AM — Privatization is continuing to dominate the news flow

Good morning, friends. The usual pre-Ramadan acceleration of news continues this morning, so let’s jump straight in:

THE BIG STORY HERE AT HOME: Privatization, privatization and still more privatization, as this morning’s tl;dr stack (above) suggests.

ABROAD: Will concerted action by a group of central banks and UBS’ move to acquire Credit Suisse calm global markets?

HERE AT HOME- Gov’t could offload 10% of TE this week: The Madbouly government will finalize the sale of a 10% stake in national telecoms provider Telecom Egypt (TE) to a Gulf investor this week, Al Borsa reports, citing as its source an unnamed Finance Ministry official. Transaction managers CI Capital and Al Ahly Pharos are awaiting final approvals to transfer the shares to the buyer, the source said. The Finance Ministry said earlier this month that it’s looking to sell shares in the company after Reuters reported the state was offloading 10% to investors. Hapi Journal then reported that the government could close the sale before Ramadan, citing anonymous sources.

Mobile plans could get pricier: The National Telecommunications Regulatory Authority (NTRA) will soon unveil its decision to allow telecom providers to raise their prices or keep them unchanged, unnamed sources reportedly told Al Borsa. Telecom service prices have remained unchanged since 2017 and providers have been calling for a chance to hike their prices.

WATCH THIS SPACE- GAFI wants to hand out 1k golden licenses over the next two years and is set to launch a roadshow during 1H 2023 to drum up foreign direct investment, Al Borsa quotes GAFI head Hossam Heiba as saying.

REFRESHER- Golden licenses are fast-tracked, single-approval licenses for industrial and infrastructure projects in sectors that are deemed to be of developmental priority. These licenses — the first of which was awarded in December — have been awarded to 13 companies so far. Read more about them in our explainer here.

THE BIG STORY ABROAD-

Banking crisis averted? UBS will acquire embattled competitor Credit Suisse after high-stakes talks with Swiss regulators over the weekend aimed at averting the meltdown of the country’s second-largest bank. The Swiss banking giant agreed to acquire the lender for USD 3.3 bn in return for receiving up to CHF 100 bn in liquidity from the Swiss central bank. Credit Suisse, a systemically important bank, was left on the verge of collapse last week after the banking crisis in the US triggered a run on deposits and a steep share sell-off. The Swiss central bank handed it an emergency USD 54 bn loan last Wednesday which failed to stem the bleeding.

As part of a coordinated bid to calm markets, the US Federal Reserve and five other major central banks have opened daily swap lines to supply USD to global financial markets — an emergency measure last put in place during the 2020 covid-19 market collapse. The Fed has also ramped up lending to troubled US banks over the past week, handing over USD 300 mn to help stabilize the banking system.

WHAT TO WATCH FOR- Market watchers are now turning to the Fed’s interest rate decision on Wednesday. Also under the microscope: How bondholders react to the wipeout of Credit Suisse’s contingent convertibles, and how US banks fare in the coming weeks, Bloomberg has more.

REAX- The market is in wait-and-see mode: Stock futures in the US and Europe are made light gains, the USD index is treading water, and oil futures are up around 0.4%. Asian shares, meanwhile, are broadly in the red.

The news is getting coverage from: Financial Times | Reuters | AP | Bloomberg | CNBC | BBC | Wall Street Journal.

MEANWHILE- China continues to push on the diplomatic front:

• “Russia is open to the political and diplomatic resolution of the Ukraine crisis,” Russian President Vladimir Putin wrote in an article published in a Chinese newspaper ahead of talks with Chinese President Xi Jinping in Moscow.
• Iranian President Ebrahim Raisi has been invited to visit Riyadh, Iranian state media reported yesterday. The two sides earlier this month agreed to restore diplomatic ties in a China-brokered agreement.

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HAPPENING TODAY-

The Finance Ministry’s two-day Public-Private Partnerships MENA Forum concludes at the Nile Ritz-Carlton.

Another US official is in town: It’s Assistant Secretary of State for Near Eastern Affairs Barbara Leaf’s final day in Egypt. Leaf is in Egypt as part of a regional tour that will see her travel to Lebanon and Tunisia.

ON THE AGENDA IN THE HOUSE- The House of Representatives has a busy day ahead as it continues to catch up after a three-week break that ended yesterday.

• The Industry Committee will be joined by Trade and Industry Minister Ahmed Samir to discuss the government’s strategy to increase industrial exports.
• The Tourism Committee will look into requests to raise the price of museum tickets.
• The Health Committee will review the performance of public hospitals and medical centers.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed.

The clock is ticking for Pachin shareholders: Shareholders of state-owned, EGX-listed Paint and Chemical Industries (Pachin) will have 10 working days to respond to Dubai-based National Paints Holding’s (NPH) takeover bid after the Financial Regulatory Authority (FRA) yesterday approved the offer, the regulator said in a statement (pdf). The 10-day mandatory tender offer (MTO) starts Tuesday, giving shareholders until 3 April to decide whether to sell their shares.

REFRESHER- NPH has offered to purchase at least 75% of Pachin’s shares for EGP 34.00 a share, valuing it at some EGP 816 mn. The company upped its offer earlier this month from its initial EGP 29.00 bid in November in response to a number of competing bids. Shareholders owning at least 75% of the company’s shares will need to agree to sell for the acquisition to go through, the FRA said yesterday.

Shareholders: Pachin is majority-owned by state institutions, with Chemical Industries Holding owning 44.6% of and Banque Misr holding a 10.5% stake. Other major shareholders include AMN Industrial Investment with a 9.7% stake and El Sayed Saber with 5.5%. Some 28.7% of its shares are freefloat.

We’re yet to hear from Pachin’s other potential suitors: Compass Capital and Eagle Capital have also submitted bids for the company in recent months, with Compass offering to purchase 51-90% of its shares for EGP 30.00 apiece and Eagle mounting a takeover bid for EGP 29.00 per share.

What Pachin’s future would look like if NPH’s acquisition goes through: NPH is committing to maintaining Pachin’s existing workers for the first 12 months after the acquisition, according to the FRA statement. Pachin’s shares would undergo voluntary delisting from the EGX within six months of the acquisition closing.

What’s next: If the shareholders accept the offer, the transaction will be concluded on the EGX within the following five working days, according to the statement.

Market reax: Pachin’s shares closed up 5.0% to settle at EGP 32.50.

Advisors: Al Ahly Pharos is acting as broker on the transaction, Matouk Bassiouny & Hennawy are acting as NPH’s legal counsel, while the company doesn’t have a financial advisor, according to the statement. Al Ahly Pharos is advising Pachin, and Shalakany Law Office is legal counsel.

Two state-owned real estate companies seek investment through capital increases: State-owned real estate companies El Nasr Housing and Development and Maadi for Development and Construction will drum up investments from strategic investors through capital increases rather than selling stakes from existing shareholders, a source with knowledge of the matter told Enterprise yesterday on condition of anonymity. The two companies are part of the list of 32 state-owned companies in which the Madbouly government plans to sell stakes over the next year. Further information about the potential transactions wasn’t disclosed.

Any suitors in sight? “The two real estate players have received several offers in the past but the companies are currently re-evaluating the financial valuation of their assets and conducting a revised internal fair-value study,” our source said.

What’s next? The Holding Company for Construction and Development (HCCD) — the parent company of El Nasr Housing and Maadi for Development — is currently working on hiring advisors on the potential transaction, said the source, adding that making public share offerings in the two companies will come at a later stage.

REFRESHER- The government plans to sell stakes in 32 state-owned companies over the next year under a rebooted privatization program designed to pull the country out of its financial crisis and secure much needed FX. The state will offer shares to strategic investors, via offerings on the EGX and a mix of both over the next 12 months. The government could add another eight names to its list of companies destined for privatization, Finance Minister Mohamed Maait said last week, without elaborating.

A more generous income tax break could be in the offing: President Abdel Fattah El Sisi has directed the government to raise the personal income tax exemption threshold to EGP 36k from EGP 24k currently, Ittihadiya said yesterday. Companies account for the majority of what the government collects under the tax, charging and remitting it as wage taxes on every person they employ.

This is more than we expected: The government said earlier this month that it plans to raise the exemption threshold to EGP 30k from 1 April.

SOUND SMART- There are technically two income tax exemptions in Egypt. Everyone, regardless of income, pays no tax on the first EGP 9k of their income. People who earn less EGP 600k a year also have a 0% tax band on top of that, which is currently set at EGP 15k. Together, these exemptions mean that employees in the lowest income bracket are not subject to wage taxes on the first EGP 24k of their income.

Both of these exemptions will increase under the proposed changes: The personal allowance will increase from EGP 9k to EGP 15k, and the 0% tax band will rise from EGP 15k to EGP 21k. This will mean that lower earners will pay no tax on the first EGP 36k of their incomes.

The changes are expected to impact some 22 mn people, a source at the Finance Ministry told Enterprise yesterday.

The new higher rate tax band is here: Taxpayers earning more than EGP 800k a year will pay tax at a new higher rate of 27.5% under the changes, the source told us. We first heard about the proposals for a new higher rate tax band last year.

Anything over EGP 36k will be taxed according to the following rates (inclusive of the EGP 9k personal allowance), our source told us:

• Incomes between EGP 36,001-45,000 will be taxed at 2.5%;
• The following EGP 45,001-60,000 will be taxed at 10%;
• The following EGP 60,001-75,000 will be taxed at 15%;
• The following EGP 75,001-215,000 will be taxed at 20%;
• The following EGP 215,001-415,000 will be taxed at 22.5%;
• The following EGP 415,001-800,000 will be taxed at 25%;
• Anything over EGP 800k will be taxed 27.5%.

The tax breaks could be applied as soon as next month, head of the Tax Authority’s central administration, Saeed Fouad, said in an interview on Kelma Akhira last night (watch, runtime: 10:15). The measures still need cabinet approval before heading to the House, he said.

The cost: The tax cuts will cost the public purse more than EGP 10 bn, our source said. The government will recoup some of this with the new higher rate band but this is expected to bring in only EGP 2 bn, they said.

BUDGET WATCH-

The government has trimmed its GDP forecast for the coming fiscal year and will now target 5.0% growth in FY 2023-2024, down from a 5.5% projection at the end of last year, according to the Ittihadiya statement. This came from Finance Minister Mohamed Maait, who shared some of the key targets in the upcoming budget during a meeting with President El Sisi. The ministry is now looking at a 2.5% primary surplus in 2023-2024, up from its 2.0% forecast in December, and a 6.4% budget deficit. The deficit is expected to widen to 6.8% of GDP this year from 6.1% in FY 2021-2022.

In + out: The Finance Ministry is projecting revenue growth to outpace spending. Figures in the draft budget see revenues jumping more than 31% to EGP 2 tn and spending rising 30.5% to more than EGP 2.8 tn, Maait said.

Kaf is now a commercial life ins. provider: Kaf Life Ins. has obtained a commercial life ins. license from the Financial Regulatory Authority (FRA), making it the first Egyptian insurer to make the switch from being a shariah-compliant takaful provider, it said in a statement (pdf) yesterday.

About Kaf: Kaf offers life, savings and health ins. services and is looking to distinguish itself through its use of tech. Kaf currently targets employers, small businesses and micro segment enterprises.

Part of a wider rebranding: EFG Finance (the non-bank financial services arm of EFG Hermes) and GB Capital rebranded life ins. company Tokio Marine Egypt Family Takaful as Kaf following their acquisition of a majority stake in the company in 2020. The two companies acquired a combined 75% stake (with each company holding 37.5%) in the Japanese company’s Egyptian subsidiary for EGP 84.75 mn. Tokio Marine Egypt’s Japanese parent company holds the remaining 25% stake.

New management announced: George Ghobrial (LinkedIn) was appointed CEO and managing director of Kaf in February following approval from the FRA, the release said. He succeeds Sohail Ali, who was brought in as the new CEO by EFG Finance and GB Capital after the acquisitions. Kaf has also appointed a new COO Rafik Samy (LinkedIn).

House gives initial approval to wage, pension hikes + call on gov’t to do more: Some lawmakers called on the government to do more to curb soaring inflation yesterday as the House gave preliminary approval to the latest round of wage and pension hikes.

ICYMI- The package of measures voted on yesterday will raise salaries and the minimum wage for public-sector workers and hike pension payouts by 15% from 1 April. The government also plans to increase the personal tax exemption threshold and increase funding for the Takaful and Karama social protection program. The bill will be put up for a final vote in an upcoming session.

But some don’t think that’s enough: A number of pro-government and opposition MPs say the measures will not be enough to protect households from the soaring cost of living. “The new wage and pension hikes will help citizens bear the high cost of living for only one week because inflation rates are going higher all the time,” said Rep. Mostafa Bakry, a member of the pro-government Mostaqbal Watan party. “The government might be good at building bridges, but it is a complete failure on economic policies.”

Inflation is red hot right now: Food-price inflation reached all-time highs last month, driving headline inflation to its highest level since July 2017 and core inflation to a record level.

Pro-govt MPs call for price controls: Rep. Sabboura El Sayed and Rep. Mohamed Zeineddin, both of Mostaqbal Watan, urged the government to introduce price controls. “Without these urgent measures, the new wage and pension hikes will be of short-term impact like tranquilizers,” said Zeineddin.

MPs demanded that Prime Minister Moustafa Madbouly visit the House and explain his government’s policies. “Instead of holding a press conference every now and then, the prime minister can cross the street and come to the House to explain his government's plans on controlling soaring inflation and clamping down on monopolies,” said Rep. Ayman Abul Ela, a member of the liberal Reform and Development Party.

Global economic crisis to blame, says minister: Parliamentary Affairs Minister Alaaeddin Fouad defended the government’s record, saying that the government is doing its best to curb inflation, pointing to the role of external factors including the war in Ukraine.

ALSO APPROVED BY THE MPS- The bill to grant temporary licenses to informal industrial projects was given preliminary approval yesterday. The two-article bill would grant the Industrial Development Authority (IDA) the power to allow unlicensed projects to operate for a temporary one-year period while they work to legalize their positions. The temporary license could be extended by up to two additional years by the Trade Ministry, upon approval from the relevant authorities.

Pending approval: The House received a government-draft law on the proposed return of daylight saving. The draft law received the greenlight from the cabinet earlier this month. If passed the law would see Cairo Local Time (CLT) pushed forward by one hour from the last Friday of April through the last Thursday of October.

The House also received two loan agreements: A USD 301 mn facility from Japan to help finance Metro Line 4 and two USAID grants: one for economic governance and another for higher education.

Orascom Development Egypt’s (ODE) net income rose 45% y-o-y to a record EGP 1.9 bn in 2022, according to its earnings release (pdf). Revenues increased 46% to EGP 10.3 bn during the period. ODE attributed the figures to rising property prices, which caused real estate revenues to rise 42% y-o-y to EGP 7.3 bn, as well as improved performance from its hotel and town management segments.

Net real estate sales hit an all-time high during the year, rising 21% y-o-y to EGP 11.1 bn — the highest sales figures in ODE’s history — after the company hiked prices by up to 25%. O West accounted for more than half the new sales, followed by El Gouna and Makadi Heights, which contributed 40% and 8% of sales, respectively.

The group’s hotel portfolio and town management segment recorded strong growth: The hotel segment reeled in revenues of EGP 1.6 bn in 2022, up 81% y-o-y, while the town management segment saw a 36% increase in revenues, which came in at EGP 1.4 bn.

Global trade flows and supply chains have just about managed to emerge from the long shadow of the covid-19 crisis. Even now, key commodities are still some months away from heading back to normalcy. For confirmation, just ask carmakers about semiconductor supplies they need for all their fancy models.

But chances of a smooth ride for global trade in 2023 will hinge more on whether a recession will show up, in full force or even partially. Plus, recent floods and nature-linked crises will have their own bearing on commodity movements and, by extension, on their prices.

Globally, we have seen a decline on some of the leading indicators for trade, and demand for goods has slowed somewhat. Despite this, some markets have proven to be more resilient than others — the UAE is one of them.

During my recent visit, it was apparent how agile the government is in enabling businesses to rapidly adapt to the macroeconomic environment. The high oil prices, solid logistic capabilities and the strengths of intra-regional trade flows — especially with Saudi Arabia — coupled with a healthy local demand, have helped support the economy.

I believe global trade is now at a critical inflection point. Global supply chains have been under significant stress in the last two years; businesses have been impacted and these disruptions have resulted in a rethink of the relationship between clients and suppliers, including the need for nearshoring — or even in-country value creation — in an effort to ease the access to finance between clients and suppliers.

The market is accelerating towards more structured trade, especially on supply chain finance. We have seen increased interest from governments, public sector entities, multinationals, and large corporates to leverage their balance-sheets’ strengths to allow financing for the benefit of the economy and within their supply chains.

Supply Chain Finance (SCF) will continue to gain popularity during this period of uncertainty.

Financial institutions can play a pivotal role in facilitating trade, with around 40% of global goods traded being supported by bank-intermediated trade finance.

For HSBC, supporting international trade has been at the heart of our business model since we were founded in 1865. Today, we facilitate approximately USD 740 bn of trade each year. And trade remains key to our future ambitions.

Trade finance has for centuries been paper-based, but blockchain provides a way to boost efficiency, increase transparency, and streamline supply chains. Broader usage of technology to track shipments has taken hold, and blockchain is one among a number of underpinning technologies that are helping global trade evolve.

When blockchain technology is adapted at a large scale, it will have the power to transform the world of trade by improving speed of processes, customer experience and providing a paperless experience.

As the world’s largest trade bank, we have a key role to play in the wider transformation of global trade. We act as a catalyst to allow the most successful and disruptive technologies to energize the market, as well as provide an opportunity to unlock the future of trade.

Technology-driven efficiencies and the expansion to new digital platforms and channels are two of the major drivers of growth, and we have a responsibility to take such solutions to our clients by commercializing them and scaling things at pace.

We are seeing different regional trends. HSBC Global Research’s forecasts are for a slowed pace of global trade growth out to 2024 (3%), given the subdued demand outlook, particularly for goods in the West.

A rebound in China could potentially boost global trade and things could be more positive, but if there is weakness in the second-half of 2023 or early 2024, trade could slow again.

The GCC nonetheless enters 2023 from a position of strength. The region is probably the fastest-growing economic bloc in the world today, there is substantial investment in large scale infrastructure projects, and tourism is booming thanks to some of the best covid-19 management policies seen during the pandemic, all of which support robust local demand.

Looking at the UAE specifically, the domestic economy continued to rebound in 2022, mostly driven by high oil prices and tourism. Expo 2020 in Dubai and the 2022 FIFA World Cup in Qatar have assisted in driving a sharp rebound of visitor numbers to the region.

The budgetary performance has improved significantly this year, which clearly creates a supportive environment for governments in the UAE and across the GCC to deliver on their strategic visions. In MENA, it is estimated that about USD 4.3 tn of projects are planned or are underway across the region, which will help diversify the economy further. The investments across infrastructure, power and energy, transport as well as real estate and social services are continuing with a sense of urgency.

Additionally, in Saudi Arabia, 15 mega-projects are ongoing and acting as a further catalyst to an already dynamic GCC economy.

This op-ed was written by Vivek Ramachandran (LinkedIn), head of Global Trade and Receivables Finance at HSBC. HSBC’s column appears in Enterprise every second Monday. A version of this article first appeared in Gulf News.

Talks of money and foreign policy took over last night’s talk shows, as the nation’s talking heads covered the central bank’s upcoming meeting, how our local startups handled the fall of Silicon Valley Bank, and yesterday’s Palestine-Israel talks in Sharm El Sheikh.

What will the CBE do next? Kelma Akhira’s Lamees El Hadidi (watch, runtime: 3:09) walked her viewers through the two options for the Central Bank of Egypt’s (CBE) upcoming meeting on 30 March. The bank will either increase rates or leave them unchanged, she said, adding that both will have major consequences on the government, the former ramping up the state’s borrowing costs and the latter fuelling further inflation.

Local startups weigh in on the collapse of SVB: Kelma Akhira’s Lamees El Hadidi held a roundtable with a number of prominent startup founders, including co-founder and CEO of used-car retailer Sylndr, Omar El Defrawy; CFO of fintech startup MoneyFellows, Hatem Sabry; and Lucky co-founder and co-CEO Ayman Essawy to see how they have been impacted by the recent collapse of Silicon Valley Bank (SVB) (watch, runtime: 2:32 | 3:09 | 4:02). The collapse of SVB should teach our local startups that they shouldn’t put all their money in one bank, investor Amr Awadallah told El Hadidi (watch, runtime: 1:59). Last week, we spoke to another set of local startup founders on how they have been impacted by the bank’s downfall.

DIPLOMACY-

Palestine and Israel have agreed to set up a “mechanism to curb and counter violence, incitement and inflammatory statements” during talks in Sharm El Sheikh attended by Egyptian, Jordanian and US officials yesterday, according to a statement. Israel has also agreed to postpone discussions on establishing new settlement units in the occupied West Bank for four months and to end authorizing illegal outposts for six months.

INVESTMENT-

More Russian investment incoming? President Abdel Fattah El Sisi sat with a Russian delegation headed by Deputy Prime Minister and Trade Minister Denis Manturov yesterday. The meeting focused on Russian investment and joint ventures in Egypt, Ittihadiya said. Among the priority industries: grains and food, manufacturing, agriculture, and energy, according to a readout from the Russian government.

A push for the Egyptian-Eurasian trade agreement: “Considerable progress has been made since the launch of this process in 2019 … we are looking forward to reaching the final agreements as soon as possible,” Manturov said.

CONSUMER FINANCE-

Abu Dhabi Islamic Bank (ADIB) Egypt intends to launch a digital consumer finance company in 2H 2023, and is working with the Finance Ministry to issue EGP-denominated sukuk.

FINTECH-

Mastercard is launching an e-wallet in Egypt with a telecom company.