PM — The beginning of the end for SPACs

Happy Monday, wonderful people. The news mill isn’t on the same overdrive we’ve gotten used to lately, but there’s still plenty of news to keep you busy.

THE BIG STORY TODAY

valU enters Saudi Arabia: EFG Hermes’ buy-now-pay-later platform valU is set to acquire 35% of Saudi’s FAS Finance, a subsidiary of FAS Labs, and will be offering digital consumer finance solutions to customers in the kingdom, the company said in a statement (pdf). The acquisition marks valU’s first cross-border expansion.

THE BIG STORY ABROAD

It’s a rather mixed bag of nuts in the international press this afternoon, with no single story dominating digital front pages. Getting wide coverage (but assigned different levels of importance) is UK Prime Minister Boris Johnson facing a confidence vote from Conservative MPs today. The vote, which is scheduled for 7pm tonight, could see the incumbent prime minister pushed out of office if a majority of lawmakers vote against him, triggering a weeks-long process of deciding on his replacement. The story is getting ink from Reuters, the Financial Times, and the New York Times.

HAPPENING NOW-

The House Economic Committee is discussing the Unified Ins. Act, after the Senate approved the proposed regulation in April. The bill, which has been at least three years in the making, would make the Financial Regulatory Authority the primary regulator for the sector and make ins. compulsory for SMEs and freelancers, among other things.

ALSO AT THE HOUSE- Environment Minister Yasmine Fouad is discussing tackling pollution in our waterways, beaches, and natural reserves with MPs in a plenary session.

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

• Stake sales are likely the order of the day for the state’s privatization program in the foreseeable future, including the potential sale of a stake in the new hotel company to a private investor, Sovereign Fund of Egypt head Ayman Soliman said.
• A former Beltone exec makes a play for his old employer: An investor alliance led by WM Consultancy has submitted a non-binding offer to buy a majority stake in Beltone Financial.
• Elsewedy Electric could invest as much as USD 1.5 bn in three renewable energy projects in Africa before the end of the year.

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FOR TOMORROW- Technology conference Tech Invest 4 will take place tomorrow at the Grand Nile Hotel in Cairo.

???? CIRCLE YOUR CALENDAR-

NEWS TRIGGERS you’ll want to keep an eye on as the new month gets underway:

• Foreign reserves figures for May should be announced sometime this week;
• Inflation figures for May are due out on Saturday, 9 June (from state statistics agency Capmas) and Sunday, 12 June (central bank figures);
• The Central Bank of Egypt holds its policy meeting on Thursday, 23 June.

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

☀️ TOMORROW’S WEATHER- Expect a daytime high of 38°C tomorrow in the capital city, with the mercury to drop 23°C at night, our favorite weather app tells us.

Plastic use is set to triple by 2060 in the absence of bold, drastic action, according to a preliminary OECD report, which will be published in full later this year. Global use of plastics could rise to 1.2 bn tons in 2060, up from 460 mn tons in 2019, while plastic waste could top 1 bn tons, according to the report. Some two-thirds of plastic waste will be from single-use products like packaging, while incineration and landfilling will continue to account for around 20% and 50% of plastic waste, respectively. Plastic leakage to the environment — or pollution — is seen doubling to 44 mn tons a year by then. This will come despite an increase in the share of plastic waste recycled to 17%, up from just 9% in 2019, the report shows.

This is bad news for EMs: Plastic consumption growth will be most prominent in emerging countries in Africa and Asia, the report says. The 38 member OECD countries will still be the leading producers of plastic waste, though, producing 238 kg of waste per person each year in 2060, while non-OECD countries are estimated to produce less than half of that (77 kg).

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The UK has officially started its four-day workweek trial: Some 70 businesses in the UK are this week starting a six-month, four-day workweek experiment, with the goal of assessing how reduced hours can affect productivity and job satisfaction, the Financial Times reports. Education, consulting, banking, and IT businesses have all signed up to the experiment, with researchers set to measure the impact on employee productivity and wellbeing, as well as on the work environment and gender equality. The experiment will measure factors like stress, travel, job satisfaction, and health in employees. The UAE became the first country to implement a 4.5-day workweek at the beginning of the year, building momentum for more countries — including Spain and Scotland, which will launch their own trials later this year — to follow suit.

Behind the scenes of the departure of one of Meta’s most powerful executives: Burnout, waning influence, and an investigation: Meta Platforms COO Sheryl Sandberg announced her departure from the company last week, saying in a long, emotional Facebook post she will shift her focus to her foundation and philanthropic work after leaving Meta, effective this fall. However, Sandberg has been growing “increasingly burned out and disconnected from the mega-business” over the past several years, partially because the company has been moving in a direction (including the metaverse) that doesn’t play to her strengths, the Wall Street Journal writes, citing people close to the exec. Sandberg’s role appears to have shrunk over the years, as the company’s advertising business — which she essentially built — is “under increasing pressure” due to changes in data collection policies and Meta’s metaverse plans, which will rely less on ads. Her departure also “dovetails” with an as-yet unannounced investigation into Sandberg’s use of company resources and how she may have used them to help plan her upcoming wedding. Meta has denied the correlation between the investigation and Sandberg’s departure, with spokeswoman Caroline Nolan saying, “None of this has anything to do with her personal decision to leave.”

???? ON THE TUBE TONIGHT-
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Prehistoric Planet is a highly informative and entertaining nature documentary about dinosaurs: The five-part AppleTV docuseries is produced by the creators of Planet Earth and voiced by none other than David Attenborough. Each episode takes viewers to a different terrain to observe how the dinosaurs located there lived. The show features great graphics and CGI and it really feels like you’re watching the dinosaurs in real time. Attenborough, of course, delivers on his penchant for storytelling, giving the dinosaurs narratives as they hunt, build a home, and conduct ridiculous mating dances (that made us cry with laughter). If you’re curious about dinosaurs, Prehistoric Planet is quite engaging and immersive while providing a wealth of knowledge about the extraordinary creatures.

⚽ Once again we have seven matches in the European Nations League, the most important of which is between Croatia and France at 8:45pm.

Egypt came out on top yesterday, defeating Guinea 1-0 in the first stage of the 2023 African Nations qualifiers. The Pharaohs now share the top spot in the group with Malawi, which defeated Ethiopia 2-1. Egypt will meet Ethiopia in its second match this Thursday, 9 June.

???? Squash champ Mohamed ElShorbagy to join British team: In a historical moment, Egyptian squash player and world #3 Mohamed ElShorbagy will now represent England’s national team, according to a statement by the England Squash Association. ElShorbagy has 44 professional titles to his name, putting him joint sixth on the all-time men’s champions list. The 31-year-old player has lived in Britain since he was 15. The Necker Mauritius Open, which begins on Tuesday, is expected to be the first tournament in which ElShorbagy competes under the English flag. Despite his brother's decision, ninth seed Marwan ElShorbagy intends to continue representing the colors of the Egyptian national team, according to FilGoal.

???? OUT AND ABOUT-
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The French Institute in Cairo is screening the French film Les jeunes amants (The Young Lovers) tomorrow at 7:30pm. Attending the screening is actress Fanny Ardant, who plays one of the main characters in the film.

Attend a dance theater performance aptly titled What the hell am I doing here? by Carol Ackad. The performance will take place at Rawabet Art Space from 8-11 June at 8pm each day.

???? UNDER THE LAMPLIGHT-

Thinking of quitting your day job to launch your dream startup? This book helps you figure out if it’s the right time: In Startup Opportunities, authors Sean Wise and Brad Feld argue that you should wait until you validify your idea before taking that step. Growing a startup is no easy task and you’ll need a steady income to support yourself until your product or offering takes off, they say. Wise and Feld have been in the world of startups and investing for a long time, and each started their first businesses while they were students. Together, they provide a guide on how to evaluate your business idea to ensure it can bring in revenue and also suggest the point at which you should take that step and go all in on your startup. The book answers an important question any entrepreneur asks themselves as they decide if and when to take the risk

EARNINGS WATCH-

Abu Qir Fertilizers saw its bottom line rise 294.6% y-o-y in 1Q 2022 to reach EGP 3.76 bn, according to the company’s financials (pdf). This comes on the back of increased sales during the quarter, recording a 155.5% y-o-y increase to EGP 5.80 bn.

Domty achieved a bottom line of EGP 50.37 mn in 1Q 2022, reversing from a net loss of EGP 3.43 mn in 1Q 2021, the cheese maker said in its financials (pdf). Domty’s sales during the quarter increased 73.3% y-o-y to EGP 1.12 bn.

MARKET ROUNDUP-

The EGX30 fell less than 0.1% at today’s close on turnover of EGP 540 mn (35.5% below the 90-day average). Foreign investors were net sellers. The index is down 16.4% YTD.

In the green: Madinet Nasr Housing and Development (+5.1%), Mopco (+2.3%) and Palm Hills Development (+1.8%).

In the red: Ibnsina Pharma (-2.8%), MM Group (-1.5%) and Cleopatra Hospitals (-1.3%).

Could this be the end of SPACs? After a pandemic-driven frenzy in companies going public through special purpose acquisition companies (SPACs), interest in the once-buzzy financial instrument is sharply declining. More stringent regulations around new SPAC transactions, poor performances in recent SPAC debuts, and a challenging macroeconomic environment have left many investors wary of SPACs and has pulled back the curtain on scores of overvalued tech stocks.

Over before you ever knew what they were? Head to our explainer on SPACs if we’ve lost you.

The SPAC market is crashing and new transactions are being left stranded: After a record year with more than USD 162.5 bn raised on US exchanges in 2021, the SPAC market has crashed. One SPAC index has fallen by some 22% over the past three quarters, Bloomberg reports. Over 600 SPACs are currently up in the air, struggling to land merger partners before going public, and in January alone some 20 US companies abandoned their bid altogether, CNBC reported, citing equity analysts. In the first five months of the year, some 95 planned SPAC transactions that would have raised a combined USD 26 bn have been scrapped, including “30 SPACs seeking to raise over USD 8 bn [that] have been abandoned by sponsors without even alerting the Securities and Exchange Commission to their change of plans,” according to Bloomberg data. The figure also includes 65 sponsors that formally withdrew their SPAC plans worth some USD 18 bn.

Did someone say “tanking US SPAC market”? Some 25 companies that completed SPAC mergers in 2020 and 2021 have issued “going-concern” warnings, which indicates that they are likely to go bust within 12 months, the Wall Street Journal reports, citing data from Audit Analytics. That’s more than 10% of all the SPACs that listed during the so-called SPAC boom, with many startups — including several EV makers, scooter-rental company Helbiz, and glass window maker View — missing their forecasts so far. Shares of companies that listed through SPACs in 2021 alone were down 59.5% on average as of 24 May, according to analysis from University of Florida researchers.

Homegrown darling Swvl looks like it’s facing much of the same hurdles: Mass transport app Swvl, which went public on the Nasdaq via a de-SPAC merger with Queen’s Gambit Growth earlier this year that valued it at USD 1.5 bn, has seen its share price plunge from late April highs of USD 10.09 to its current USD 5.05 valuation. The company’s shares are down 49.0% since its listing in March.

A symptom of Swvl’s woes: Significant downsizing of its headcount: The company said last month it is laying of 32% of its staff (around 400 jobs) in a bid to cut costs and turn cashflow positive by next year. This shift towards profitability has become important to the company in light of the powerful headwinds currently affecting global markets, CFO Youssef Salem told us at the time.

Their immense popularity over the past two years is part of the problem: Incredibly high demand for SPACs in 2020 and 2021 is partially responsible for artificially inflating many of these transactions, the Wall Street Journal said, citing analysts. Only now have these overvalued companies had to reckon with market realities where their performance falls short of drummed up expectations.

Loose regs on performance projections have also contributed to this performance gap: Part of the allure of going public via SPAC was that companies were less restricted in their future earnings reports than typical IPOs, which often led to over-exaggerated projections.

New regulations issued by the SEC set out to bring things under control: The SEC earlier this year announced a new set of rules for SPAC transactions that were intended to “improve the usefulness and clarity of the information provided to investors” and “to enhance investor protections.” They set out to do so through restrictions on future projections, increasing sponsor liability and allowing for legal action to be taken against false claims made by these companies.

But it seems that these rules have only turned more companies away: SPAC underwriting giants like Goldman Sachs have announced that they would be dramatically reducing their involvement with SPACs they helped take public since new SEC guidelines that put underwriters at higher liability risk and require SPACs to offer more info on conflicts of interest.

But this all coincides with a larger downturn in the stock market — partially because of global trends: Tech companies’ stock shed some USD 1 tn in value last month. Other indicators are showing terrible market conditions too: The S&P 500 is down 1.6% year-to-date, while the Nasdaq Composite is down 2.5% YTD. Snap, which saw its shares plummet 43% last month after announcing that the company will be missing earnings targets, has blamed inflation, high interest rates, supply chain challenges and Russia’s war in Ukraine for its performance. The company’s shares are now down 68.9% YTD. Google parent company Alphabet’s shares are also down 21.0% YTD, while Facebook parent company Meta is down 43.7% YTD.

As for SPACs, the worst is still yet to come: “The bottom is not in yet, because you have too many SPACs chasing too few [transactions]; that has got to resolve itself,” said Matthew Tuttle, CEO of Tuttle Capital Management, which tracks SPAC returns, told Bloomberg.