid Mohamed Rachid buys stake in Egyptian handbag brand Okhtein

Good afternoon, everyone: One more sleep and then we can push through the workday and slide into the weekend. It’s another busy news day, so we’re going to jump straight in:

THE BIG STORY THIS AFTERNOON- It’s looking more and more as if 2Q marks a turning point our community’s recovery from covid. With earnings season barreling to a close, our friends at EFG Hermes and and developer Palm Hills are the latest in a string of blue chip names to report very strong bottom line growth in the three months ending 30 June. We have the details in this afternoon’s Earnings Watch, below.

HAPPENING NOW- Intelligence chief Abbas Kamel is in Israel to support Egyptian efforts in the peace process, according to Youm7. He will visit Tel Aviv and the West Bank’s Ramallah.

** CATCH UP QUICK on the top stories from today’s EnterpriseAM:

• Blockbuster investment in education: Cairo Egypt Education — a joint venture between CIRA and Elsewedy Capital Holding — is to build a new EGP 2.5 bn private university in New Damietta — and has new K-12 schools in the pipeline to open as soon as next month.
• Raya Holding subsidiary Aman is to issue EGP 500 mn of securitized bonds by the end of the year as the company remains on track to pull the trigger on its initial public offering on the EGX.
• More Egyptians have telecom-backed e-wallets — and aren’t shy about using them, according to a report from the National Telecom Regulatory Authority. Vodafone has the largest market share, followed by Orange, Etisalat and We.

THE BIG STORY ABROAD- Still Afghanistan, with the Financial Times reporting that exiled Taliban leaders are returning home as the group prepares to govern. The US’ NATO allies, meanwhile, are bluntly unhappy about how the US is winding down the alliance’s longest-running mission. While evacuation flights have resumed, the Wall Street Journal reports that the insurgents are blocking routes to Kabul airport.

And the Taliban is showing signs of how it will deal with dissent: Taliban gunmen fired into crowds and beat journalists as protesters gathered in Jalalabad to denounce the group’s return.

Two (English-language) Twitter accounts on Afghanistan worth a follow:

Kinda-sorta-former acting central bank governor Ajmal Ahmady, the Harvard-educated banker who the former government couldn’t get appointed on a permanent basis because he allegedly had a poor command of local languages. Ahmady used this thread to discuss why he fled the country last weekend and is tweeting up a storm on what to expect next on the macro front. (It’s not clear right now whether Ahmady has resigned — and the Taliban still haven’t formed a government that could fire him.)

@CombatJourno, whose tweeting has slowed down in the past day. He’s an Afghan journalist named Mustafa whose feed includes heartbreaking documentation of his bid to get his wife and child out of the country.

A must-read for on the ground news: TOLO news.

???? CIRCLE YOUR CALENDAR- “Energy transition in the Middle East” is the subject of a MEED webinar next Tuesday, 24 August. The event will focus on the impact of energy transition in the region, the effects of covid-19 on the renewable energy sector, the potential of green hydrogen as well as a review of Middle East energy policy and investment and the outlook for MENA renewable energy development. You can register for the webinar here.

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Stop us if you’ve heard this one before: “Junior bankers have seized the upper hand on Wall Street, for now,” Bloomberg Businessweek declares in a feature out today, noting that banks are raising salaries (Goldman Sachs was the most recent to have done so) in the race to attract talent because “potential recruits are balking at 100-plus-hour weeks.” Sure, that’s one way to do it. But even if you (like us) accept that there are lots of snowflakes out there who want plenty of money for very little delivery on their end: There is simply no excuse for 100-hour workweeks. Not in finance. Not in medicine. Not in any profession or at any age. Life is short — you’re not being a snowflake by digging your heels in on 100-hour weeks.

More state than capitalism: China is upping the stakes once again in its Great Capitalist Smackdown, as President Xi Jinping calls for wealth redistribution to “regulate excessively high incomes and encourage high-income groups and enterprises to return more to society.” His comments are the latest in a series of shots by the ruling Chinese Communist Party across the bow of private capital, including new regulations targeting private education and Big Tech that saw USD 1 tn wiped off the value of Chinese stocks in one week last month.

It all looks very much like China is rediscovering its ideological roots after a decades-long affair with the capitalist system, as Xi vows to take away the spoils of economic reform hoarded by China’s super-rich and expand the country’s middle class. According to Reuters, that could start with rescinding a preferential tax rate for internet companies, hiking the levy to 25% from 10% today, as well as a controversial new tax on China’s property market, which contributes 70% to the country’s massive wealth gap. Whatever the measures, they are likely to be harsh and uncompromising, meaning investors, businesses, and the independently wealthy would be best advised to tread carefully. As one entrepreneur told the FT: “The party wants to have a stronger say in your business and they want you to be more obedient.”

As some sectors fall out of favor with the Chinese government, others are on the rise—chief among them renewable energy. China’s green stock index has risen 55% over the past three months as investors shift to industries they think can avoid the wrath of the regulators. Advanced manufacturing and localization of technology also stand to benefit from the state’s new anti-Big-Tech tack.

Over in the US, Big Tech led the exodus from the office at the start of the pandemic — and now it wants its people back at their desks. That could open a space for smaller outfits that are willing to accept the additional challenges of managing a more-remote workforce, Elaine Moore argues in this opinion piece for the Financial Times. We’re still with Apple’s Tim Cook on this one: He asked staff to return to the office three days a week starting in September (a date likely to be postponed at least a month thanks to the fast spread of the delta variant in the US). “For all that we’ve been able to achieve while many of us have been separated, the truth is that there has been something essential missing from this past year: each other,” Cook said in a memo seen by the Verge. “Video conference calling has narrowed the distance between us, to be sure, but there are things it simply cannot replicate.”

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???? ON THE TUBE TONIGHT-

Apple TV’s short-form sports docuseries Greatness Code is a work of art. The show showcases the untold stories of major athletes including LeBron James, Tom Brady, Alex Morgan, Shaun White and Usain Bolt. Each episode (all under six minutes) explores a pivotal moment that defined the athlete’s career by offering intimate and descriptive monologues by each athlete with footage visualized in a dramatic greyscale. With music scores from renowned musicians and stunning visual effects, the artistic miniseries is a bite-sized motivator for viewers, showing how a single event or decision can become a turning point in someone’s life.

⚽AFCON draw: Egypt will face three-time African champions Nigeria in their group’s first match in the twice-delayed African Cup of Nations (AFCON) in Cameroon. The draw for Africa’s biggest football event, which will take place next January after being postponed twice over wet weather and covid concerns, saw lesser threats Sudan and Guinea-Bissau join Egypt and Nigeria in Group D.

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???? OUT AND ABOUT- (all times CLT)

The quick-footed can probably still catch today’s mandala drawing workshop at the Monalisa Art Zone in Zamalek, running from 5-8pm. The cost is EGP 150 excluding materials — check the Facebook page to find out how to register and what you need to bring.

It’s retro pop night tonight over at Cairo Jazz Club in Agouza, with BubbleGum Kollectiv spinning tunes designed to send you bopping all the way back to the ‘90s. Reservations can be made through the CJC Facebook page until 8pm.

And Room Art Space and Cafe in Garden City is hosting a stand up comedy night featuring the Comedy Bunch, starting 9pm tonight. Tickets are EGP 150 and can be purchased directly through the branch or through the link on the Facebook page.

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???? UNDER THE LAMPLIGHT-

Don’t buy the VC hype: There is nothing wrong with building a “lifestyle” business — many of which will still be around and creating value for their owners and communities generations after the latest hot tech business raised its Series DDD…

Why staying small is the next best thing for business is the subhead of Paul Jarvis’s book Company of One. The idea may sound counterintuitive, as firms are always in a constant scramble to scale up operations and teams. “By staying small, one can have freedom to pursue more meaningful pleasures in life,” argues Jarvis pointing to large firms’ struggles with employees, long meetings, funding, and expansions. Company of One sees success as a constant cashflow that keeps the business running sustainably while foregoing a constant headache. It’s a bit of a hippy prospect to go against the system that constantly demands more productivity, more output, and more growth, but maybe there’s merit to being an entrepreneur that is satisfied with the place they’re in now.

Want to dive deeper? The idea isn’t new: The classic work on the subject is the exceptionally readable Small Giants: Companies that chose to be great instead of big, by Bo Burlingham, which profiles 14 businesses. Without resorting to case studies, Burlingham talks with founders about why they “quietly rejected the pressure of endless growth, deciding to focus on more satisfying business goals.”

It’s one of a handful of business books we keep around in large quantities to give to friends thinking of starting their own business. Also worth a moment of your time: Check out the related organization by the same name (co-founded by Burlington).

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☀️ TOMORROW’S WEATHER- The heat wave continues. Expect a daytime high of 40°C and nighttime low of 28°C in Cairo. Sahel will remain breezier, with a daytime high of 32°C and an overnight low of 25°C, our favorite weather app tells us.

Mediterranean-focused investment fund Bidayat has acquired a stake in luxury Egyptian handbag brand Okhtein, Okhtein CEO Mohamed Abdel Raouf told Enterprise without disclosing the financial details of the agreement.

The family-run bag designer will use Bidayat’s fashion industry know-how to boost its product design, merchandising, and supply-chain management as it restructures for global expansion, according to Abdel Raouf. Okhtein hopes the partnership will help it further strengthen its international e-commerce presence after online sales shot up 157% y-o-y in 2020, he said.

Bidayat invests in creative brands in the Mediterranean region and is a sub-fund of the Swiss-based Alsara Investment Group, which has recently embarked on a string of partnerships with high-profile fashion brands, buying a stake in Swiss eyewear start-up Akoni Group and acquiring a majority share in puffer-jacket brand Khrisjoy.

Bidayat is run by former Egyptian trade and industry minister Rachid Mohamed Rachid, who is now chairman of fashion giants Valentino in Italy and Balmain in France, as well as CEO of Qatari luxury goods investment vehicle Mayhoola.

Advisors: MHR in association with White & Case LLP for Okhtein, and Alliance Law Firm for Bidayat, according to an emailed press release (pdf) from Okhtein.

Contact to finance HC Brokerage’s margin traders: Contact Financial Holding’s arm Contact Factoring will finance margin trading by clients of HC Brokerage after signing an agreement with the firm, according to a joint statement (pdf). The non-bank lender will loan EGP 400 mn initially, with each client being eligible for up to EGP 3 mn in finance, Contact Group CFO Ayman El Sawy tells us.

There’s more where that came from: Contact Factoring aims to seal two to three more EGP 400 mn agreements with brokerage companies before the end of this year, El Sawy says, without disclosing names.

Factoring companies got the regulatory green light to finance margin lending in March, in a move that aims to provide new funding sources to retail investors and boost trading volumes on the EGX. Later the same month, the central bank allocated EGP 1 bn to a newly-created fund that will be deployed to support margin lending. In early August, the EGX changed up its list of shares eligible for margin trading as part of its biannual rebalancing.

The regulator could place limits on margin trading: The Financial Regulatory Authority is considering whether to tweak restrictions on margin trading to reduce financial risk. Proposals on the table would prevent individual investors from purchasing on margin more than 1% of a company’s market cap or 2% of its shares in freefloat. The FRA’s advisory committee proposed these measures in March in a bid to mitigate the risk of a boom in investing borrowed funds on the EGX, amid expectations that margin trading could rise to as much as EGP 75 bn in the coming years. A final decision is yet to be made by the authority.

Want to know more about margin trading and factoring? We have in-depth explainers here and here.

Egypt will receive EUR 151 mn in grant money from Germany to support development projects, the International Cooperation Ministry said in a statement this afternoon. The funds are earmarked for 15 projects across a range of sectors, including technical education, urban development and renewable energy.

A little history: Germany is a longstanding partner of Egypt and is presently financing 30 ongoing projects in addition to having pledged to provide EUR 1.7 bn via loans, grants and debt swaps. This year alone saw a number of agreements between the two countries: 12 financing agreements worth EUR 197 mn were signed during the first six months of the year, and the German development bank (KfW) is providing Egypt with EUR 41 mn to support technical and vocational education via a debt-for-development arrangement.

EARNINGS WATCH – EFG Hermes’ net income rose 24% in 2Q2021, driven by growth in its non-bank lending subsidiaries and a solid performance in its investment banking arm, according to the firm’s earnings release (pdf). The financial services corporation reported earnings of EGP 406 mn during the three-month period, up from EGP 328 mn in the same period last year on the back of strong top-line growth.

Revenues for the quarter rose 20% to EGP 1.6 bn, underpinned by a 62% rise in non-banking financial services revenues, which totalled EGP 483 mn. Sell-side revenues rose 69% to EGP 493 mn, helped by an uptick in advisory fees and transactions which almost tripled income from its investment banking arm. On the buy-side, revenues shrugged off a dip in private equity income to rise 70%, helped by strong revenues from asset management which more than doubled to EGP 142 mn.

Despite its positive performance for the quarter, the group remains cautious for the rest of the year: “Heading into the second half of the year, we remain cognizant of the potential for a new wave of covid-19-related challenges and geopolitical headwinds which impact the pace of economic recovery across global markets,” group CEO Karim Awad said.

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Palm Hills Developments saw its bottom line grow 41% to EGP 278.2 mn in 2Q2021, compared to EGP 197.4 mn in the same period last year, according to the real estate company’s earnings release (pdf). Revenues more than doubled to more than EGP 2 bn during the April-June period, helped by a jump in new residential and commercial sales, which rose 63% to EGP 4.3 bn.

By our math, PHD sold 920 units during the quarter, more than double the 401 in 2Q2020 and up from 488 sold during 1Q2021. The 1H2021 growth was mainly supported by new sales witnessed in West Cairo (mainly Badya and the Crown), which rose 54% to EGP 3.2 bn and accounted for 42% of the overall sales. This is followed by Sahel, Alexandria, and Ain Sokhna, which brought in EGP 3.1 bn and accounted for 40% of the company’s sales. The company made EGP 1.4 bn in revenues from units in East Cairo.

Looking forward, the company will finalize several financing agreements before the end of this year “in the form of on and off-balance sheet financing including the securitization of receivables, syndications with banks,” as well as the company’s first long-term sukuk issuance worth EGP 5.5 bn, said Executive Chairman Yasseen Mansour.

CATCH UP QUICK-

IDH subsidiary to run PCR tests in Amman’s airport: Biolab, a Jordanian subsidiary of the EGX- and LSE-listed Egyptian healthcare group Integrated Diagnostics Holdings, will operate PCR testing stations at Amman’s Queen Alia International Airport, the company said in a statement (pdf) this morning.

Fawry completes EGP 1.2 bn follow-on share sale: Several shareholders in Egypt’s leading e-payments firm Fawry have sold a 4.3% stake in the company in a follow-on share sale on the EGX, the bourse and transaction advisor EFG Hermes (pdf) said this morning. The 73.9 mn shares were sold by the Egyptian American Enterprise Fund (EAEF), private equity investor Helios, asset manager responsAbility, and Black Sparrow for EGP 1.2 bn (USD 79.8 mn). The EAEF and Helios were among 40 shareholders who last year transferred the ownership of a 63.99% stake in Fawry previously held by PSI Netherlands Holding to indirect shareholders.

Fawry shares fall: Fawry’s shares dipped by 3.1% to EGP 17.59 per share at today’s close. Shares are up 25% year-to-date.

Advisors: EFG Hermes acted as the sole financial advisor, as well as a joint bookrunner alongside Renaissance Capital. This isn’t the first time the investment bank has worked with Fawry, closing the USD 50 mn sale of a 7% stake in the company last year.

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MARKET WATCH-

The EGX30 fell 0.2% at today’s close on turnover of EGP 2.3 bn (40.8% above the 90-day average). Foreign investors were net sellers. The index is up 0.6% YTD.

In the green: Raya (+2.8%), GB Auto (+1.6%), and Rameda (+1.0%).

In the red: Egyptian Resorts Company (-4.0%), Fawry (-3.1%), and Eastern Company (-1.8%).

Could the world’s second-largest economy finally shed its “emerging market” status? That’s what the largest asset manager in the world thinks, telling the Financial Times that it’s about time that investors take the Chinese economy seriously. BlackRock is recommending that indexes and investors raise their exposure to Chinese equities and bonds by “two to three times” in response to the increasing size of the market and reforms being carried out by the government. “China is under-represented in global investors’ portfolios but also, in our view, in global benchmarks,” Wei Li, chief investment strategist at the BlackRock Investment Institute, told the salmon-colored newspaper.

Indexes aren’t reflecting reality: Despite having the world’s second-biggest equity market and second-largest bond market, China’s representation in global benchmarks remains low. The country has a weighting of just 4.1% (pdf) in the MSCI All-World index, a number that BlackRock says should be closer to 10%, putting Chinese assets ahead of Japan but still far behind the US, which accounts for almost 60% of the index. Currently, the weighting of the three biggest tech companies — Apple, Microsoft and Amazon — is more than double China’s.

Why is one of the world’s most powerful economies still considered emerging? China may be on course to overtake the US to become the world’s largest economy later this decade, but it is its population size that continues to keep it in the EM camp. Despite its size, it is still firmly a middle-income country, with a per capita GDP of around USD 10.5k last year, far below the US’ USD 63.5k, Germany’s USD 45.7k, and Japan’s USD 40.1k.

Neither DM nor EM, but something in-between: Calling for investors to rethink how they conceptualize the Chinese economy doesn’t mean it will finally be considered among the small club of “developed markets.” Instead, BlackRock thinks it’s somewhere in the middle, describing it as a “distinct pole of global growth” in its mid-year outlook last month. “We believe it is time to also treat it as an investment destination separate from EM and DM,” it wrote. “China’s economy has come through the covid-19 shock stronger than global peers, just as it did after the global financial crisis.”

China’s tech bros are under fire: BlackRock’s optimism comes amid a widening government crackdown on its tech companies which has caused significant volatility in equity markets and stirred fears that wider market restrictions could be introduced by the Chinese Communist Party. The Hang Seng Tech Index has plunged almost 40% year-to-date amid the escalating anti-tech campaign, which has seen companies issued fines, undergo forced restructurings, and face regulatory directives over data security and market competition.

But the country has also moved to liberalize finance: Drawn by China’s gradual opening of its financial sector and the huge market, Western financial institutions are becoming ever more attracted to China. Now able to fully own their local subsidiaries and finding it easier to obtain licenses and make acquisitions, banks and asset managers including JPMorgan, UBS, Amundi, and BlackRock itself are expanding their operations in China.

Despite worries over tighter regulations, BlackRock remains bullish on Chinese assets: At a time of ultra-low rates and spiralling debt across the developed world, the Chinese central bank’s orthodox monetary policy will mean that its financial system will face lower fewer risks and be more attractive to investors going forward, the BII said in its reports. In what it calls a “quality revolution,” BlackRock says that policy is focusing on the quality of economic growth, rather than the quantity. “China is pushing through reforms that could weigh on the quantity of growth in the near term but potentially improve the quality in the long run,” it wrote in the report.

24 August (Tuesday): MEED will hold a webinar named Energy Transition in the Middle East.

26-28 August (Thursday-Saturday): Jackson Hole Economic Symposium.

September: Delegation of Russian companies to visit Russian Industrial Zone.

1-3 September (Wednesday-Friday): Digi Sign Africa, Cairo International Convention Centre, Cairo, Egypt.

2 September (Thursday): The new EGX mechanism for calculating closing share prices will come into effect.

3-5 September (Friday-Sunday): The World Karate Federation will hold the third competition of the 2021 Karate 1-Premier League in Cairo.

5-7 September (Sunday-Tuesday): The Arab Security Conference, The Nile Ritz-Carlton, Cairo, Egypt.

7-8 September (Tuesday-Wednesday): Euromoney Conferences will host the GlobalCapital Sustainable and Responsible Capital Markets Forum 2021, featuring Vice Minister of Finance Minister Ahmed Kouchouk.

7-9 September (Tuesday-Thursday): Egy Health Expo, Al Manara International Conference, Cairo, Egypt.

9 September (Thursday): DevOpsDays Cairo 2021 is being organized by ITIDA and the Software Engineering Competence Center in cooperation with DXC Technology, IBM Egypt and Orange Labs.

12 September (Sunday): International schools begin 2021-2022 academic year

12-15 September (Sunday-Wednesday): Sahara Expo: the 33rd International Agricultural Exhibition for Africa and the Middle East.

15 September (Wednesday): The CFO Leadership & Strategy Summit is taking place in Egypt.

16 September (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

21-22 September (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

22-25 September (Wednesday-Saturday): Cityscape Egypt, Egypt International Exhibition Center, Cairo, Egypt.

30 September-2 October (Thursday-Saturday): Egypt Projects 2021 expo, Egypt International Exhibition Center, Cairo, Egypt.

30 September-8 October (Thursday-Friday): The Cairo International Fair, Cairo International Conference Center, Cairo, Egypt.

30 September: Closing of 2021’s first oil and gas tender in the Gulf of Suez, Western Desert, and the Mediterranean.

October: New legislative session begins.

October: Romanian President Klaus Iohannis could visit Egypt in mid this month to discuss ways to boost tourism cooperation between the two countries.

1 October (Friday): Businesses importing goods at seaports will need to file shipping documents and cargo data digitally to the Advance Cargo Information (ACI) system.

1 October (Friday): Expo 2020 Dubai opens.

1 October (Friday): State-owned companies and government service bodies selling goods and services to customers that have not yet signed on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

6 October (Wednesday): Armed Forces Day.

7 October (Thursday): National holiday in observance of Armed Forces Day.

9 October (Saturday): Public schools begin 2021-2022 academic year

11-17 October (Monday-Sunday): IMF + World Bank Annual Meetings.

12-14 October (Tuesday-Thursday): Mediterranean Offshore Conference, Alexandria, Egypt.

18 October (Monday): Prophet’s Birthday.

21 October (Thursday): National holiday in observance of the Prophet’s Birthday.

24-28 October (Sunday-Thursday) Cairo Water Week, Cairo, Egypt.

27-28 October (Wednesday-Thursday) Intelligent Cities Exhibition & Conference, Royal Maxim Palace Kempinski, Cairo, Egypt.

28 October (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

30 October – 4 November (Saturday-Thursday): The first edition of Race The Legends, Egypt.

31 October – 12 November (Sunday-Friday): The 26th UN Climate Change Conference, Glasgow, UK.

November: The French-Egyptian Business Forum is set to take place in the Suez Canal Economic Zone.

November: Egypt will host another round of talks to reach a potential Egyptian-Eurasian trade agreement, which can significantly contribute to increasing the volume of Egyptian exports to the Russia-led bloc that includes Armenia, Belarus, Kazakhstan and Kyrgyzstan.

1-3 November (Monday-Wednesday): Egypt Energy exhibition on power and renewable energy, Egypt International Exhibition Center, Cairo, Egypt.

2-3 November (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

1-12 November (Monday-Friday): 2021 United Nations Climate Change Conference (COP26), Glasgow, United Kingdom.

29 November-2 December (Monday-Thursday): Egypt Defense Expo.

7-8 December (Tuesday-Wednesday): North Africa Trade Finance Summit.

12-14 December (Sunday-Tuesday): Food Africa Cairo trade exhibition, Egypt International Exhibition Center, Cairo, Egypt.

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

14-19 December (Tuesday-Sunday): The Cairo International Festival for Experimental Theater.

14-15 December (Tuesday-Wednesday): The Federal Reserve meets to review interest rates.

16 December (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

14-16 February 2022 (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo, Egypt.

1H2022: The World Economic Forum annual meeting, location TBD.

May 2022: Investment in Logistics Conference, Cairo, Egypt.

16 June 2022 (Thursday): End of 2021-2022 academic year for public schools

27 June-3 July 2022 (Monday-Sunday): World University Squash Championships, New Giza.

**Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.