Shell is said to be near a USD 25 bn agreement to position Egypt as East Med energy hub

AmCham’s 40th annual Doorknock mission to Washington, DC, kicks of today and runs until 16 March. The mission will include a delegation of 35 member companies who will meet with members of Congress, Trump administration officials, multilateral institutions and representatives of various DC-based think tanks to discuss the results of Egypt’s ongoing economic reform program. Meetings will also explore the potential for a trade liberalization agreement with the US, which is currently on the hunt for a gateway to the African market, according to Egyptian-American Business Council Chairman Omar Mohanna.

“Given the U.S. Administration’s ‘America First’ slogan, Egypt represents an unmatched opportunity for U.S. manufacturers and investors … offering competitive access to the international markets of Africa and Europe through its existing trade agreements, thereby spreading the demand for American products across the region,” AmCham said in a press release (pdf). The delegation will also be sharing its concerns about US media coverage of Egypt with the Washington crowd. Enterprise is on the road with AmCham, so we’ll have updates from the ground in DC for you this week.

MUST READ- The state’s IPO program will likely take the form of stake sales via accelerated book builds, at least at first, and don’t hold our breath for major private sector IPOs before the second half of the year, our friend Mohamed Ebeid tells us in this morning’s spotlight. Ebeid, co-CEO for the investment bank at EFG Hermes, also sees active investors kicking the tires in KSA now ahead of passive flows after an expected upgrade to MSCI emerging markets status and the expected IPO of Saudi Aramco. Few people know regional markets the way Ebeid does, and his thoughts on everything from expectations of Egypt this year (he sees the index up as much as 25%) and what sectors investors like here and in KSA are this morning’s must-read.

Our talk came just a couple of days before word emerge that the world’s biggest IPO may be delayed until 2019 as advisors have struggled to reach the USD 2 tn valuation that Crown Prince Mohamed bin Salman wants. The Financial Times and CNBC have more on the Aramco sale.

Elsewhere in the Gulf, Emirates NBD plans to open up to more foreign shareholders as it prepares to bid for Turkey’s DenizBank, the business information service reports, saying the bank wants “shareholder approval to boost its foreign ownership limit to 20 percent from 5 percent.”

Also worth a look this morning depending on where your business and personal interests rest:

• Canada, China and Hong Kong are among the economies most at risk of a banking crisis, the Bank for International Settlements warns.
• China has “swept away concerns about one-man rule” cleared the way for Xi Jinping to remain president for life.
• Yes, vanilla (yes, vanilla—not vanillia) is stupidly expensive these days. As in 20x more expensive than just a few years ago. Canada’s Globe and Mail explains why.
• Even if bitcoin doesn’t survive, blockchain will, WSJ technology columnist Christopher Mims explains.

Spring has sprung, and so clocks are changing. Clocks in most of Canada and the United States sprang forward an hour on Sunday morning, meaning Cairo is now six hours ahead of New York and Toronto, not seven. Clocks will advance an hour in the UK in the wee hours of Sunday, 25 March.

French business delegation in town this week: A delegation from France’s main business union, MEDEF International, will be visiting Egypt tomorrow and Tuesday. The delegation will be headed by Marc Rennard, head of the union’s digital taskforce and the deputy CEO of Orange Group in charge of customer experience and mobile banking. The delegation will be meeting with the central bank as well as the finance, health, and CIT ministries. They will also meet with private sector players in the payment solutions sphere to discuss cybersecurity, e-government, e-identity, payment dematerialization, and digital transformation.

EGX head Mohamed Farid plans to hold meetings this week with financial industry lobby groups to discuss establishing an industry federation as per amendments to the Capital Markets Act. The meeting will include representatives of the securities division of the Federation of Egyptian Chambers of Commerce as well as the Egyptian Capital Markets Association.

Politics dominated the airwaves last night, with concerns over a potential cabinet shuffle post election, the state of media legislation, and burgeoning Sudan-Egypt ties. Al Hayah Al Youm gave us the only econ respite with an exclusive with Trade and Industry Minister Tarek Kabil.

Some 25 Chinese companies are planning to set up textiles projects worth USD 2 bn in Sadat City, Kabil told host Khaled Abu Bakr (watch, runtime: 3:23). In an hour-long interview, Kabil spoke about the economic reform measures, saying they require time to bear fruit, and discussed industrial developments over the past four years. He also said that 4,400 factories are expected to obtain licences over the coming year (watch, runtime: 3:03). He added that a total of 501 new factories will launch next month. You can watch full interview here (watch, runtime: 1:00:00)

Despite rampant speculation, we might not see a new cabinet after the presidential election? That was the contention on the airwaves last night. The constitution does not mandate a cabinet shuffle with the beginning of a new presidential term, constitutional law professor Salah Fawzy told Hona Al Asema’s Lamees Al Hadidi. He added that the president would need over 50% of House of Representatives MPs to vote in favor of any such shuffle (watch, runtime: 5:35). House spokesperson Salah Hassaballah concurred, adding that the majority of MPs trust and support President Abdel Fattah El Sisi’s choices (watch, runtime: 4:35). He also said the president would take the oath of office before parliament in June.

Is Support Egypt looking to become a formal party? The Support Egypt Coalition — the largest political bloc in the House — may turn into a single unified political party, said Hassaballah. The matter has yet to be decided, he added. He then moved on to say that parliament is considering going back to the old tradition of airing its sessions on TV, but we’ll believe it when we see it (watch, runtime: 4:54).

As the House looks to debate the Media Act (more in the Speed Round), the politics-heavy episode turned into a discussion on on the laws regulating press freedom in Egypt. Press Syndicate Head Abdel Mohsen Salama and Media Syndicate head Hamdy El Konaysi said that there are up to 35 articles in different pieces of legislation that allow the jailing of journalists over content (watch, runtime: 41:31). Salama called the provisions outdated said they contradict the 2014 constitution, which guarantees freedom of the press under Article 71.

Relations with Sudan remained high on host Amr Adib’s mind again, as he urged Egyptians to not rely on improved Nile politics and start conserving water (watch, runtime: 8:30). On Masaa DMC, Eman Al Hossary spoke to former Foreign Minister Mohamed El Oraby who expressed “relief” that ties have recently warmed (watch, runtime: 6:45). Foreign Ministry spokesman Ahmed Abu Zeid told Al Hayah Al Youm’s Khaled Abu Bakr that Egypt and Sudan enjoy strong ties and spoke about similar strong relations with other African countries including South Sudan and Kenya as part of Egypt’s growing interest in Africa (watch, runtime: 15:55).

Is Shell nearing a USD 25 bn agreement that could see Egypt become an East Med gas export hub? Shell is reportedly in talks to buy gas from the Israel’s Leviathan and Cyprus’ Aphrodite gas fields in a USD 25 bn, 10-year agreement, Israel’s Globes reports citing a report from Bloomberg. Shell is looking to buy 10 bcm of gas from both fields, industry sources said.

Background: Bloomberg had noted last year that Shell was looking for ways to move gas from Leviathan and Aphrodite, in which it holds a 35% stake, to Egypt’s Idku LNG facility, which it owns and from which it hopes to export. Last month’s USD 15 bn agreement between Leviathan operators and Alaa Arafa-led Dolphinus Holding to import gas to Egypt had opened options to moving gas to the country. Gas could be shipped to Egypt through Jordan via a pipeline as conditions for that appear ready, according to statements by Leviathan partners Delek Energy and Noble Drilling. Both are looking to purchase the rights to use the East Mediterranean Gas Company’s pipeline to transport gas to its customers in Egypt.

Egypt, Cyprus, Greece are moving ahead with a USD 4 bn project to connect their electricity grids: Egypt and Cyprus have approved the route for the 2,000 MW subsea power cable that’s at the heart of a USD 4 bn project to connect the electricity grids of Egypt, Cyprus, and Greece, unnamed government sources tell Al Borsa. The 1,707 km cable has now entered the pre-works phase, according to EuroAfrica Interconnector, which will install the cable. Egypt and Cyprus have also agreed on the cable’s landing point in Egypt, the company says. The financial studies for the project remain underway, and Egypt is also assessing its compliance with security and environmental regulations, according to Electricity Minister Mohamed Shaker. The three countries had agreed in November to conduct feasibility studies on the power linkage, which is expected to become part of a larger connection project between Europe and Africa.

Eni sells 10% stake in concession that is home to Zohr to UAE’s Mubadala for USD 934 mn: Eni has agreed to sell a 10% stake in the Shorouk concession, which holds the Zohr gas field, to Mubadala Petroleum, a wholly owned subsidiary of Abu Dhabi investment vehicle Mubadala Investment Company, the company said in a statement on Sunday. Mubadala will be paying USD 934 mn for the stake; the transaction still needs regulatory sign-off. “This is an important and attractive investment for Mubadala, adding a world-class asset to our portfolio with long-term cash flows,” said Mubadala Petroleum Chairman Musabbeh Al Kaabi. The company now joins Rosneft, which bought a 30% stake in Zohr, and BP (with a 10% stake) as Eni’s partners in the concession.

The acquisition comes a part of wider transaction between Eni and Abu Dhabi’s ADNOC, which would see it acquire a stake in Gulf fields. Eni will acquire a 5% stake in the Lower Zakum offshore oil field and of a 10% stake in the oil, condensate and gas offshore fields of Umm Shaif and Nasr, the company said. Eni is the fourth international company to secure rights to one of ADNOC’s new offshore concessions and the first to take a piece of the Umm Shaif and Nasr block, according to Bloomberg.

A Russian business delegation is expected to visit Egypt this month to look into developing the USD 7 bn Russian Industrial Zone (RIZ), an unnamed government source tells Al Borsa. The 5.25 mn sqm zone will be built in three phases spanning 13 years, with work on the first set to begin this year. The Ismail Cabinet had approved last week a preliminary agreement to set up the RIZ — talks for which had begun in 2014 before hitting a roadblock — in the Suez Canal Economic Zone.

IPO WATCH- Landmark Sabbour is planning to list 25-30% of its shares on the EGX by year’s end and is mulling a dual listing on the Dubai Financial Market, Chairman Ahmed Sabbour said, Khaleej Time reports. The company has appointed three investment banks and has yet to decide on the size and potential value of the stake sale. Separately, Landmark Sabbour subsidiary Continental Investments launched its Dh 1.1 bn (USD 299.5 mn) Rukan Compound project in Dubai, the first phase of which is slated for completion by 3Q2019.

M&A and IPOs will drive Middle East transactions this year, JPMorgan Chase & Co expects, according to a Bloomberg report. Private sector mergers and state sell-offs as part of privatization plans will accelerate, while corporate bond sales are also likely to rise, the bank’s regional corporate banking head Sjoerd Leenart says. “In equity markets we see levels of activity are picking up, particularly across the U.A.E. and Saudi Arabia. Across our teams we are absolutely very busy at the moment with a lot of [transactions] being worked on,” Leenart explains. He cautioned that even though the signs are positive, “mergers in the region can be difficult to close and take a long time.”

M&A WATCH- Samsung Electronics affiliate Samsung Next has acquired 100% of Egyptian artificial intelligence startup Kngine to improve its virtual assistant Bixby, an unnamed Samsung official tells The Investor. The transaction, the value of which hasn’t been disclosed, took place in October but the news had not yet been released. Samsung Next had apparently invested in Kngine in 2014 and took its stake to 100% last year. Kngine was co-founded in 2008 by brothers Haytham and Ashraf El Fadeel and had landed a USD 775k investment from Sawari Ventures. The startup struggled to raise further investment here and ultimately moved to the US to seek capital.

EARNINGS WATCH- Beltone Financial reported a net income after minority of EGP 9 mn in FY2017, down from EGP 44 mn in FY2016, where a one-time FX gain masked a bottom-line loss, the firm said. Top line growth reached 200% to EGP 700 mn, driven largely by by the acquisition of Auerbach Grayson (AG) in the US, the company said in an earnings release (pdf).

LEGISLATION WATCH- The Ismail cabinet has referred public procurement and traffic acts to the House of Representatives for a vote, according to a Cabinet statement. The Public Procurement Act, which had been with Maglis El Dawla (Council of State) as of last month, grants Egyptian products preferential treatment in government contracts as a means of promoting local industry. Cabinet had introduced amendments to the traffic law that would set new rules for licensing and hike fines for traffic infractions, as well as require the installation of a GPS tracker as a condition for licensing four-wheel drive vehicles.

Meanwhile, the Council of State completed its review of amendments to the Unified Building Code and the executive regulations to the Labor Unions Act, Al Shorouk reports. The council also reviewed draft legislation to grant the Egyptian General Petroleum Company a gold exploration license for the Omm Oud and Hangaliya concession in the Eastern Desert.

In other legislative news, the House Culture Committee began a second review of the Media Act, Part 2, which it hopes to complete by early April, Al Masry Al Youm reports. The committee will then hold a press conference to announce details of the amendments, which focus on setting regulations and guidelines for those working in the media. Part 1 of the Media Act, was split into two sections back in 2016 and passed, sets up the three main industry regulators.

Saudi to keep pressure on business community with anti-corruption units in prosecutors’ offices: Saudi Arabia will establish specialized departments in the public prosecutor’s office to investigate and prosecute corruption cases, Attorney General Sheikh Saud al-Mujib said in a statement carried by the Saudi Press Agency (SPA).

Another one of those “honest citizen lawyers” is trying to shut down the BBC’s offices in Cairo. The Cairo Court for Urgent Matters has set 10 April as the date for the first hearing in a lawsuit calling for shutting down of BBC’s office in Cairo and revoking its licence to operate in Egypt, Ahram Online reports. The lawsuit was filed by lawyer Mohamed Hamed Salem in response to a controversial report by the BBC. The State Information Service (SIS) had also called for a boycott of the broadcaster and demanded a formal apology.

Egyptian companies were, collectively, the belle of the ball at the EFG Hermes One on One in Dubai last week, attracting the lion’s share of investor interest at the world’s premier emerging and frontier markets conference. But don’t count Saudi Arabia out: Investors love Egypt right now, but the relative smallness of our market and a desire to see new names in play has many investors look toward the Tadawul as KSA prepares for upgrade to MSCI emerging. We sat down with EFG Hermes Investment Bank Co-CEO Mohamed Ebeid to discuss what to expec this year. Edited excerpts:

There’s very positive sentiment on Egypt. Everyone wants to play Egypt as a typical EM that went through a steep devaluation followed by an expected decline on interest rates and inflation. There’s also a little bit of a deleveraging story to Egypt. This will lead to bottom line earnings beyond everyone’s expectations and that, in turn, will re-rate the market to a different level.

Everyone knows the story. In fact, Egypt has been down this road before. It follows the same pattern in all EMs, so people can relate to what’s happening in Egypt now. Egypt also can boast a history of reform. Looking back to the devaluation in 2002 and the reforms of the following years, Egypt for was one of best performers globally for multiple years in a row. Egypt was a top performer twice, and was once in the top five of all frontier markets, even when looking at it in USD terms after the devaluation of ‘02.

We expect 25% pickup index-wide in Egypt between now and the end of the year and up to 40% pick up on selected stocks.

Transparency on the reform agenda and political stability work in Egypt’s favor: Investors appreciate the stability that we’ve been going through on the political side and the credibility of the economic reform program, something is definitely happening right now. Beyond the actual reform policies themselves, the accessibility of the economic team, the CBE, and the presidency to institutional investors — who have been meeting them periodically — has helped bolster positive sentiment across the board. This has shown all investors that we’re back to business. This is reflected not just in reserves breaking the USD 42 bn barrier, but in equity inflows coming into the market. Big stakes are being bought by institutional investors.

What sectors do investors like these days? Institutional investors are really coming into real estate. There’s also a lot of interest in consumer thanks to the pickup and the deleveraging story. Banks have been taking on lots on treasuries, but that will decline, given the interest rate environment. That said, there’s still interest in banks because everyone is expecting loan growth to pick up — it had been previously stagnant. Everyone is interested in industry.

All in all, there’s more demand than there is paper available, which will will inflate asset prices across the board until there’s more paper in the system.

The biggest issue in Egypt is that the country needs more listings. Generally, setting up IPOs is a lengthy process and there’s a limited number of sizeable listings that can be brought to market this year. Smaller IPOs are doable, but these are limited in number.

What about the government program? They’ve chosen the best route, which is is an accelerated book building program for some of the government stakes in listed equities and trim down the ownership, rather than owning it through multiple vehicles. These state companies are known by investors and covered by research, which is facilitating an accelerated book-building program over a 24-hour window. That would bring a lot of volumes to the market. We’ll start seeing this in the second quarter of this year, and we’ll see then some of these companies on the market.

The state asset sales will drive volumes. Volumes have been in the EGP 1-1.2 bn range recently. These are expected to grow to EGP 1.5-2 bn by the time the IPO program rolls around, bearing in mind that this is still really low considering the devaluation.

As for major private sector IPOs? It’s looking unlikely that there will be any major activity before 2H2018, with one possible exception that could go out in May.

There’s also appetite for Saudi Arabia on the back of a possible EM upgrade and the expected IPO of Saudi Aramco. There is also interest in the QFI model relaxation and there’s even speculation that maybe by the time of the Aramco IPO, they might open the market completely. Investors are seeing that the dust is starting to settle after the end of last year, with some expecting that things might turnaround quicker than people expect. Given the the size in KSA, it’s not a market anyone can really neglect.

Lots of active funds are looking at Saudi because they know the passive side will come in soon. Size is vital given how big the liquidity is in Saudi, so there’s room for people to come in there. We’re taking investors around Saudi at least once a week these days.

There’s plenty of interest in the Saudi consumer sector. This was dampened a bit after the events we saw in November 2017, as many of the consumer companies swept up in it were mainly owned by individuals or families. That coupled with the fiscal cuts by the Saudi government led to a lot of those stocks taking a hit. With the government announcing an increase in spending this year, interest in the consumer sector is being revived. There’s also a lot of interest in midcaps, particularly with healthcare. Consumer and healthcare will be the two main sectors in Saudi.

Everyone is waiting to see when the Aramco IPO will take place. People are also looking at other IPOs in the works, and whether they are going to run before Aramco.

There’s also a lot of interest in frontier markets, and that’s rooted in a bottom up approach. Everyone selectively looks at companies over the wider market. It’s not about a Nigeria story, it’s about a bank in Nigeria.

The biggest concern on frontiers is liquidity. Getting out is a lot harder than getting in because the number of players to whom you can sell isn’t huge. It’s concentrated in size among a few and the local players will not be able buy whole stakes. So they’re being selective on companies, volumes and size.

Egypt is basing its strategy to become a regional energy hub on three key pillars, Charles Ellinas writes for Cyprus Mail. The first is domestic, through the gas market liberalization and the appointment of an independent regulator. Technically and commercially, with a well-established energy system with marine platforms, storage facilities, extensive transmission system and infrastructure.The third pillar involves alignment with EU energy policy in order for Egypt to become a supplier to the continent. “Israeli and Cypriot gas finds, together with the giant Zohr and other gas fields off Egypt, and potential gas reservoirs off Lebanon, could create a gas hub right on Europe’s doorstep,” Ellinas adds.

The Washington Post still wants you to know it doesn’t think much of the elections: Presidential candidate Moussa Mostafa Moussa’s weak campaigning is “the latest sign” that the upcoming elections are a “farce,” Sudarsan Raghavan writes for the Washington Post.

Also stories worth a quick skim on this thankfully slow international news day:

• The former ruling National Democratic Party could be attempting to make a comeback in Egypt’s political life, Sonia Farid writes for Al Arabiya.

• Al Azhar continues to refuse labelling Islamist terrorist groups as heretics, the Jewish News Syndicate notes.

Shoukry kicks off Africa engagement tour: Foreign Minister Sameh Shoukry met with African Export-Import bank (Afrexim) chief Benedict Okey Oramah ahead of meetings on launching the Continental Free Trade Zone (CFTZ) in Kigali later this month, according to a ministry statement. Shoukry will then travel on Monday to South Sudan, and Kenya, where he will discuss cooperation with President Uhuru Kenyatta, according to another ministry statement.

This comes as acting head of General Intelligence Abbas Kamel met with his Sudanese counterpart Salah Ghosh and Sudan’s Foreign Minister Ibrahim Ghandour in Khartoum on Saturday to discuss coordination for resolving “pending issues”, Sudan News Agency (SUNA) reports.

But that’s not stopping Sudan from flirting with pariahs, as the country and Qatar have agreed to establish a joint committee for political consultations, the Sudanese Foreign Ministry said in a statement.

Prime Minister Sherif Ismail and Oil Minister Tarek El Molla met yesterday with a Toyota Tsusho delegation, which presented its initial feasibility study on the Egyptian Petrochemicals Holding Company’s (ECHEM) USD 3 bn petrochemicals plant, Youm7 reports. ECHEM had agreed with Toyota Tsusho last year to conduct the studies on the plant, which will be constructed in the Suez Canal Economic Zone.

Port Said Governor Adel El Ghadban met with private and public education officials and businessmen yesterday to discuss establishing five new schools under the 200 public-private partnership schools initiative, Al Mal reports. Some of the schools are expected to begin operating in the next academic year, according to the governor. This comes as the government is expected to announce soon the results of its tender for the development and management of the 200 PPP schools.

SODIC announced signing a revenue sharing agreement for two adjacent plots with a total land area of 308 feddans on the North Coast. The agreement provides the land owned with a 28% share of the project’s revenues from unit sales, which SODIC projects to be around EGP 15.2 bn. The land plot is directly off the new Dabaa road exit and 8 km east of SODIC’s Caesar maiden North Coast project.

President Abdel Fattah El Sisi has formed a committee led by his advisor for national projects Ibrahim Mahlab to tender land in North Sinai, Al Masry Al Youm reports. The committee will be responsible for the North Sinai development project.

Charter airline Air Cairo will add weekly flights to Sharm El Sheikh from Azerbaijan, Sweden, and Romania, company chief Yasser El Ramly tells Al Shorouk. The move comes as the company aims to increase its passengers to 450k this year.

The government will select the winning bid to supply the Egyptian National Railways with 1,300 railway cars for around EGP 18 bn next month, Transport Minister Hisham Arafat tells Al Borsa. The ministry is deliberating between offers from a Chinese and a Spanish company, in addition to a Russian-Hungarian and an Indian-Italian consortium. The government will also select a company or consortium to design, finance, supply, operate, and maintain the Alamein-Ain Sokhna high-speed electric train on 30 June, according to Arafat. A joint committee from the transport and housing ministries completed on Thursday its review of the offers for the project, which saw 10 out of 23 companies and consortiums qualify to submit financial and technical offers. Arafat did not disclose details on the consortia, but noted that they include Orascom Construction, Elsewedy Electric, Hassan Allam Sons, SEMAF, and Arab Contractors, alongside firms from Italy, Canada, China, Japan, Germany, and others.

Real estate developer Samcrete is in talks with local banks for a EGP 2.5 bn credit facility to finance the contracting projects it has undertaken, an unnamed company source tells Al Mal. Samcrete is primarily negotiating with the National Bank of Egypt but is also in talks with other banks, according to the source.

The International Finance Corporation (IFC) will support the Dakahlia Businessmen Association for Community Development (DBACD) as it scales up its lending operations and caters to borrowers who seek larger loans. IFC will also help DBACD improve in key areas, including risk management and strategic business planning, IFC said in a statement yesterday. The latest partnership with DBACD is supported by the Japanese Ministry of Finance.

TV Presenter Khairy Ramadan returned on air on Saturday following his release on bail pending investigations into charges of spreading false news and insulting the police, Al Masry Al Youm reports. The charges were filed after Ramadan aired an episode of his show talking about police wages being too low.

The Giza Criminal Court handed down on Saturday a death sentence to 10 defendants and a life imprisonment sentence to five others for forming a terrorist cell, attacking the armed forces, and inciting violence against Christians, among other charges, the Associated Press reports, citing MENA.

Squash champion Mohamed El Shorbagy became the first ever Egyptian winner of the prestigious Canary Wharf Classic after he defeated compatriot Tarek Momen in London’s East Wintergarden, according to the PSA World Tour.

Silicon Valley-based 500 Startups announced that the deadline for submitting applications for its second edition of MENA Dojo Series A Program has been extended to 15 March. “The program aims to support post-seed stage startups to boost their growth to the next level with a 1-to-1 mentor-driven growth hacking program.” Launched in 2017, 500 Falcons, 500 Startups MENA focused fund, plans to invest in approximately 100-150 companies over the next three years.

TEAR JERKER MOMENT WATCH- A “Miracle Team” of 40 Egyptian one-legged soccer players hopes to join the Amputee Soccer World Cup, Xinhua reports. The team also hopes to start league for Egypt’s disabled footballers. "We love soccer since childhood. We have a dream of being soccer players but we didn’t have a chance," says 28-year-old lawyer Mahmoud Abdo, the team founder and captain.