Monday, 28 December 2015

2015 was the year of M&A

TL;DR

Salman dominates a slow news cycle with press conference (Speed Round)

Qalaa shares surge on deal to divest glass subsidiaries (Speed Round)

Year in review, part 2: The year in M&A, capital markets, and the 2016 pipeline

By the Numbers + Fingers Crossed: Floatation in Sight

WHAT AM I READING?

Enterprise is on something of a break this week, as we mentioned yesterday. It’s a chance for us to get caught up on sleep, spend time with family, and lay the ground for a new product we’re aiming to launch early in the new year.

This publication is proudly sponsored by

Pharos Holding - http://www.pharosholding.com/

CIB - http://www.cibeg.com/

As we do so, we’re looking back this week on the year that was — in business, economics and politics. Throughout this week, we’ll have brief issues of Enterprise at the usual time including both our first “year in review” (in five installments) and a brief recap of what happened yesterday. We hope you find them useful as you prepare your 2015 reports and / or your 2016 strategy.

SPEED ROUND

Speed Round is presented in association with

SODIC - http://sodic.com/

Setting the record straight: Contrary to reports in the local press and our piece of yesterday, shares of dairy producer Domty are likely to begin trading some time in 1Q2016 and not tomorrow. Domty (legally the Arabian Food Industries Co.) listed its shares on the EGX last week, giving the company six months to complete all outstanding regulatory requirements to offer its shares to the public. Our apologies to all for the confusion yesterday, and h/t Marwan S. and Moustafa C.

How slow was the news yesterday? Bad enough that the financial press carved a press conference by Investment Minister Ashraf Salman into roughly Avogadro’s Number of individual stories. The presser was light on news, heavy on content, with perhaps the most significant announcement being Salman’s suggestion that Egypt will postpone indefinitely plans to float a second, USD 1.5 bn tranche of USD bonds that had been expected in 4Q2015 / 1Q2016. Also notable:

  • Salman is speaking with Ittihadiya about the timing of a second Egypt Economic Development Conference, and the gathering will most likely be held in May. The Investment Ministry would prefer to hold them every other year, he said, while the presidency has a preference for an annual gathering. Salman also noted the ministry is focusing on government-specific conferences (presumably including the Upper Egypt conference that was twice scheduled and postponed in 2015).
  • The final tally from EEDC #1: Agreements have translated into 19 final contracts worth USD 58.8 bn, including four in the petrochemicals industry worth USD 21 bn, four in energy / power worth USD 9.5 bn and transportation agreements worth about USD 670 mn.
  • Salman launched another barrage in the inter-ministry war over which ministries can zone and allocate land for investors, saying the responsibility is his ministry’s under the Investment Act, a document he noted was passed with input from all cabinet members.
  • Of the USD 2 bn in Saudi investment pledges made in March, USD 1.5 bn will be earmarked for development projects in health, education and public services. KSA had pledged USD 2 bn in investments and USD 2 bn in deposits at the central bank.
  • Salman also appears to set an FDI target of USD 10 bn and set the bar for domestic investment at EGP 230 bn, but Al Ahram’s report does not make clear the year for which Salman is setting those goals.
  • The General Authority for Investment (GAFI) will 10 new branches in the current state fiscal year ending in June, four more than originally planned. Three will open in January. The new GAFI board will meet on Tuesday; 70% of its members are drawn from the private sector, Salman noted.

Don’t want to wade through 6.02×10^23 short stories? Al-Borsa filed late yesterday a fairly comprehensive recap.

Salman also said we can expect an announcement “within days” about two Russian bids for contracts to upgrade and expand the Egyptian Iron and Steel Company. The Holding Company for Metallurgical Industries is looking to hike its production capacity to 1.2 MTPA from 0.3 MTPA today.

Qalaa shares surged more than 3.2% yesterday as the company announced subsidiary MENA Glass entered into agreements to sell its full stake in Misr Glass Manufacturing Co. and the United Glass Co. to Middle East Glass Manufacturing. The transaction pegs the equity value of 100% of both MGM and UGC at a combined c. EGP 828 million. The transaction should close in 1Q2016 after Middle East Glass lines up acquisition finance; Qalaa has an effective ownership of 15.2% of each of the two companies. Qalaa Co-Founder and MD Hisham El-Khazindar noted that, “As our fifth disposal announcement this quarter, the transaction underscores both our commitment to divesting non-core operations and our ability to conclude deals at the right valuations.”

As we suggested a couple of months back: If the electricity story in 2015 was all about generation capacity, it will shift in 2016 to focus on investments in transmission infrastructure as the state upgrades the national grid to handle new generation capacity coming online in the new year and beyond. That’s how we’re reading recycled news that the Egyptian Electricity Transmission Co. is presently looking to secure more than EGP 2 bn in financing for the construction of transformer stations and the laying of new power lines. As we noted two weeks ago, ADIB and the National Bank of Egypt are taking the lead on two syndicated facilities together worth as much as EGP 7 bn. The EETC’s total outlay on upgrade projects in FY2014-15 stood at EGP 2 bn.

Transportation infrastructure also looks set to remain hot in 2016, with the Transport Ministry providing an update yesterday on three large-scale projects. The vice-chairman of the National Authority for Tunnels told Al-Mal that the government is scaling back its ambitions for an electric train line linking Salam City to 10 Ramadan by way of the New Administrative Capital after initial projections suggested the final ticket price would ring in at EGP 28 each way. The authority is looking to cut back on the total construction cost — which Al Mal does not specify — by eliminating underground legs and minimizing above-ground structures including overpasses and raised platforms. The government is talking to China’s AVIC, which got the green light in August for a consortium to run the project, about scaling back the project budget on a PPP or BOT basis. Al Mal also reports that China Harbour is closing in on a final agreement to build and operate a USD 700 mn multipurpose port in Alexandria and that France’s VINCI has won the contract for civil engineering works on phase three of Cairo Metro Line 3, which will link Gamal Abdelnasser station to Imbaba.

Finance Minister Hani Dimian convened a hush-hush “emergency meeting“ of accountants and tax advisors on short notice, Al Mal reports. Attendees also include current and former Tax Authority staff, and the newspaper is speculating that the discussion has something to do with the value-added tax. There was no additional information available this morning at dispatch time.

400 public figures from parliament, political parties and media sign petition condemning annulment of university student union elections: The student union elections committee is facing nationwide backlash after nullifying the election of Zagazig University student Ahmed Attia for the post of vice-president of his student union. The national student union elections were the first since 2013, after having been cancelled for the past two years, Ahram Online reports. Daily News Egypt cites the Association of Freedom of Thought and Expression as saying the government-affiliated elections committee based its decision on the fear that the list of candidates endorsed by the Mostaqbal Watan party, run by a 24-year old and whose platform is overtly pro-government, failed to win any seats.

The USD was unchanged at auction yesterday as the central bank sold USD 39.4 mn at EGP 7.7301 per greenback. Reuters reported greenbacks selling on the parallel market for EGP 8.57, while Al Mal reported EGP 8.58, noting that the market is quiet due to the holiday season and impending close of the fiscal year.

Other domestic stories making headlines this morning:

  • National flag carrier EgyptAir reports its losses fell 74% year-on-year in FY2014-15 to EGP 718 mn. The national flag carrier has accumulated losses of EGP 10 bn since January 2011, Al-Borsa says (Reuters put the figure at USD 1 bn a year ago) but launched earlier this year a 10-year turnaround and restructuring bid.
  • First Equity Partners, which listed two companies on the Nilex this year, says it has mandates to take three more small and mid-sized business public on the smallcap exchange in 2016, according to Al-Borsa.
  • Egypt will save EGP 7 bn on fuel subsidies in the current fiscal year thanks to low oil prices, Al-Ahram quotes Oil Minister Tarek El Molla as saying, adding that the minister will head to KSA in the first half of January to flesh-out a Saudi pledge to provide Egypt with oil cargoes over a five-year period. Ahram Online has an English draft of the story for those so inclined.
  • President Abdel Fattah El Sisi drew a direct line in a speech yesterday between job creation and the state’s effort to curb terror, according to Ahram Online. Al-Ahram has a longer readout in Arabic.
  • The deputy head of the State Litigation Authority was killed in a gas explosion in Faisal yesterday, Al Ahram reports, citing a report on CBC Xtra. There was little additional detail at dispatch time this morning on the incident, but reports suggest Rashwan Hussein was killed when he happened to drive by and was not the target of a terror attack. Authorities suspect a gas leak.
  • Ride-sharing app Uber, which is investing USD 250 mn in expansion across MENA, says it has expanded to Alexandria and is creating some 2,000 jobs per month. Cairo has been Uber’s fastest-growing market in EMEA since its launch a year ago.
  • Crazed talk show host Tawfik Okasha says he has applied for political asylum in Germany, saying he no longer has a role in public life and that he’s “persona non grata” in Egypt, according to Al Masry Al Youm. Ahram Online takes a more nuanced approach to a man without nuance, saying the newly elected Member of the House of Representatives said the security services are “working against the wellbeing of the country and working for their narrow ideas” and that the “current authorities want to activate one-party rule.”

Egypt in the News: On the international front this morning, global media continue to report on a video that shows the shooting by Egyptian border security forces of a mentally-ill Palestinian man on the beach in Rafah. (Warning: The video, which is getting wide traffic everywhere from Al Jazeera to the Jerusalem Post, is graphic.) Hamas has called the shooting a “cold-blooded execution,” Ahram Online reports. Meanwhile, the Independent carries a comment by its travel correspondent and a news story by its media editor on why British tourists should return to Egypt.

Other stories on our radar this morning:

  • Key Saudi cabinet ministers and the head of Saudi Aramco will appear together for a press conference this afternoon as Saudi Arabia announces its 2016 state budget, Reuters reports.
  • Egypt has offered Saudi Arabia “tourism projects in the Red Sea resort of Sharm El-Sheikh, as well as a mixed-use real-estate project west of Cairo on a partnership basis,” Bloomberg reports.
  • BG is closing in on a USD 30 bn agreement to import natural gas to Egypt from Israel’s Leviathan field, Israel’s Globes reports, saying “the plan is to sign the contract before Shell Oil completes its acquisition of BG next month.”
  • Iraqi security forces are nearing their third major victory in nearly a month, pushing Daesh forces out of the center of Ramadi.

And, finally, in a story that has uncomfortable echoes of 2012-13 for some of us here: Guinness has gone “alcohol-free” in Indonesia “after creeping conservatism and concerns around underage drinking sparked a government ban in April on sales of beer in minimarkets.” CNBC picks up the full Financial Times story on the subject.


THE YEAR IN REVIEW: M&A, IPO, People and the Markets

Our business story of 2015: It was “The Year of M&A”

It’s easy to see why so many of us closed the year on a down note, talking about the “challenges” and “headwinds” of 2015. Look no further than a dead IPO market in the second half, the foreign exchange crunch, a lack of cabinet-level leadership (and transparency) on the economy after the Egypt Economic Development Conference in March, the summertime energy crunch for industry, and a spate of terror attacks that climaxed with the downing of Metrojet Flight 9268 in Sinai.

Heck, we even have two nice, shiny gauges to which to point as indicators of a lack of confidence in the economy: The EGX30 was the best-performing bourse in the world in 2014. We’re on track to close as one of the world’s worst-performing stock exchanges this year, down a bit over 24% as we write this. And the Emirates NBD / Markit PMI for November hit a two-year low.

But the doom and gloom masks what we read as significantly more confidence in the economy than you might think. That’s our fundamental conclusion after reviewing our coverage of mergers and acquisitions transactions in 2015. After a moribund 2014, dealflow surged this year, with more than 40 transactions worth well in excess of EGP 20 billion executed or announced — and those are just the larger-scale transactions of which we took note.

(The EGP 19 bn figure includes only deals for which pricing has been made public. The figure also excludes the USD 8 bn OCI NV – CF Industries merger, which we nevertheless include in our list below owing to its Egyptian origins.)

Forget about inflows to listed companies (where Reuters recently reported that bears outnumber bulls 2:1), promises of future expansion by companies on the ground today, and inflows to megaprojects: M&A transactions represent tangible, present-day optimism on the part business leaders about the outlook for the nation.

In this sense, the breadth of Egypt’s economy helped it line up more with global trends than with the regional one. Low oil prices helped push MENA M&A activity down 37% by value YTD in 10M2015 to USD 5.4 bn, according to a report by EY. In fact, Reuters says the number of deals in the narrower Middle East fell to its lowest level since 2007. By contrast, 2015 was the best year for M&A globally since the pre-crisis peak in 2007, reports the Financial Times. Total transactions for the year topped USD 4.6 tn, up from USD 4.3 tn eight years ago.

At least 29 transactions were confirmed executed in 2015:

Kellogg acquires Bisco Misr (USD 87 mn): The U.S. giant won a pitched battle with EM private equity giant Abraaj for the Egyptian biscuit maker. The deal was announced in January.

Kellogg acquires Mass Food (USD 50  mn): The global megabrand followed its acquisition of Bisco Misr early in the year with a deal in September to buy the owner of the Temmy’s cereal and NutriFit brands.

Valeant acquires Amoun (USD 800 mn): Embattled Canadian pharma giant acquired Egypt’s Amoun Pharmaceutical Co. after hiring Goldman Sachs to manage the sale, replacing Jeffries Group, which had been retained in 2014. Selling shareholders included Capital Group, Concord International Investments, and the Rohatyn Group. The transaction closed on 19 October.

Danone acquires Halayeb Company for Dairy Products (EGP 120 mn): The transaction is expected to close on 30 December. Danone plans to retain the Kateelo milk brand, which has been on the market for 100 years.

CIB acquires Citi’s retail operations, cards business (undisclosed): The nation’s top private-sector bank acquired Citi’s retail banking and cards business in Egypt in a head-to-head with Emirates NBD, ADIB, Mashreq and Bank Audi. The deal, which closed in November, made CIB the market leader in Egypt’s credit card business overnight with the addition of some 80,000 credit card accounts to its existing base of 240,000 clients; CIB also took eight Citi branches and the bank’s ATM network and saw CIB acquire c. USD 140 mn in assets, USD 190 mn in deposits and about 100,000 customer accounts. Citi had 882 staff in Egypt. The Wall Street Journal noted that CIB beat out “nearly a dozen mostly regional lenders who were hoping to expand in the Arab world’s most populous country.”

OTMT and Act Financial acquire Beltone Financial (EGP 650 mn): Orascom Telecom Media and Technology Holding (OTMT) and Act Financial acquired Alaa Saba’s Beltone Financial in a transaction that gave OTMT an 87% stake and Act 13%. Beltone Capital, the private equity firm led by Hazem Barakat, was not included in the transaction and is expected to rebrand and go public in 2016.

AXA acquires Commercial Life Insurance (CIL) (EGP 763 mn): The Euronext-listed group acquired 100% of CIL from CIB (45% stake) and Legal & General (55%), edging out bidders including UK-based Prudential Financial. CIL is the third-largest life and savings insurance player in Egypt with a 15% market share. AXA then entered an exclusive 10-year life and savings distribution agreement with CIB in Egypt.

Egyptian-American Enterprise Fund acquires Sarwa Capital (north of USD 20 mn): The U.S. fund acquired a majority stake in 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 transactions included “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.”

Helios-led consortium acquires Fawry (EGP 571 mn): A consortium of global investors led by Africa-focused investment firm Helios Investment Partners acquired a 73% stake in home-grown e-payments services player Fawry. Other consortium members included Egyptian-American Enterprise Fund (the U.S. government private entity that invests to promote financial inclusion and job creation) and the MENA Long-Term Value Fund. Sellers included Egyptian banks and the IFC. EFG Hermes was sell-side advisor. Khodeir, Nour & Taha in association with Al Tamimi & Co. and Norton Rose Fulbright were legal counsel to the acquiring consortium. Zaki Hashem & Partners and Ibrachy & Partners acted as legal counsel to the selling shareholders and management.

Pioneers acquires Arab Dairy (EGP 257 mn): Pioneers Holding edged out Lactalis (Europe’s largest dairy products company) Denmark’s Arla Foods, India’s Paras Dairy and Saudi’s Arrow Food Distribution to acquire the company best known for the hugely successful marketing campaign backing its Panda Cheese and a deep base of corporate clients including Hilton, Movenpick and InterContinental as well as mass-market restaurant brands Bon Appetit, Cook Door and La Poire. and Saudi Arabia’s Arrow Food Distribution. Pharos Holding was advisor to Arab Dairy on the transaction.

Rocket Internet acquires online food ordering service Otlob (USD 12 mn): Otlob sold for a “bargain price” to Germany’s Rocket Internet’s Foodpanda Group at what Wamda’s Rachel Williamson called “an almost firesale price” of USD 12 mn. Otlob was owned by OTVentures, which rebranded this year as A15.

Morocco’s SAHAM Group acquires Hassab Labs (undisclosed): SAHAM acquired a majority stake in the Alexandria-based business, which has a 30-lab footprint.

Naguib Sawiris acquires Euronews (EUR 53 mn): The Egyptian business celebrity acquired a 53% stake in the venture by subscription to a capital increase.

Abraaj acquires Tiba Group (USD 100 mn): The global EM private equity giant acquired an undisclosed stake in Egyptian education provider Tiba Group. Tiba owns Thebes Language Schools and operates “across three verticals and through seven educational institutions in Egypt, serving approximately 20,000 students.”

Alpla Group acquires Argo’s Egyptian plant (undisclosed): The Austrian plastic packaging giant acquired a 50-person plant previously owned by Greece’s Argo in El Obour city.

Al Ahli Bank of Kuwait acquires Piraeus Bank Egypt (USD 150 mn): The Kuwaiti lender acquired Piraeus’ Egyptian operation at 1.5x book and will rebrand all 39 Piraeus branches in the new year. ABK plans to invest EGP 1 bn in the subsidiary in 2016 and is looking to buy out shareholders clinging to the remaining 1.5% the Egyptian unit not owned by ABK.

Archer Daniels Midland (ADM) acquires 50% of Medsofts (undisclosed). EFG Hermes was sole sole financial advisor to Tarek Tawfik’s Medsofts; Zaki Hashem & Partners acted as the group’s legal advisors. ADM did not disclose its advisors on the transaction.

Sudanese investor acquires Qalaa’s RIS (USD 4.3 mn): An unnamed Sudanese investor acquired the Sudanese assets of Qalaa unit Gozour’s RIS

Kamal Hagag acquires Misr October for Food Industries (El-Misrieen) (EGP 50 mn). The unnamed investor will also assume all debt, liabilities and obligations of El-Misrieen, including bank debt of c. EGP 16.5 mn. Pharos Holding was financial advisor to Qalaa. Al Kamel Law Office was legal advisor to Hagag.

Ferro Corporation acquires Al Salomi for Frit and Glazes (USD 39 mn): The American performance material supplier entered into an agreement to acquire the Suez-based tile coatings manufacturer in September. Al Salomi has a production capacity of 55k tpa with two additional lines of 12k tpa each due to come online by the end of 2015.

Misr Qena Cement acquires ASEC Minya, ASEC Ready Mix (USD 1 bn): The cement producer acquired Qalaa Holdings’ 46.5% share of ASEC Minya and 55% stake in ASEC Ready Mix in November. The deal also saw debt of c. EGP 940 mn deconsolidated from ASEC Cement’s consolidated balance sheet. Arab Legal Consultants (ALC) were legal advisors on the transaction, while CI Capital was financial advisor.

Misr Qena Cement buys out ASEC Holding stake (EGP 600 mn): Misr Qena Cement (MCQE) acquired ASEC Holding’s 27.5% stake in MCQE.

Olayan Financing Co. acquires Rashidi El Mizan (EGP 518 mn): Saudi-based Olayan acquired the storied confectioner from Qalaa business unit Gozour for total consideration of EGP 518 mn. EFG Hermes acted as financial advisor and Arab Legal Consultants as legal advisor to Qalaa Holdings on the transaction. CI Capital acted as financial advisor and Helmy, Hamza & Partners as legal advisor to Olayan Financing Company.

International Finance Corporation acquires Sphinx Glass stake (undisclosed): The IFC acquired 20% of the float glass maker to “support the company’s expansion and spur job creation and growth.” Sphinx Glass, formerly a greenfield of Qalaa Holdings, is a subsidiary of Saudi Arabia-based Construction Products Holding Company (CPC). The transaction closed in November.

AAIB acquires Scotiabank operations in Egypt (EGP 1 bn): Arab African International Bank acquired Scotiabank’s Egyptian loan portfolio, deposits, LCs, LGs, and other assets and liabilities.

Pharos founders in management buyout of Pharos Holding (EGP 40 mn): Pharos founder and chairman Mohamed Taymour led a group of investors in a rare management buyout, acquiring 100% of Qalaa Holdings’ stake in the full-service investment bank. Taymour was also co-founder of EFG Hermes.

Panalpina acquires Afifi Group (undisclosed): Switzerland-based supply chain solutions provider Panalpina acquired its Egyptian agent, Afifi, a family-owned company consisting of Afifi Air Cargo, Afifi World Transport and Afifi Logistics International.

SPIMACO acquires Meivo International (c. USD 20 mn): Saudi-based Pharmaceutical Industries & Medical Appliances Corporation acquired 51% of Meivo International for Pharmaceutical Industries. Meivo, based in Borg El Arab, has a 75-product portfolio. Pharos Holding was financial advisor to the selling shareholders and sole broker for the transaction.

OCI NV merging with U.S.-based CF Industries (USD 8 bn): Admittedly not a pure Egyptian transaction, the deal will see the two create one of the world’s largest nitrogen companies. The new holding company will move its tax residency to the Netherlands, the WSJ reported last week.

Middle East Glass acquires MGM, UGC (828 mn): Qalaa Holdings and other shareholders in the glass manufacturers reached an agreement to sell MGM and UGC to Middle East Glass, with the deal on track to be executed in 1Q2015 subject to Middle East Glass raising acquisition finance.

13 deals on which to keep an eye in the coming weeks:

OTMT looks to acquire CI Capital (c. EGP 1 bn): Naguib Sawiris’ OTMT has made an offer to acquire CIB’s investment banking subsidiary, which includes the nation’s second-largest brokerage house, a strong investment banking team and a well-regarded research house, in addition to an asset management franchise with AUM of c. EGP 9 bn. Sawiris is expected to merge CI Capital with Beltone Financial, which he acquired earlier this fall. A rival bid from Rasmala (formerly the European Islamic Investment Bank) was rumored, but has yet to appear.

Arqaam Capital looks to acquire Akanar Partners (undisclosed): The Dubai-based investment bank made the offer for the nation’s top independent M&A and corporate finance shop just days after OTMT made its play for CI Capita.

Wadi Degla Real Estate Developments acquires British Columbia Canadian International School Group (EGP 80 mn). Wadi Degla will first acquire BCCIS Group’s UAE franchise, which will then take 60% of the Egypt business. The transaction is to close before year’s end.

Abraaj to acquire Nile Badrawi Hospital (EGP 750-800 mn): The global EM private equity heavyweight has not yet confirmed the transaction’s close. Abraaj closed in 2014 the acquisition of 100% of Cairo’s Cleopatra Hospital in an EGP 770 mn transaction and 51% of Cairo Medical Center for an estimated EGP 100+ mn. All three hospitals are in the c. 150-bed range.

Abraaj to acquire El-Shamadan (EGP 800): After losing earlier in the year on Bisco Misr, Abraaj began due diligence in April on the popular biscuit maker. Planet IB is sell-side advisor on the transaction.

Abbott to acquire Pentapharma Egypt (undisclosed): Pentapharma is being advised by Arab Legal Consultants. The company is among those producing generic versions of hepatitis-C cure Sovaldi.

Pioneers Holding is seeking 100% of Universal Packaging Materials and Paper Co. (Unipack): Pioneers already owns 32.5% of Unipack and has recently acquired stakes in Cairo Housing and Development, Roaya Group, United Housing and Electro Cable Egypt.

Qalaa puts Dina Farms on the auction block (est. EGP 700 mn): The nation’s largest fresh milk producer has attracted wide interest from players including Abraaj and Savola, but smart money is on Almarai — which depends on Dina Farms for most of its fresh milk — to emerge the winner.

Qalaa, FHI in asset swap: Qalaa Holdings agreed in June to an asset swap that will see Qalaa acquire FHI’s  stakes in ASEC Holding (cement), TAQA Arabia and Mashreq (energy), Nile Logistics (transportation), Dina Farms Supermarkets (food retail chain), and United Foundries (metallurgy). FHI will, in turn, acquire Qalaa’s stakes in MENA Homes, Grandview and Dina Farms Land Companies.

Qalaa looks to exit Enjoy: Pharos holding is advising the infrastructure and energy company on its exit of fully written-down dairy and juice producer Enjoy. Among the bidders now completing due diligence is the UAE-based National Food Products Company.

Telecom Egypt got as far as auditioning EFG Hermes and Lazard (on the one hand) and JP Morgan Chase (on the other) to advise on its divestment of a 45% stake in Vodafone Egypt. The fixed-line monopoly initially said it was to exit the Vodafone Egypt stake as a condition of acquiring its own 4G network operator’s license. TE then pulled back from the sale before the Minister of CIT at the time said he expected it to acquire the license after all, making it possible the 45% stake in VFE could still hit the market in 2016.

Two broken deals:

South Valley Cement and EK Holding failed to reach an agreement after talks that could have seen EK Holding sell its stake in cement manufacturer BMIC

Barclays Africa Group broke-off talks with with parent institution Barclays Plc to acquire Barclays Egypt and Barclays Zimbabwe.


SPOTLIGHT ON the year in equity capital markets

After roaring to a strong start in the first half of the year, the market for equity capital market transactions crashed to zero in the second half as oil prices plunged, terrorism raised its ugly head, and the FX crunch took hold. Among the highlights of the year:

Orascom Construction became the first company to have a dual listing on the EGX and the Nasdaq Dubai when it listed in March, raising as part of the Egyptian offer EGP 1.41 bn through the offering of 12,984,565 new ordinary shares, representing 11% of the total share capital. The transactions came as OCI de-merged its engineering and construction business from its fertilizer and chemicals business. EFG Hermes was sponsor for the Nasdaq Dubai listing, while Bank of America Merrill Lynch, Barclays and HSBC Bank Middle East Limited were joint financial advisors. For the EGX listing, EFG Hermes was global coordinator and joint bookrunner, while CI Capital and HSBC were joint bookrunners.

Snack maker Edita saw its share price close up 16.2% its EGX debut in April. The company listed on the EGX with GDRs (each representing five ordinary shares) trading on the London Stock Exchange. The institutional offering of 92.5 mn shares was 13.4x oversubscribed (generating EGP 22.8 bn in demand) while the retail tranche of 16.3 mn shares was 4.5x oversubscribed (with demand for shares worth c. EGP 1.4 bn). Selling shareholders included emerging markets PE firm Actis and Greek snack maker Chipita. EFG Hermes and Goldman Sachs were Joint Global Coordinators and Joint Bookrunners for the transaction.

International Diagnostics Holdings lists on the LSE in May. The company’s shares surged 20.6% in their debut on the London Stock Exchange. The USD 290 mn offering was the first standard listing of an Egypt-based company on the LSE, with emerging markets private equity heavyweight Abraaj selling c. 43.5% of the company at an offer price of USD 4.45. The offering raised total demand in excess of USD 3.7 bn, with an oversubscription ratio of approximately 11.2x. “Cornerstone investors Blakeney Fund and the Wellcome Trust’s value fund bought around $70m-worth of the shares,” the Telegraph reported at the time. EFG Hermes and Deutsche Bank were joint global coordinators for the transaction; EFG, Deutsche and Citi served as bookrunners.

Emaar Misr raised EGP 2.28 bn in its July listing on the EGX, making it the largest offering in Egypt since 2008 and a significant contributor to the EGP 21 bn in equity raised on the EGX since June 2013, according to a statement from the EGX (pdf download). The IPO, 36x oversubscribed, was priced significantly below two fair value estimates that put the FV per share at EGP 4.70 or above. EFG Hermes and JP Morgan acted as joint global coordinators and joint bookrunners for the transaction. Emaar Misr shares sank after listing, prompting the company to launch a significant share buyback.

GB Auto raised EGP 960 mn to fuel growth through a tradable rights issue. The company will use the proceeds to invest in tire manufacturing and a motorcycles and three-wheelers assembly project, it said at the time.

Palm Hills Developments closed an EGP 1.6 bn capital increase via rights issue to existing shareholders to accelerate growth across its portfolio of residential and commercial developments. It also closed in 2015 an EGP 750 mn development loan.

Transactions to watch in 2016:

EGX chief Mohamed Omran says 10 companies are due to list in the first half of 2016, while Reuters crunched the numbers and estimated that there could be as many as 15 IPOs in 1H2016. As we see it, companies to watch in the new year and beyond include:

  • EFG Hermes is advising Arabian Food Industry Co., best known for owning the Domty brand of dairy products, on an IPO expected in 1Q2016. We recently noted that the company reportedly plans to list up to 40% of its shares and is looking to invest EGP 100 mn in a new factory in 6 October.
  • Private equity firm Beltone Capital (not the investment bank recently acquired by OTMT) will look to raise as much as EGP 1 bn in an offering in the first half of 2016. The company is also changing its name to Avaris Holding for Financial Investments.
  • Omran specifically named Express for Integrated Solutions, Raya, Mobco, DBK Pharma, IT Synergy, and MB for Engineering and Contracting. DBK Pharma postponed its offering in August.
  • Pioneers Holding said in July it plans to IPO real estate developer Rooya in the first quarter of 2016. The transaction could be worth north of EGP 1 bn, the company said. Pioneers acquired 60% of Rooya in March. (Read)
  • Fawaz Alhokair Group had said early in 2015 that it planned to raise as much as raise as much as USD 340-400 mn by listing Egyptian Centers (its Egyptian malls unit) “in the next 18 to 24 months.” The company has reportedly hired CI Capital as advisor.
  • Downtown development champion Al Ismaelia — backed by Amwal Al-Khaleej, Beltone Private Equity and Samih Sawiris — also said in early January that it was looking at a listing on the EGX. It had appointed Beltone Financial and Zaki Hashem to advise.
  • High-profile developer Wadi Degla is reportedly eyeing a listing as early as 2016. EFG Hermes has previously advised on private placements for the developer of sporting clubs and residential communities.
  • EFG Hermes has a mandate to explore taking Al Shafar General Contracting public on the DFM. Goldman Sachs and Emirates NBD are also working on the transaction.
  • Sigma Capital will hit the road with two IPOs in 2H2016, one for a contracting firm and another for a pharmaceutical company. The two transactions are worth an estimated EGP 200 mn, according to chairman and founder Ahmed Marwan.

Long shots include state-owned holding companies and other partially privatized assets, among others:

  • Mobinil could sell 10-15% of its shares to local investors, Orange chairman Stephane Richard said at a press conference in Cairo earlier this year. The company, which plans a capex outlay in the EGP 2-2.5 bn range, has said the size of a potential offering via capital increase would depend on pricing of 4G licenses.
  • Investment Minister Ashraf Salman made consistent rumblings this fall about listing multiple holding companies for state-owned enterprises on the EGX, but Egyptian Financial Supervisory Authority chief Sherif Samy subsequently noted that amendments to legislation would be required to allow the float of a state holding corporation.
  • Misr Fertilizers Production Company (MOPCO) said in March it was considering an EGX listing.
  • The domestic press reported in September that EFG Hermes had edged out Beltone Financial to advise Arab Investment Company on IPO for Cairo For Development & Cars Manufacturing’s (CDCM), the Peugeot dealer for Egypt. (Stories here and here). There’s been no news of a potential offering in the months since.
  • State-owned oil and gas companies including MIDOR (looking to raise up to USD 400 bn, proceeds will in part go to a 60% expansion in refining capacity at an investment cost of  about USD 1.4 bn); Gas Cool (EGP 125.5 mn, with proceeds going in part to finance expansion, including diversification into solar power); and PetroNil all said in April they were considering offerings. MIDOR and Gas Cool subsequently shelved their plans.
  • Travco chief Hamed El Chiaty denied in June an earlier report that the company planned to go public in 2016.

BY THE NUMBERS
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USD CBE auction (Sunday, 27 December): 7.7301 (unchanged since Wednesday, 11 November)
USD parallel market (Sunday, 27 December): 8.57 (strengthening 0.01 from Thursday, 24 December, Reuters)

EGX30 (Thursday): 6,749.11 (-0.93%)
Turnover: EGP 407.2 mn (6% below the 90-day average)
EGX 30 year-to-date: -24.39%

THE MARKET ON SUNDAY: The EGX30 closed down 0.9% for the day yesterday as a selling wave that began at opening accelerated throughout the day, with index heavyweights CIB, EFG Hermes and TMGH leading the way down. With the day showing gainers and losers in nearly equal proportion, the more representative EGX50 inched down 0.1% while the small-and-medium-cap EGX70 was flat. Market doldrums came as the Central Bank of Egypt decided on Thursday to raise benchmark interest rates by 50 bps to mark the first interest rate hike since July 2014. OTMT snapped a three-day winning streak, while shares of Qalaa Holdings surged 3.2% as the company announced agreements to exit two glass manufacturing units. At a turnover of EGP 407.2 mn, local investors were the sole net buyers of the day. Regionally, the Saudi Tadawul closed up slightly as traders closely monitored the re­lease of the kingdom’s 2016 state budget. Dubai and Abu Dhabi also posted modest gains.

Foreigners: Net Short | EGP -7.8 mn
Regional: Net Short | EGP -14.0 mn
Domestic: Net Long | EGP +21.8 mn

Retail: 85.3% of total trades | 89.2% of buyers | 81.5% of sellers
Institutions: 14.7% of total trades | 10.8% of buyers | 18.5% of sellers

Foreign: 2.2% of total | 1.3% of buyers | 3.2% of sellers
Regional: 4.5% of total | 2.8% of buyers | 6.2% of sellers
Domestic: 93.3% of total | 95.9% of buyers | 90.6% of sellers


WTI: USD 37.88 (-0.58%)
Brent: USD 37.76 (-0.34%)
Gold: USD 1,073.30 / troy ounce (-0.24%)

TASI: 6,946.0 (+0.1%)
ADX: 4,246.5 (+0.1%)
DFM: 3,160.9 (+0.8)
KSE Weighted Index: 381.1 (flat)
QE: 10,302.8 (+0.4%)
MSM: 5,436.0 (+0.3%)

***
PHAROS VIEW

Fingers Crossed: Floatation in Sight
The CBE raised policy rates by 50 bps on Thursday, after it had indirectly urged public banks to raise CD rates by 250 bps in November. We have previously noted that the decision to raise policy rates is a decision to pass on the defense cost from banks to the government and the corporate sector, primarily to ensure the participation of large private banks in the defence exercise. While the delay in the meeting for 1 week coupled with the stability in bill / bond yields since November suggested that the CBE is biased to shield the government from the defense cost, the MPC statement suggests that a deal was reached — possibly in coordination with external creditors. Taking apart the MPC’s statement, the policy mix it outlines must logically embed a weaker EGP. The result will be tight liquidity coupled with supply-side inflation shocks, which do not usually augur well for equities in general, as it is a recipe for margin compression. Tap here to read the full research report, including our take on who could benefit from short-term tailwinds.

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

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