Tuesday, 1 December 2015

Egypt bears outnumber bulls by just over 2:1 in the latest Reuters survey of Middle East fund managers

TL;DR

Egypt bears outnumber bulls by just over 2:1 in the latest Reuters survey of Middle East fund managers (Speed Round)

Hazem Moussa’s Sarwa Capital sells majority stake to Egyptian-American Enterprise Fund; Sarwa is parent company of Contact Cars (Speed Round)

EBRD earmarks up to USD 500 mn to invest in Egyptian solar energy opportunities next year; will look to mobilize USD 1.5 bn in debt and equity from other financiers (Speed Round)

CBE debunks talk on El-Face and Tweeter: EGP did not appreciate yesterday, Tarek Amer has no Facebook page (What We’re Tracking)

Russia will fund 85% of Dabaa nuke plant with USD 25 bn export credit facility (Speed Round)

Danone looks to close EGP 120 mn acquisition of Halayeb Dairy by 30 December (Speed Round)

Khaled Bichara tapped as CEO of Orascom Development Holding; ODH looks to USD 271 mn capital increase

Spotlight on the automotive industry, from falling passenger car sales to a Consumer Protection Agency sit-down and development of feeder industries

El Sisi calls on developed states to provide USD 100 bn annually to help African states cope with the impact of climate change (Speed Round)

By the Numbers + How are major corporates pricing the USD in their FY2016 budgets?

WHAT WE’RE TRACKING TODAY

The EGP did not appreciate EGP 0.20 yesterday despite claims to the contrary on social media, which cited a bogus Facebook page as belonging to Central Bank of Egypt Governor Tarek Amer. The news prompted a brief official denial yesterday, Al Mal notes. Neither the CBE nor Amer maintains a social media presence and publishes all information on its official website. All eyes will be on the site later this morning as the week’s second currency auction takes place; the EGP was unchanged against the USD at Sunday’s auction, which left USD 1 at EGP 7.7301. Sunday’s sale of USD 37.6 mn took place on new governor Tarek Amer’s first day in office. The CBE’s auction page is here.

One announcement the CBE did make yesterday: Egypt’s M2 money supply shot up 19.6% year-on-year in October 2015 to EGP 1.87 tn, according to a brief notice. M2 includes cash and checking deposits (M1) as well as what’s called “near money”: savings deposits, money market mutual funds and other time deposits.

Voters in Egypt head to the polls today and tomorrow to vote in runoffs elections for the House of Representatives. Some 426 candidates are contesting 213 individual seats in 13 governorates, including Cairo, North and South Sinai, and Menoufiya. The Higher Elections Committee will announce the final results of the elections on Thursday.

Oh, and it’s December. Anyone else out there wondering where 2015 went?

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ON THE HORIZON

There’s lots and lots of us: There will be some 98 mn Egyptians walking the earth by next Sunday, according to CAPMAS: 90 mn in Omm El Donia proper, and another 8 mn living as expats.

LAST NIGHT’S TALK SHOWS

Adeeb: Manage expectations. Amr Adeeb criticized the domestic media —  state-owned in particular — for being both uncritical in their reporting of huge sums attached to proposed investments and their projected revenues. He likened reports that the East Port Said project is expected to bring in revenue of USD 13 bn per year to reports that Mubarak’s mythical stolen USD 70 bn will be restored to Egypt. Further, Adeeb said these over-the-top figures have led to inflated expectations and a sense of entitlement among Egyptians. Co-host Rania Badawi played Robin Quivers to Adeeb’s Howard Stern, giggling her way through most of the episode while Adeeb roamed from one topic to the next to find something to mock. “The Upper Egypt Investment Conference – did that happen yet?”

Otherwise, the slow news rut continues. Minister of Supply and Internal Trade Khaled Hanafy spoke by phone with Lamis El Hadidy on the government’s measures to respond to food price inflation. Hanafy noted a new program that offers a credit line of up to EGP 100k for young entrepreneurs to open wholesale outlets. He also said the government intervenes in the market to prevent its domination by monopolies.

Later in the program, El Hadidy noted a statement by the British Embassy in Cairo that the UK is working on restoring flights to Egypt as soon as possible.

One of the more noteworthy segments on Ibrahim Eissa’s program on Al Kahera Wal Nas was with regard to the case of 47-year old Talaat Shabeeb, a father of four, who is alleged to have been tortured and killed by a police officer in Luxor. Luxor police initially put out a story saying that Shabeeb had arrested for possession of illegal painkillers and for dealing in illicit substances — and that after being taken into police custody he fell ill and died at Luxor International Hospital, as reported by Ahram Online. It’s a story with uncomfortable echoes of the Khaled Saeed case.

Shabeeb’s family disputes the police account of the story, saying instead he sold papyrus at Luxor’s temples and that they believe he was beaten to death. Shabeeb’s funeral turned into a demonstration, and ever since the police and the media have been attempting to assure people that any officer found of wrongdoing will be held responsible. This is despite, as Eissa noted in his program, not a single officer having been held responsible for anything that has happened over the past several years, up to and including the officers who killed Khaled Said. Shabeeb’s death in police custody is the third such case in recent weeks, including the death after alleged police torture of pharmacist Afify Hosny, whose funeral also turned into a demonstration against systematic police brutality. Further, the Muslim Brotherhood have for a number of months been saying that the police have allowed their members to die in prison due to lack of proper medical care for their health conditions. Eissa said last night that as long as the Ministry of Interior has to wait for people to take to the streets before belatedly issuing statements, something is deeply wrong with the ministry as an institution. (Watch in Arabic, running time: 4:27)

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SPEED ROUND

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Egypt bears outnumber bulls by just over 2:1 in the latest Reuters survey of Middle East fund managers released yesterday, the newswire reports, saying uncertainty on economic policy in general and FX policy in particular weighed on sentiment. Reuters “29 percent of [respondents] expect to cut their allocations to Egyptian equities in the next three months and only 14 percent to increase them — the most bearish balance since the survey was launched in September 2013.” The piece quotes one trader as saying “he expected Egypt’s stock market to trade sideways for the rest of the year in the absence of any economic policy breakthrough.” At the regional level, fund managers were “a bit more positive on stocks, bearish on bonds” because of a looming interest rate hike by the U.S. Federal Reserve, Reuters adds in a second piece. Turkey is out of favour alongside Egypt, while the UAE is in based because of its “policy transparency.” The survey found that 29% of respondents expect to raise their regional equity allocations in the next three months, while 21 percent expect to cut them. “Improved valuations in several markets are the main reason; since last month’s survey was published, stocks have fallen sharply in many bourses.”

The need for clear coordination on economic and monetary policy is becoming more pressing, as Egypt’s odds of defaulting on its five-year bonds ticked up 50 points to 1.18%, according to Moody’s analytics. The credit ratings agency is saying that a recent downward projection for Egypt’s economy is driving a sharp rise in its sovereign risk, with one-year external default frequency for state debt doubling to 0.18% from early October to 20 November, Al Borsa reports. Daily News has a version of the story in English.

The Egyptian-American Enterprise Fund has inked an agreement to acquire a majority stake in Hazem Moussa’s Sarwa Capital, a leading consumer and structured finance provider best-known for its Contact Cars subsidiary and the first lender in Egypt to pioneer securitized offerings, according to an emailed statement. The EAEF and Sarwa entered into conditional binding agreements that include “the injection of USD 20 mn of new capital to enhance the company’s capital base, in addition to acquiring some existing stakes, giving EAEF a majority stake in the business.” EAEF Chairman James A. Harmon noted, “EAEF intends to bring its vast resources and network of best-practice expertise to support the current management team in addressing these exciting businesses.” Moussa noted EAEF as a “long-term partner that shares our vision and commitment to creating value by leading the development of retail and structured finance in Egypt.” Arab Legal Consultants acted as legal counsel to the management team and other minority shareholders, while Ibrachy & Partners acted as the legal counsel to EAEF. Earlier this fall, EAEF was recently one of three partners in a consortium that acquired a majority stake in leading e-payments platform Fawry.

The EBRD is earmarking up to USD 500 mn to invest in Egyptian solar energy opportunities next year under the government’s plan to “construct up to 2,000 MW of utility-scale solar generating capacity as part of an ambitious target to secure 20 per cent of electricity from renewable sources,” the institution said yesterday. The statement notes that the 2 GW in generation capacity “is expected to be delivered through around 40 projects of approximately 50 MW each as part of a strategy to increase renewable power generation in Egypt by mobilizing private sector investors. Many of these projects will be located on a planned 1.8 GW site near Benban in Upper Egypt, which on completion will be the largest solar park in the world.” The EBRD statement, quoting Country Director Philip ter Woort, notes that EBRD expects to finance multiple plants up to a total value of USD 500 mn “and to mobilise up to USD 1.5 bn in debt and equity from other financiers for these ventures. The total project cost is expected to be in the region of USD 4 bn.”

In other energy news: Financing for the Dabaa nuclear power plant will come from a USD 25 bn export credit facility from Russia, according to details of the agreement published in Al Mal. Russia’s funding will cover 85% of the construction costs, with Egypt responsible for sourcing the balance. The loan will be repayable over a 22-year period at an annual interest rate of 3%. Russia has placed stringent conditions on meeting this loan. Interest will rise 150% to 4.5% in the event Egypt fails to make interest payments. Failure to make loan payments for 260 days would see Russia able to call the entire loan plus added interest of 4.5% for every day Egypt failed to make payments. RT has more in English. Meanwhile: Russian President Putin will attend the signing of the Dabaa nuclear agreement, which is expected to take place before year’s end, announced Electricity Minister Mohamed Shaker, per Al Mal. Dabaa will include four 1.2 GW reactors. Speaking at the opening of the Gabal El Zeit wind farm on Sunday, Shaker went on to say how that the crash of Metrojet flight 9268 in Sinai did not affect relations with Russia.

French food giant Danone is expected to close its EGP 120 mn acquisition of Egypt’s storied 100-year old Halayeb Company for Dairy Products and Juice on 30 December, according to “sources close to the transaction” speaking to Al Borsa. Halayeb’s majority shareholders Abdel Moneim Kateelo and Mohamed El Howary already signed preliminary agreements for the sale on Sunday. Danone plans to retain the Kateelo milk brand, which has been on the market for 100 years.

Khaled Bichara will become the next CEO of Samih Sawiris’ Orascom Development Holding on 1 January 2016, according to a company disclosure to the EGX. The announcement comes as ODH signed a six-year agreement with Bichara’s Accelero Capital to “provide advisory services to assist ODH in implementing an operational and financial turn-around.” Interestingly, Bichara will be compensated by an award of “10% of the incremental market capitalization of ODH above a hurdle rate of 8% per annum” with a vesting period of six years. ODH board member Eskandar Tooma, the company’s acting chief financial officer, will remain in place until FY2015 financials are closed at the end of April 2016; a search for a permanent CFO will continue in the meantime. ODH has also “intends to increase its share capital by up to approximately CHF 278 mn” (USD 271 mn) via a rights issue. Bichara is a long-time fixture of Egypt’s business community, having previously served as CEO of Orascom Telecom Holding and COO of VimpelCom, among other positions. The disclosure is available in English or Arabic.

Budget Watch: Expect 5-5.5% growth and a deficit in the 9-9.5% range in the FY2016-17 budget, the Finance Ministry said yesterday. It’s the first guidance from Hani Dimian’s lot since he retained his title as minister during the shakeup that saw Sherif Ismail become prime minister. The statement clearly notes the state is counting on the value-added tax being in force by the next state fiscal year, according to reports in the domestic press.

To have been a fly on the wall… Ahram Online notes: “Egypt’s President Abdel-Fattah El-Sisi talked with Qatar’s Emir Tamim Bin Hamad Al-Thani on the sidelines of the UN’s Climate Change Conference in Paris, presidential spokesperson Alaa Youssef told Ahram in Paris without revealing the nature of the conversation.”

El Sisi calls on developed states to provide USD 100 bn annually to help African states cope with the impact of climate change: President Abdel Fattah El Sisi addressed world leaders at the COP21 UN Climate Change Conference in Paris on Monday, speaking as the head of a committee representing African states at the summit. In that capacity, El Sisi called on the outcome of the proceedings to be legally binding, as long as they produced a document which acknowledged the mismatch between emissions coming from the developed states versus those of the developing world, and called on developed states to provide financing and capacity building to Africa. He noted Africa contributes the least of any region in terms of carbon emissions, but is the most vulnerable to the effects of climate change. El Sisi referenced the second edition of “Africa’s Adaptation Gap,” a report by the United Nations Environment Programme which states that “Past global emissions already commit Africa to adaptation costs of USD 7-15 bn per year by 2020. So far, roughly USD 1-2 bn a year has been flowing to Africa for adaptation, through a variety of sources … While not completely eliminating the risks, effective adaptation can reduce Africa’s vulnerability to hundreds of thousands of people, rather than mns (download the full report, pdf). In light of the report’s findings, El Sisi said: “If the final agreement does not address the financing issue, [the agreement] will be born weak and will prove to be unsustainable.” (Watch in Arabic, English and French audio available from icon next to volume control, running time: 6:53)

France climbs down from pushing for legally binding agreement on carbon emissions: Despite France’s earlier on insisting that the outcome of the COP21 be a legally binding treaty, CNBC picks up a report from the Financial Times quoting French foreign minister Laurent Fabius backpedaling, saying that provisions on carbon emissions will not be legally binding. “Another question is whether the Paris accord as a whole will be called a treaty. If that’s the case, then it poses a big problem for President Barack Obama because a treaty has to pass through Congress,” Fabius noted. French president Francois Hollande had previously rejected US Secretary of State John Kerry’s remarks to the Financial Times earlier in November in which he stated that there could be no legally binding provisions on emissions.

American socialist magazine Jacobin notes this is the pattern with climate change conferences: “There have been moments when the COPs have been on the cusp of meaningful mitigation of climate change, and every time the rich bloc led by the United States has punctured them.”

Renewable energy roundup: Dubai announces “massive” solar program; Egypt wind farm inaugurated Sunday is largest in MENA. Dubai aims to have the lowest carbon footprint of any city in the world after unveiling an “ambitious program which will see 25% of its power generation come from solar energy by 2030,” the Middle East Solar Industry Association said yesterday. The city generates 1% of its power from solar today. MESIA says the Dubai Clean Energy Strategy 2050 program is expected to result in USD 13.6 bn worth of new solar investments.” The program will involve the build-out of what will become the world’s largest solar park with 5 GW of installed solar PV and the installation of 1.5 GW in solar rooftop capacity — essentially solar panels on the roofs of all 115,000 buildings in Dubai. Meanwhile, the 200 MW wind farm inaugurated on Sunday (and on which we reported yesterday) is reportedly the largest in the MENA region, according to a report in Ahram Online.

The IMF has added the Chinese yuan to its basket of reserve currencies — or, as the New York Times somewhat breathlessly put it: “The Chinese renminbi was anointed as one of the world’s elite currencies on Monday, a milestone decision by the International Monetary Fund that underscores the country’s rising financial and economic heft.” While the win brings to an end a nearly decade-long campaign by Beijing (which last lost out on reserve status five years ago), the Los Angeles times hits the nail on the head when it notes: “But with the IMF’s seal of approval, Beijing now faces pressure to continue, if not accelerate, efforts to liberalize its currency and broader financial and capital markets. … If China fails to meet expectations on transparency and financial reforms, Beijing could risk losing credibility or even its place in the IMF currency basket.”

From the bleachers: “We’re number one. We’re number one. We’re…” Business Insider is pretty chuffed about a map-slash-infographic by Bank of America Merrill Lynch noting that multiple listed U.S. companies have market caps in larger than those of entire emerging market stock exchanges. Oracle’s market cap of USD 168 bn is the same size as the aggregate Mcap of all listed Mexican companies. Similarly: Cisco edges out Russia, and, sadly, Garmin at USD 7 bn has a larger market cap than the EGX. Not so chuffed: Al Mal, which picked up on the map and believes it is presented to “prove the size and strength of U.S. capital markets compared to others.”

Clickbait business headline of the day: The World’s Largest Elevator Market Is Falling and May Never Recover.” That’s Bloomberg reporting on the fortunes of Otis Elevator Corp., whose products hoist tourists atop the Eiffel Tower and the Empire State Building, but which has run into a rough patch as elevator sales in China are forecast to fall to 500k units next year from 600k a year ago.

Other international headlines this morning that either carry implications for Egypt or that are simply worth noting in brief:

  • “…this will be the first time in two decades we will see oil investments declining for two consecutive years and may be an indication for future oil markets.” — International Energy Agency chief Fatih Birol, speaking in Singapore yesterday.
  • Not great news for emerging markets anywhere: China’s manufacturing activity contracted again in November, but more slowly than in October, Bloomberg reports
  • Nikkei now owns the Financial Times with the close of its USD 1.3 bn acquisition, according to this tweet from editor Lionel Barber.

SPOTLIGHT on the auto industry

Passenger car sales fall in October for third consecutive month, Renault tops Hyundai in market share. October figures from industry body AMIC show a 12% year-on-year drop in passenger car sales to 17,270 vehicles as distributors report challenges sourcing foreign exchange to import both completely built-up (CBU, or fully assembled) vehicles and completely knocked-down (CKD) kits for local assembly. The total automotive market, encompassing commercial vehicles and buses, fell 9% year-on-year in October. In the CBU market segment, Renault led the market with a 19.4% share of all passenger car sales during October, edging out Hyundai, which closed the month in second place with a 17.1% share. Kia took a 15.3% share, while Chevrolet fell to fourth with 8% and Toyota rounded-out the top five with 7.5%.

Automotive distributors have been called in for a sit-down with the Consumer Protection Agency to discuss rising car prices. The meeting comes in response to complaints filed against distributors, who have been accused of taking advantage of the FX crunch to mark up prices at unreasonable levels, Al Mal reports. The debate over this recent spike has spurred calls for the government to intervene in the market, and the CPA is considering drawing up a pricing mechanism to curb rising prices, said CPA board member Saad El Deeb, adding that the FX crunch is “not a plausible excuse” for price hikes because distributors are raising sticker prices out of proportion to the devaluation of the EGP. El Deeb also argues that locally assembled vehicles are not as exposed to the FX crunch. Distributors and retailers criticized the what they called the CPA’s “anti-competitive” rhetoric, flatly saying they’re not price gouging. El Kady Motors chairman Ibrahim El Kady attributed the spike to market forces — namely, growing demand and shrinking supply as distributors fail to secure the FX they need to maintain smooth import flows, Al Mal reports. Shady Reyan of Misr Car Trading suggested that better FX allocations are the only way to curb price rises.

The EBRD will allocated EUR 10 mn to help develop feeder industries for the auto sector, Al-Borsa quotes country chief Philip ter Woort as having said yesterday. “One of the leading challenges facing the Egyptian automotive industry is the lack of funding,” ter Woort is quoted as saying. Tamer Al Shafie, head of the feeder industries division at the Federation of Egyptian Industries, says development of feeder sectors is stymied by a lack of clarity on where the industry is headed, DNE reports. This comes as the Egyptian Automotive Council voted to form a holding company for investments in component manufacturers and other feeder companies, Al Borsa reports. The council also voted to form a committee headed by Al Shafie to formulate a strategy to develop the feeder sector.

128s for everyone. Or: Haven’t we been down this road before? Prime Minister Sherif Ismail has directed the Ministry of Military Production Ministry to begin manufacturing cars and components, Al Ahram reports.

EGYPT IN THE NEWS

CNBC picks up on a recent research report from Brown Brothers Harriman for a piece headlined “Despite pitfalls, Egypt works toward economic stability.” The story notes that “after several years of social and economic upheaval, Egypt — the most populous and one of the most strategically important nations in the Middle East — appears to be on a tentative road to recovery” and forecasts that with terrorism as the wild card, “analysts say that al-Sisi has enough support to push through structural reforms.” If you should hit up that link above for the BHH website, make sure to stick around a moment to check out BHH’s extremely solid blog Mind of the Markets, which actually includes a post on Egypt by Win Thin, the author of the research report CNBC cites. Elsewhere, their quarterly magazine Investor View (pdf) is worth checking out, as is their new magazine Women & Wealth (pdf).

The crux of a Forbes op-ed contributed by two fellows at Bruegel, the European economics think tank: “Egypt holds the keys to the Eastern Mediterranean’s gas future. It could decide to proceed alone by exporting the gas volumes that will progressively become available on top of the domestic demand, or it might decide to proceed together with Israel and Cyprus, by creating a new Eastern Mediterranean gas hub based on its existing exporting infrastructure. Creating a new Eastern Mediterranean gas hub would present benefits for all players involved, allowing Egypt to enhance its role in the region and secure revenue from a transit scheme, and Israel and Cyprus to fully exploit their gas reserves. It would also present an opportunity for Europe, where imports requirements will grow post 2020 due to declining domestic production and expiration of long-term contracts with Norway and Russia.”

In a further sign of rapprochement between Russia and Egypt after the fallout from the Metrojet crash, Cairo has “asked Moscow to provide it with the list of banned Turkish goods.” Claiming it is “ready export Egyptian products to Russia”, the proposal would fill the gap left by “Russia’s decision to restrict Turkish imports of fruits and vegetables to 66 percent, as well as clothing items,” Russia’s RT reports.

WORTH READING

The Doomsday Scam – The hunt for the fictitious red mercury: C.J. Chivers revisits the mythical substance known as red mercury, a scam which has preyed on nuclear smugglers and terrorists alike since at least 1979. “To approach the subject of red mercury is to journey into a comic-book universe, a zone where the stubborn facts of science give way to unverifiable claims, fantasy and outright magic, and where villains pursuing the dark promise of a mysterious weapon could be rushing headlong to the end of the world. This is all the more remarkable given the broad agreement among nonproliferation specialists that red mercury, at least as a chemical compound with explosive pop, does not exist.” (Read)

IMAGE OF THE DAY

As archaeologists continue to probe for a hidden chamber in King Tut’s Tomb that some believe could house the tomb of Queen Nefertiti, Retronaut has unearthed a stunning trove of colorized images from the 1922-30 deconstruction of King Tut’s burial place.

WORTH WATCHING

The innovation slowdown: Martin Wolf, Chief Economics Commentator at the Financial Times, sat down with Foreign Affairs magazine earlier this month to speak about what he calls ‘the innovation slowdown.’ “We’re living in an age . . . of really slow and boring technological change compared to what our ancestors managed to generate.” The video is a companion piece to an article published by Wolf for Foreign Affairs last June, whose link is down at the moment. (Watch, running time: 9:46 and or read the transcript here, paywall)

DIPLOMACY + FOREIGN TRADE

In Paris for the COP21 climate change talks, President Abdel Fattah El Sisi held one-on-ones with leading French politicians and UN Secretary General Ban Ki-moon. Highlights, per readouts from Ittihadiya:

  • With UNSG Ban Ki-moon: The secretary-general congratulated Egypt on its 2016-17 rotating Security Council seat, while El Sisi used the time to open the question of peace between Israel and Palestine.
  • With French President François Hollande, El Sisi discussed the global war on terror and the security situation in Syria and Libya. The president “also stressed the need to adopt a comprehensive approach in dealing with all these terrorist groups without selectivity.”
  • With Palestinian President Mahmoud Abbas, President El Sisi reiterated the importance that Egypt places on the Palestinian issue. He also stressed the importance of the PA returning to the Gaza Strip resuming control of border crossings.
  • With French Prime Minister Manuel Valls, the president talked security and French investment in “power generation from new and renewable energy sources, infrastructure, transportation and job creation. He also emphasized that the Egyptian government is keen to attract foreign investment for national mega projects such as the Suez Canal Area Development Project.”
  • With French Defense Minister Jean-Yves Le Drian, the president discussed security cooperation (including France’s sale to Egypt of Rafale fighter jets and Mistral helicopter carriers) and pushed for “coordinating joint efforts to combat terrorism in the African Sahel, which is a hotbed for terrorist groups, given the grave threat they pose to the stability of the continent and the recent terrorist attacks in a number of African countries.”

ENERGY

ABB promises to add 10 GW to national grid over three years
Global engineering and energy firm ABB will help add 10 GW in generation capacity to Egypt’s national electricity grid over a three-year period, the firm announced in a roundtable discussion that included ABB Group CEO Ulrich Spiesshofer as well as Naji Jreijiri, the company’s managing director for Egypt and North and Central Africa, reports Daily News Egypt. While the company wants to invest in the Administrative Capital and the Suez Canal Zone, said Jreijiri, it will not secure funding through local banks. ABB opened two new manufacturing facilities in 10 Ramadan City last year to produce compact substations and medium voltage switchgear.

Ganope inks USD 3.5 bn MoU with Enmaa Al Ain
The Ganoub El Wadi Petroleum Holding Company (Ganope) inked an MoU with UAE firm Enmaa Al Ain to conduct feasibility studies for a bundle of projects in the Gulf of Suez area with a total investment of USD 3.5 bn, including an industrial zone, a port for the import of coal, a desalination station, as well as clean energy power plants. Ganope pushing forward with plans to diversify into alternative and renewable energy projects, said Ganope President Abu Bakr Ibrahim. (Read in Arabic)

INFRASTRUCTURE

A sneak peek at the Transport Ministry’s plans?
Shorouk is claiming it has a copy of the Ministry of Transportation’s strategic plan ahead of its presentation to the incoming House of Representatives. The plan, which is estimated at a stretched investment value of “up to EGP 90 bn,” includes four categories: emergency, short-term, long-term, and an investment plan, according to the Transportation Ministry Spokesperson Ahmed Ibrahim. The plan encompasses 14 maritime transportation projects, 12 railways projects, six highways and several logistics centers as well as Nile transportation projects.

Badr City Authority to issue tenders public infrastructure projects worth EGP 600 mn
The Badr City Authority is preparing to issue tenders for EGP 600 mn in infrastructure projects in early 2016, Mostafa Fahmy, head of the Authority told Al Mal. The most notable of these projects is a 150 MW power station and two bridges at the industrial zone and the Robiky leather city at a total cost of EGP 100 mn. The projects are meant to boost the quality of infrastructure in the city and bring its energy capacity up to level able to support its population density. (Read in Arabic)

BASIC MATERIALS + COMMODITIES

GCSS announces tender to build 10 wheat silos and logistic zones
General Company for Silos and Storage (GCSS) will issue a USD 45 mn tender today to build 10 wheat silos and two wheat logistical areas. Financing for the project comes from a grant from Italy. The combined storage capacity of these silos would reach 200 Ktons per annum and are worth a combined total of USD 17 mn. The two wheat logistical zones, worth a total of USD 28 mn, will cover 120 feddans, said GCSS chairman Mahmoud Abdel Hamid. The move comes as part of the Supply Ministry’s plan to boost wheat storage capacity, which Minister Khaled Hanafy announced back in April. (Read in Arabic)

MANUFACTURING

Cement license saga continues
A government source is claiming that the Industrial Development Authority may issue new cement manufacturing licenses in 1Q2016, according to Al Borsa. The newspaper also claims that the IDA has yet to sort out the mechanism through which the licenses would be sold and says the IDA and the cabinet economic group are postponing the issuance of licenses until the building materials market in Egypt picks up. Separately, we would note that cement prices declined c. 15% in 3Q2015 on the back of market oversupply — and that current producers dispute the government’s projection that the industry will swing to a sharp deficit in the coming decade. State figures predict a production shortfall of c. 10 mn tons per annum by 2020, when they project market demand rising to 80 MTPA from 50 MTPA today. The story of the IDA will / won’t issue cement licenses has been an ‘evergreen’ story for 2015.

REAL ESTATE + HOUSING

Redcon Construction ABC administrative building next year
Real estate developer Redcon Construction Co will complete the Arab Banking Corporation (ABC) administrative building project in 2016 at a total cost of EGP 450 mn, Redcon Chairman Tarek El Gamal told Al Mal. The sustainable building was designed by “a large French consultancy firm”, added El Gamal. Redcon completed the first phase of the project over an area of 20k sqm, while the second phase will incorporate a further 35k sqm on Road 90 in New Cairo. The article also mentions an EGP 700 mn joint venture with “El Sewedy Group” to build a mall in New Cairo, but El Sewedy Electric has since denied the claim. (Read in Arabic)

PHD shareholders fully fund employee stock ownership program
Real estate developer Palm Hills Developments said in an emailed statement that the company’s shareholders met yesterday for an ordinary meeting of shareholders to approve the allocation of retained earnings totalling EGP 53.4 mn to the company’s employee stock ownership plan (ESOP). A separate extraordinary meeting held the same day saw the company raise its capital to EGP 4.4 bn through the issuance of 26.7 mn new shares financed through the same retained earnings. (Read in Arabic)

TOURISM

Egypt gets its first Westin Hotel in 2016, three more Starwood properties opening in 2016
Starwood’s Westin brand made its debut in Egypt in early November, the company recently announced, with the opening of the Westin Soma Bay Golf Resort and Spa. The property is Starwood’s eleventh property in Egypt. In 2016, “Starwood also plans to re-open the Sheraton Cairo Hotel and Casino after renovations, introduce the Westin Cairo Golf Resort & Spa in Kattameya, and debut the St Regis brand in Egypt with the opening of the St Regis Cairo.” Further out on the horizon, the W Sharm El Sheikh is due to open its doors in July 2020. Read the piece or check out Starwood’s full list of Egypt properties.

BANKING + FINANCE

Alaa Saba’s exit of Beltone prompts shuffle of EGX board
The financial market is awaiting new EGX board following Alaa Saba’s exit of Beltone Financial, which would disqualify him for continued membership. Saba is to be replaced by the next highest-vote count holder, Shawkat El Maraghy, the Managing Director of HC Securities, but El Maraghy would have to give up his position as board member in the Egyptian Investor Protection Fund. As we had reported yesterday, Beltone Financial Holding will most likely be chaired by Sameh El Torgoman, the current Chairman of ACT Financial, while former EGX chief Maged Shawky is expected to become Vice Chairman, and Bassem Azab will serve as Managing Director. OTMT is expected to be represented by its deputy CEO, Tamer El Mahdi, who is poised to become a board member. (Read in Arabic)

EGYPT POLITICS + ECONOMICS

Two scenarios for CBE and cabinet policy coordination, per ECES
The Egyptian Center for Economic Studies highlights two scenarios for the CBE and government should they coordinate their fiscal and monetary policies, reports Al Borsa. In scenario one, they coordinate to contain inflation by increasing interest rates, lowering consumption and investment. Dollarization causes cost of servicing public domestic debts to go up, leading to public foreign borrowing, which appreciates the EGP temporarily, lowers international reserves and forces the Ministry of Finance to pursue fiscal consolidation by cutting government expenditures or increasing tax rates, which reduces budget deficit, tames inflation, and increases investors’ confidence. In scenario two, they promote economic growth by decreasing interest rates, encouraging private sector credit and investment but increasing inflationary pressure. Dollarization increases, which lowers the cost of servicing public domestic debt. This in turn increases issuance of treasury bills to finance the debt, increasing the need for FX and depreciates the EGP. Good quality exports can flourish, which would increase international reserves. Government spending will increase, which will widen the deficit unless they are offset by foreign direct investment or external loans. This scenario boosts economic growth but leaves inflation uncontained.

REGIONAL

The UAE is ready to commit ground troops in Syria, State Minister for Foreign Affairs Anwar Gargash said at a press conference yesterday in Abu Dhabi. Saying the forces would be deployed as part of an Arab coalition to combat terror in the war-torn nation, Gargash emphasized that Western countries troops shouldn’t participate and repeat the “Iraq experience,” suggesting the Saudi-led coalition in Yemen as an alternative model. The minister’s statement that the global war against terror is falling short of its mark comes amid changing regional views on the issue: Last week, we noted a column in the London-based newspaper Asharq Al-Awsat inviting Arab and Muslim countries to fight Daesh on the ground in Syria and Iraq. Meanwhile, the UAE’s Minister of Foreign Affairs, Sheikh Abdullah bin Zayed, said his country considers Turkey’s shooting down of the Russian bomber to be an act of terrorism. The statement came during the fifth meeting of the UAE-Russia joint ministerial committee in Abu Dhabi, adding yet another complexity to the fallout from war in Syria.

Meanwhile, Russian president Vladimir Putin said at the sidelines of the COP21 conference in Paris: “We have every reason to think that the decision to shoot down our plane was dictated by the desire to protect the oil supply lines to Turkish territory,” the BBC reports.

ON YOUR WAY OUT

Talk show host Reham Saeed, the noted shamer of victims of [redacted] assault, will be back on air “soon,” the network Al Nahar reported, saying too many viewers were disadvantaged by the show’s inability to play its “charity, humanitarian and national role” since being yanked off air in October. Ahram Online has more.

BY THE NUMBERS
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QUICK FACT: Not all cement companies operating in Egypt have been able to convert to coal up to date because selected mills are located in residential areas.


USD CBE auction (Monday, 30 November): 7.7301 (unchanged since Wednesday, 11 November)
USD parallel market (Monday, 30 November): 8.60 (+0.10 from Thursday, 26 November, Reuters)

EGX30 (Monday): 6356.73 (-1.87%)
Turnover: EGP 359.7 mn (17% below the 90-day average)
EGX 30 year-to-date: -28.78%

THE MARKET ON MONDAY: EGX30 tumbled 1.9% yesterday, ending a three-session rally. None of the index’s constituents closed in the green. Among the worst performers were Juhayna, Orascom Construction, Arabia Investments, and Oriental Weavers. The broader EGX70 plummeted to an all-time-low on Monday, closing at 344.5. On a market turnover of EGP 359.7 mn, local investors were the sole net buyers. Re­gionally, Saudi’s TASI shed 0.2%, while the ADX and DFM both closed in the up. Globally, Germany’s benchmark DAX, France’s CAC 40, the Shanghai Composite, and the UK’s FTSE 100 all closed up for the day.

Foreigners: Net Short | EGP – 3.5 mn
Regional: Net Short | EGP – 0.1 mn
Domestic: Net Long | EGP + 3.6 mn

Retail: 52.9% of total trades | 56.0% of buyers | 49.8% of sellers
Institutions: 47.1% of total trades | 44.0% of buyers | 50.2% of sellers

Foreign: 36.8% of total | 36.3% of buyers | 37.3% of sellers
Regional: 6.9% of total | 6.9% of buyers | 6.9% of sellers
Domestic: 56.3% of total | 56.8% of buyers | 55.8% of sellers


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PHAROS VIEW

With companies pricing the USD at 9.00-9.50 in FY2016 budgets, inflation is almost a fact, not a risk

In our latest communication to clients we expressed our deep concerns over Egypt’s exceptionally limited reserve buffer and escalating geopolitical risks. Our concerns have been indeed reflected in widely reported FX shortages, a steep increase in long-term deposit rates, a downward revision in Egypt’s outlook from “Positive” to “Stable” by S&P Ratings, and a steep correction in equities led by the index bellwether CIB. While these concerns are still valid, our views on equities have gone from bearish to neutral on what we view as a formation of a solid management team, particularly in the CBE.

We will shift from neutral to positive on equities if the current management team has been formed to execute aggressive fiscal and FX reforms on a “Fast Track” basis. The expedited launch of a social safety net, via the 10-20% slash in the prices of key food items sold in government-owned and private outlets, likely suggests that major reforms are imminent. We will be eyeing a one-off meaningful devaluation of the EGP versus the USD to a level close to 8.59-9.00 coupled with the launch of VAT and continued interest rate defense during 1H16. Based on recent company visits, most of the major companies operating in Egypt have based their 2016 budgets on a USD / EGP of 9.00 or 9.50. Some of them have actually executed price hikes accordingly, which suggests that the inflation shock is almost a fact rather than a risk. Accordingly, we highly recommend the adoption of a Big Bang approach followed by the pursuit of reform-linked funding from the IMF to trigger other private inflows. The time is ripe for ending the gradualist approach and the management team is well equipped to soften an otherwise hard landing. Tap here for the full story.

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WTI: USD 41.69 (+0.10%)
Brent: USD 44.51 (-0.22%)
Gold: USD 1,063.50 / troy ounce (-0.22%)

TASI: 7,239.9 (-0.2%)
ADX: 4,236.4 (+1.5%)
DFM: 3,204.3 (+0.4%)
KSE Weighted Index: 393.0 (-0.2%)
QE: 10,090.8 (-4.4%)
MSM: 5,547.9 (-1.7%)

 

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