Merry Xmas, Everybody

Merry Christmas, Enterprise readers and happy boxing day. We hope all those celebrating the day had a wonderful time with family and friends. We’d like to start off first by thanking all our friends who have wished us well over our extended, end of year break. They really made our day.

As we are still in need of recovery after an exciting year, we’ll be running shorter issues for the next few days. We’ll be off for New Years and return to our regularly scheduled programming next week.

We’ve been good this year: As the countdown to the new year begins, we have a lot to be thankful for this year. Not least of which was our economy finally looking like it’s turned a corner after a six years of turmoil. GDP for 1Q2017-18 reached 5.2%, up from 3.4% in FY2016-17, while the overall budget deficit declined to 2% of GDP. Annual inflation dropped below the 30% mark in November for the first time this year to 26%. Zohr has officially launched production and tourism has weathered the instability of a Russian travel ban.

So Santa better come through next year: Going into 2018, we have a lot to be excited about. Zohr’s launch of production means that we are set to reverse the energy environment and begin exporting gas. With inflation now under steady control and a continued projected decline, we anticipate interest rates will come down again. And to top it all off, flights from Russia are expected to come back in February.

We had some interesting IPOs this year, including the highly successful Ibnsina Pharma IPO, and thrilling M&As, such as the sale of the National Company for Maize Products to Cairo Three A. The pipeline next year looks good, especially considering that it is the first year of te state IPO program. We have more in the Speed Round.

Throw in elections and the first year of a new national health insurance program, and we have a lot to look forward to.

On to the news: Egypt will receive USD 2 bn in the third tranche of the IMF’s USD 12 bn loan this week. The fourth USD 2 bn tranche is set to arrive in June or July, Vice Minister of Finance Ahmed Kouchouk announced on Saturday, according to Reuters. He also said an IMF mission would visit Egypt in May for a new review, upon which the tranche’s disbursal is likely contingent. The third tranche of USD 2 bn, which is set to be received this week, will be used for budgetary support, a source at the central bank told Al Shorouk. Once the fourth USD 2 bn portion is disbursed, total amount of funding Egypt will have received from the IMF will be USD 8 bn.

Threat to US aid to Egypt? US President Donald Trump has threatened to withhold “bns” in US aid to countries that voted in favor of a UN General Assembly resolution rejecting his recognition of Jerusalem as the capital of Israel, The Guardian reports. “The warning appeared aimed largely at UN members in Africa, Asia and Latin America who are regarded as more vulnerable to US pressure… Egypt, which drafted Monday’s UN security council resolution which the US vetoed, is particularly vulnerable, receiving USD 1.2 bn in US aid last year.” 128 countries voted in favor of the UNGA resolution, 9 against, with 35 abstentions. The UN News Centre says “by an overwhelming majority, Member States in the United Nations General Assembly on Thursday ‘demanded’ that all countries comply with Security Council resolutions regarding the status of Jerusalem.” Worth noting that “resolutions in the Assembly are non-binding and do not carry the force of international law as do measures agreed in the Security Council.” The US Mission to the UN insisted the US embassy will be moved to Jerusalem, with Ambassador Nikki Haley saying “no vote in the United Nations will make any difference on that. But this vote will make a difference on how Americans look at theUN, and on how we look at countries who disrespect us in the UN.”

We were sad to hear over the break that adventurers Omar Nour and Omar Samra had to cut their epic cross Atlantic rowing challenge short on Friday, when heavy winds caused their boat to capsize. The pair struggled for 12 hours in the water under extreme conditions, until a cargo ship, primarily crewed by Egyptians came to the rescue. We are happy to report that both Nour and Samara are well and have rested after the ordeal. We commend their valiant effort, and look forward to watching the Hollywood adaptation.

Expect the central bank’s Monetary Policy Committee to keep interest rates on hold when they meet on Thursday, Pharos Holding’s Ramy Oraby says. “We believe that the current disinflation trend will continue, leading the annual inflation rate downwards to 14.4% YoY in 4Q 2018, which is in line with the CBE inflation target of 13% YoY (± 3%) by 4Q 2018. This supports the MPC ease the current tight monetary stance, however, the timing remains conditional upon the materialization of three potential risks,” he says. Oraby says those risks are the surge in oil price, a higher real absorption of domestic demand growth, and the projected pace of the monetary policy normalization in advanced economies.

Egypt will announce in two weeks the joint lead managers and legal counsels of the USD 3-4 bn USD-denominated eurobond issuance set to take place in around a month, said Finance Minister Amr El Garhy. 22 international investment banks have put in their bids to become joint lead managers of the issuance, El Garhy said. “This interest reflects the confidence banks have in Egypt’s economy,” he tells Al Mal. It appears all the big names are vying for it, including HSBC, Goldman Sachs, JP Morgan, NATIXIS and Citi (the last three having managed the last issuance), government sources tell the newspaper. El Garhy also stated that some eight leading international firms have thrown their hats in the ring.

Foreign Minister Sameh Shoukry will visit Addis Ababa next week for talks with his Ethiopian counterpart. The pair will discuss issues relating to the Grand Ethiopian Renaissance Dam, Reuters notes.

We’re keeping our talk shows coverage light this week and only noting major announcements. Stay tuned next week for more detailed coverage.

IPO WATCH- Banque Du Caire will IPO in 4Q2018: The IPO of Banque Du Caire is expected to take place in 4Q2018, said EFG Hermes Co-Head of Investment Banking Mustafa Gad in a presser held by the company on Sunday. He added that it was unlikely that the sale of the bank will take place outside capital markets, according to Al Borsa. Gad’s statement follows statements attributed to senior CBE officials that the central was reconsidering scrapping the IPOs of BdC and United Bank in favor of a stake sale to investors. EFG Hermes had been tapped to manage the listing.

Gad added that EFG Hermes expects to hold three IPOs in Egypt and one or two IPOs in the United Arab Emirates in 2018, according to Reuters. Two of the Egypt listing are expected to be Oriental Petrochemicals Company and Unionaire Group. Gad said he expects Unionaire’s IPO to be the largest in Egypt since 2015, according to Al Borsa.

What about United Bank? The fate of a United Bank listing is less clear, as banking sources say that a number of Kuwaiti banks are interested in acquiring United and have entered into talks with the bank. United Bank’s Islamic banking license has made appealing to Kuwaiti banks, they tell Al Borsa.

Problems with the state IPO program? Something appears to be afoot with the state IPO program, as sources report that there are divisions among the government on the timing of the program. Senior members of the Ismail cabinet have been pushing for releasing the timeline and lineup of the state IPO program by mid-January, government sources tell Al Masry Al Youm on Sunday. The push comes as the committee formed by the cabinet to run the state IPO program has yet to issue anything definitive about the program. These come amid concerns that the companies slated for listing are not yet ready, said Mohamed Maher, deputy head of the capital markets division of the Federation of Egyptian Chambers of Commerce. He added that a final decision on when and how to pull the trigger has not yet been reached by the ministries of investment, finance and justice.

Possible legislation for the program: The move may require a political solution, and the cabinet may seek to pass legislation in the House of Representatives for the program, government sources told the newspaper. This would apparently take some political heat off the government for the outcomes of this key investment policy, they added.

In other EFG Hermes news, the investment bank will begin offering factoring services in 1Q2018, CEO Karim Awad said, according to Reuters. “We see that the Egyptian market is the biggest one that investors can make profit in throughout the coming period,” Awad said. EFG Hermes expects non-financial services to account for more than 10% of its profits in 2017 and for this percentage to grow to 50% by 2020-2021. Awad also said EFG Hermes will continue to focus on increasing its merchant banking operations and continuing its expansion into frontier markets, according to Al Mal.

EFG Hermes also has plans to manage renewable energy projects producing 400-500 MW of electricity in Egypt in the next three years, energy head Bakr Abdel Wahab told Reuters. The projects targeted are worth at least USD 250 mn, he said. “We are thinking of establishing a holding company to manage energy projects, like Vortex, but in Egypt,” said Abdel Wahab. EFG Hermes is looking to expand production to 1,000 MW by 2020 with USD 500 mn in capital. Abdel Wahab added that the stations EFG Hermes is investing in will be built in 1Q2018 and are set to begin operations in 2019.

Majority shareholder of Beltone Financial sold 11.2% of its shares to a group of investors representing financial institutions and investors from the US, GCC, and Egypt at EGP 13.26 per share. ACT Financial sold a 4.44% stake in Beltone, reducing its holdings to 9.56% and Orascom Telecom Media and Technology (OTMT) says it sold a 6.73% stake, reducing its ownership to 70%, according to bourse disclosures. Following the sale, Beltone Financial now has 22.7% of its shares in free float. The sale “reflects the desire of foreign investors to inject more investments in the Egyptian market,” Beltone says. Beltone is now considering issuing global depository receipts on the London Stock Exchange, the company noted.

… Separately, OTMT said it has also signed a memorandum of agreement with Inertia for Engineering and Trading to acquire at least 51% of its shares.

M&A WATCH- Pharos Holding says it has two M&A transactions in the pipeline for 1H2018, Al Masry Al Youm reports. The two transactions will have a combined value of EGP 2 bn, Deputy Head of Investment Banking Ahmed Heider says. The transactions will be in healthcare and retail, he added.

IPO WATCH- The retail offering tranche of Al Tawfeek Leasing Co. (AT Lease) shares was 28x oversubscribed for the 4.8 mn shares offered, according to Al Borsa. Pharos, the sole bookrunner and coordinator for the transaction, had said last Wednesday that The institutional offering was 40.16x oversubscribed for the 14.4 mn shares (or 75% of the shares offered), generating EGP 95.04 mn from investors. The final price for the share had been set at EGP 6.60 per share by the EGX.

Grand infrastructure plans: Egypt will spend EGP 100 bn on a construction project in Sinai, President Abdel Fattah El Sisi announced, according to Reuters. “We have entrusted the ministry of housing and the engineering authority with a national project of comprehensive urban planning,” El Sisi says. He added that the project would be “carried out whether he remained in power or not.”

Gov’t issues int’l tender for 534 km electric railway line from Ain Sokhna to Al Alamein: The ministries of housing and transport have issued on Thursday a tender to build, operate and maintain a 534 km railway line linking Ain Sokhna with Al Alamein, Al Borsa reports. The railway will pass through the new administrative capital and 6 October City. The winning company will be expected to finance the project, with government-backed loans being the ideal situation, said Housing Minister Mostafa Madbouly. Bidding companies are expected to have completed projects worth EUR 5 bn, he added. This is the second major international transport tender in as many days, after the tender for the 6 October-Giza and Nasry City-new capital monorails was issued one day prior.

The ticket prices for Cairo Metro will be increased starting from July, Transport Minister Hisham Arafat said. Commuters will be charged a base fare of EGP 2 for the first 9 stops, with an additional EGP 1 for 9 more stations, with a maximum fare of EGP 6 for commuters who ride one line from start to finish. “Currently, commuters can cover an unlimited number of stops and can even switch lines for the same base fare of EGP 2.”

State-owned Telecom Egypt (TE) has no plans to sell its stake in Vodafone Egypt, CIT Minister Yasser El Kady said, according to Ahram Gate. TE holds a 45% stake in Vodafone Egypt, the paper notes.

INVESTMENT WATCH- Indian smartphone manufacturer Lava International plans to invest USD 10 mn in Egypt in 2018, said co-founder Hari Om Rai, according to Al Mal. Senior Vice President Vikram Singh Parmar had said earlier this month that the looking into establishing a mobile phone factory in Egypt in 2019. Lava recently began selling its lower-cost mobile phones and smartphones in Egypt, and is looking to nab some of Egypt’s biggest names in football as part of its marketing.

Madinet Nasr Housing and Development (MNHD) said its pre-sales for 2017 reached “a record” EGP 5.03 bn, according to a bourse disclosure. The figure, which includes contracts and reservations reached the budgeted amount for the year and surpassed 2016’s figure by 46%. “This was achieved primarily from the company’s flagship projects, SARAI which reached EGP 3.1 bn in pre-sales followed by Taj City which recorded EGP 1. 9bn,” MNHD says.

EBRD provides Olam International with USD 30 mn loan to fund operations in Egypt: The European Bank for Reconstruction and Development (EBRD) is providing agribusiness trader Olam International with a USD 30 mn loan to support Olam’s activities in Egypt, the bank said in a statement on Thursday. The loan will help Olam increase the volume of dried onions exported, “while also transferring expertise to its suppliers from the firm’s operations in California.” The loan is part of USD 150 mn in financing the EBRD will provide Olam for its operations in Egypt, Georgia, Poland, Turkey and Ukraine. The move is the first announcement by the EBRD for funding Egypt’s agribusiness sector since signing a a joint declaration with Egypt, the UN Food and Agricultural Organization (FAO), and the World Bank to promote investment in efficient and sustainable agriculture earlier this month.

The Agriculture Ministry is planning on growing 3.25 mn acres of wheat this season, down from the previous target of 3.5 mn acres, the Ministry’s spokesperson said, according to Reuters. “Egypt’s wheat harvest typically runs from about April through July and cultivation is currently underway.”

LEGISLATION WATCH- The House of Representatives passed amendments to the Companies Act, which allow for setting up sole proprietorship companies, Al Borsa reports. The changes govern how legal persons set up businesses in their own names and set out the framework for transforming them from a sole proprietorship into a joint stock company.

With nuclear plants and a space agency, we’d like to welcome you to 1969: The House also passed a law establishing a USD 100 mn space agency on Monday, Al Masry Al Youm reports. The move appears to preempt a launch of an Egypt-made satellite in cooperation with Japan, according to Higher Education Minister Khaled Abdel Ghaffar. The satellite is expected to hit the stratosphere in July 2018, he added, according to Al Mal. Egypt has had a pretty bad track record keeping tracking of satellites, after losing Egypt Sat 1 and 2. The agency is expected to help ensure we don’t treat these as car keys.

From the department of Thought Police: Some member of parliament says the Religious subcommittee is in process of revising a bill that would criminalise atheism, according to Al Shorouk. The bill, as reportedly drafted by the wannabe members of the Spanish Inquisition, carries prison sentences and financial penalties. An enlightened member of the subcommittee says the draft bill does not go against the constitutionally-protected freedom of belief clauses, but atheists are “shallow people who do not have enough knowledge and, therefore, the ‘phenomenon’ should be criminalised.” Thank you for putting our taxpayers’ money to good use, honourable members of parliament.

Britain has added the Hasm movement and Liwaa El Thawra to its list of terrorist organizations “after reviewing attacks claimed by both groups and finding they meet the criteria,” according to The Associated Press. Britain also says the move will boost its “capacity to disrupt the activities of these terrorist organizations,” the British Embassy in Egypt noted.

Topping coverage of Egypt in the foreign press this morning was the arrest of 15 people who took part in attacking “an unlicensed church” in Atfih, south of Cairo. The attack wounded three people, an Egyptian Coptic Christian diocese said on Saturday, according to The Associated Press. “The church in Giza just outside of Cairo is yet to be sanctioned by the state but has been holding prayers for 15 years. The diocese said it had officially sought to legalize the building’s status under a 2016 law that laid down the rules for building churches.” The authorities responded by detaining 15 people pending an investigation into the attack, a security source told Reuters. “Those detained are accused of stirring sectarian strife, harming national unity and destroying private property,” one judicial source said.

Coptic Christians fear attacks during the holidays season but “will not give in,” says a report by Sky News. “We’re a very resilient people, we will remain in Egypt and continue to practice – the terrorists will not stop us,” on person is quoted in the report.

Egypt’s healthcare sector is ripe for investment, Colliers International MENA region director Mansoor Ahmed writes in Forbes Middle East. With the population growing at a rate 2.2% annually, the demand of healthcare services expected to grow. Egypt will require an additional 76,000 beds, with new investments of USD 16-21 bn by 2020. The demand is expected to pick up to 102k additional beds (an investment of USD 22-35 bn). Up to USD 60 bn in new investments are needed by 2050 to keep up with demand. Beyond bed capacity, the country’s demand for doctors and dentists is expected to increase to 243k, with investments of up to USD 6 bn by 2050. And that’s not even counting investments in quality, which the sector sorely needs, says Ahmed. Factors he cites that help the sector thrive include the increased presence of the private sector, expanded insurance coverage (set to increase as a result of the Universal HEalthcare Act), Egypt’s reputation as a destination for medical tourism, and the growth of the cosmetics segment.

Autocracy is not the motivator behind terrorism in Egypt unlike some claim, Steven A. Cook argues in The Atlantic. There is a straightforward reason behind attacks similar to the one on Rawda mosque, he says: “The perpetrators are adherents of a worldview that views violence as the principal means of purifying what they believe to be un-Islamic societies.” Cook says there is tendency among some Egypt observers to “make matters more complicated than they need be” and they blamed the attack on President Abdel Fattah El Sisi’s policies, which is “odd,” he notes. “From the perspective of extremism’s theoreticians, both democratic and authoritarian political systems are equally illegitimate for no reason other than they place human made laws above those handed down by God… The most one could say is that some alienated young people, primarily men, may find the ideological and theological call from extremist groups appealing. That does not explain the violence, however. Rather it merely accounts for a context in which violent organizations find people who are willing to spill blood,” he writes.

… Cook’s piece comes as Brian Dooley writes in the Huffington Post that the treatment of detainees in Egyptian jails is fueling support for Daesh. “A human rights activist who spent some time in jail told me how vulnerable prisoners are ‘easy prey for ISIS. The older guys are sort of immune to what ISIS says, but for the younger ones it’s a powerful appeal,’ he said… Ending abuse in Egypt’s prisons won’t in itself defeat ISIS but it would help,” Dooley says.

Other international headlines worth noting in brief include:

• Human Rights Watch, Reporters Without Borders and Amnesty International all issued statements marking the one-year anniversary of the arrest of Al Jazeera journalist Mahmoud Hussein.
• Supporters of Abdel Fattah El Sisi announced on Sunday that they have collected more than 12 mn signatures from people urging him to run for a second four-year term, the Associated Press reports.
• The British tabloids are covering the first day in court of Laura Plummer on charges of smuggling meds into Egypt.

Season’s greetings from a former member of the Enterprise team: Our former team member, Hana, was singing Christmas songs (with an Egyptian twist) on national TV over the weekend. The band, Fabrica, was featured on CBC’s show Abla Fahita’s El Duplex were they sang a number of medleys. Fabrica says it aims to develop “the contemporary Egyptian performing arts scene and cultural production, focusing in its first phases on musical theater, in Egypt, by offering training programs, performance possibilities and outreach into the community” (runtime 02:40).