HyperOne considers IPO for 2019

Could Vodafone be pressured to sell its Egyptian arm? That’s the suggestion from Bloomberg, which speculates that incoming CEO Nick Read will be looking for ways to cope with “a weak share price [and] a fragile dividend” as it faces a potential “shake-up by US activist investor Elliott Management Corp,” which has reportedly built a stake in the world’s second-largest wireless carrier. Among the options Bloomberg suggests could be on the table: “Selling divisions. Vodafone has assets dotted around the world that Elliott could pressure it to sell. … The group’s South African and Egyptian units contribute to synergies.” Read: Vodafone could be ripe for activist investors, one of the most interesting pieces we’ve read on a very slow newsnight.

The US Federal Reserve left interest rates on hold yesterday, characterizing the US economy as strong in a statement. The Fed left its target federal funds rate range at 1.75-2%. “Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly,” the statement read. Analysts still expect the Fed to raise rates twice before the end of the year, according to Reuters.

Goldman Sachs lowers expected 2018 returns for EM assets in mid-year update to its 2018 Outlook: In a once in a blue moon mid-year update to its 2018 Outlook, Goldman Sachs has lowered its expected returns on emerging markets assets in 2018, with the bank recommending a “small strategic allocation to emerging markets.” Nonetheless, the bank has raised its aggregate growth forecast by only 0.2%, driven largely by improved outlooks on China and India —and offset by declines in Russia and Brazil. “Monetary policy remains accommodative across the key countries, and the inflation outlook is benign,” it reads. Earnings in EM companies grew 12%, the report notes, in line with expectations. That said: Growth was concentrated in energy, IT, and materials.

Still, Goldman’s asset management unit now sees EM bonds as some of the more attractive opportunities out there. “The growth story there is still very positive,” Andrew Wilson, the London-based co-head of global fixed income at Goldman Sachs Asset Management, said in an interview with Bloomberg TV. The bank has all but called an end to the EM zombie apocalypse, saying that the plunge had bottomed out in June.

The Goldman report also sees continued volatility in global markets driven by political risks, noting especially the ongoing trade war between the US and China. US equities get a strong buy recommendation at the expense of other developed markets (particularly the Eurozone) and emerging markets.

You can catch the full report here (pdf) or access it through the landing page here.

Speaking of that trade war: The Donald is considering raising tariffs on Chinese imports to 25%. That would more than double the proposed tariffs on some USD 200 bn in annual imports from China, the Financial Times reports.

Qatar is now the top-performing stock market in the GCC: The Qatar Stock Exchange overtook Saudi Arabia as the GCC’s top-performing market, closing yesterday at its highest level since May last year, Reuters reports. The 1.5% jump in the index was led largely by banking stocks, indicating that the Qatari benchmark “has recovered all losses” since Egypt, Saudi, the UAE, and Bahrain decided to boycott the statelet in 2017, according to Bloomberg. “While the standoff shows no sign of ending, pressure on Qatari assets in general has eased.”

More charges brought against Abraaj’s Naqvi over bad cheques: Arif Naqvi, the founder of Dubai-based private equity firm Abraaj, is facing a new set of criminal charges, this time over alleged bad cheques worth c. USD 217.3 mn, according to Reuters. The case, which is set to be heard by a Sharjah court on 14 August, was filed by Hamid Jafar, a founding shareholder of Abraaj who had previously accused Naqvi of issuing bad cheques worth at least USD 48 mn. Abraaj is currently undergoing a court-ordered restructuring and has filed for provisional liquidation.

Other global business headlines you may want to know about:

• Brent crude was down 2% yesterday to USD 72.39 per barrel “as a surprise increase in US crude stockpiles fed concerns about global oversupply,” Reuters reports, noting that prices are also “being pressured by concern that global trade tensions could crimp economic growth.”
• Apple shares still have a way to run before the company becomes the first to hit USD 1 tn in market cap. That’s the takeaway from CNBC, which says an adjusted share count reported yesterday means the company has to hit USD 207.05 per share (not USD 203.45 per) to hit the USD 1 tn threshold. The company’s stock ended trading on Wednesday as USD 201.50 after delivering a strong earnings report thanks in large part to strong iPhone X sales and growth in the sale of services and “other products.”

The Finance Ministry appears to be bombarding the airwaves with explainers and primers on tax procedures and some of its policies.

Among these, is a recently passed amendment to the Income Tax Act exempting taxpayers from interest on late fees, which Finance Ministry Advisor Osama Tawako says lis meant to ease the burden on taxpayers who have racked up years of overdue taxes. The amendment, he told Masaa DMC’s Osama Kamal, comes as part of the government’s measures to get its hands on overdue taxes, said Tawakol (watch, runtime: 9:47).

Kamal also discussed Egypt’s real estate taxes with Real Estate Tax Authority head Samia Hussein, who gave a breakdown of the formula the ministry uses to determine the real estate tax and how it calculates the value of a property (watch, runtime: 5:38). As we noted yesterday, the ministry is looking to increase tax revenues from properties and real estate. It is about to embark on a survey to appraise real estate assets nationwide and has even developed a formula for taxing oil and gas assets.

The Finance Ministry’s drive to digitize the state’s payment will help tighten its grip on public spending, the ministry’s advisor for technological affairs, Khaled Nasef, told Al Hayah fi Masr’s Kamal Mady. Nasef also discussed the security measures in place to guard accounts against cyber attacks (watch, runtime: 16:30).

New subsidy card applicants inundate Supply Ministry offices: The Supply Ministry’s offices received a large number of applications from citizens looking to register their children and newborns on their families’ subsidy ration cards yesterday, ministry advisor Amr Madkour told Hona Al Asema (watch, runtime: 5:42).

The Egyptian Football Association’s selection of Mexico’s Javier Aguirre as the new national football team coach was a matter of particular interest to Yahduth fi Masr’s Sherif Amer, who looked into the clauses of Aguirre’s contract. The EFA is expected to hold a presser today to announce further details, according to Amer (watch, runtime: 3:36). We have more on Aguirre’s selection in On Your Way Out.

Citizens in Damietta have reportedly been struggling with the long wait-times to recharge their pre-paid electricity cards at Electricity Ministry offices, prompting ministry spokesman Ayman Hamza to tell Masaa DMC that the ministry is planning to set up new offices to address the issue (watch, runtime: 17:38).

Elsewhere on the airwaves, allegations that Egyptian universities have been issuing forged certificates to Kuwaiti nationals earned some airtime on Hona al Asema (watch, runtime: 7:26) and Masaa DMC (watch, runtime: 4:24).

IPO WATCH- HyperOne mulling 2019 listing: Retail chain HyperOne is considering making its EGX debut by the end of 2019, founder and chairman Mohamed El Hawary tells Amwal Al Ghad in an interview. He provided no additional details on the size or timeline for the transaction, adding only that the group is pursuing a number of prospects as part of its ongoing expansion plans, which include opening new branches at a total investment cost of EGP 2 bn. Among the first: a EGP 500 mn branch in Solaimaneyah City. El Hawary had previously denied reports claiming that the company was looking to sell a controlling stake to foreign investors. Reports had claimed that Pharos Holding was hired as a sell-side advisor, with Al Tamimi & Co. as legal counsel.

EARNINGS WATCH- ‘Tis the season, ladies and gentlemen. Look for a flood of earnings reports from now through the mid-August filing deadline for 2Q/1H results before we all collapse into a heap and enjoy a very long Eid Al-Adha break.

CIB posts record second-quarter earnings. Our friends at Egypt’s leading private-sector bank delivered a 31% y-o-y rise in 2Q2018 net income to EGP 2.40 bn on revenues of EGP 5 bn (up 41% y-o-y). Net income for the first half of the year grew 24% y-o-y, coming in at EGP 4.42 bn. Commenting on the results, management noted that topline growth was backed mainly by an improvement in local currency spreads “while preserving deposit market share, alongside a considerable pick-up in foreign currency lending activity.” CIB maintained its capital adequacy ratio at 18% despite a surge in sovereign yields, which led to a negative revaluation of its trading bond portfolio. Nonetheless, the bank’s CAR was well above the minimum requirement. Management is confident that it will comfortably exceed the higher capital adequacy requirement set to come into effect 2019. “We keep an eye open, however, in order to assure the sustainability of capital levels above regulators’ requisites notwithstanding unfavorable market dynamics that may arise in the near future.” You can read CIB’s full earnings release here (pdf).

CI Capital Holding reported an 88% y-o-y in net profit after tax to EGP 161.3 mn in 1H2018, according to the company’s earnings release (pdf). Revenues for the period closed at EGP 1.1 bn (+46% y-o-y).

Palm Hills Development (PHD) reported a net profit after tax of EGP 439.9 mn in 1H2018, up from EGP 349.3 mn in the same period last year, according to an EGX filing.

Amer Group Holding’s net profit after tax fell 13.0% y-o-y to EGP 55.1 mn in 1H2018, down from EGP 63.3 mn in 1H2017, according to an EGX filing. Revenues dropped 22.5% y-o-y in the first half to 802 mn.

EFG Hermes topped the EGX’s brokerage league table for July with a market share of 28.1%, up from 16.5% in June, according to figures released by the EGX (pdf). HC Brokerage came next with a 6.2% market share, followed by Beltone (5.9%), CI Capital (6.0%), and Pioneers (4.3%).

MOVES- Prime Minister Mostafa Madbouly has appointed Gehan Saleh as economic advisor to the Council of Ministers, according to an emailed statement (pdf). Saleh was previously dean of the College of International Transport and Logistics at the Arab Academy for Science, Technology, and Maritime Transport.

FRA establishes an insurance industry bailout fund: The board of the Financial Regulatory Authority (FRA) has approved the establishment of a bailout fund for the insurance industry, Al Mal reports. The fund will pay off policy holders in the event that the underwriter is unable to do so, according to FRA deputy head Reda Abdel Moaty. The move will help reduce risk in the industry and improve consumer confidence, FRA Chairman Mohamed Omran said. The FRA is positioning the move as part of its drive to better regulate the insurance industry, where other recent changes include the issuance of the Insurance Act.

INFRASTRUCTURE WATCH- EBRD provides EUR 205 mn loan to rehab Cairo Metro’s Line 1: The Madbouly government signed yesterday a EUR 205 mn loan agreement with the European Bank for Reconstruction and Development (EBRD) to finance the rehabilitation of infrastructure on the Cairo Metro’s Line 1, according to a Cabinet statement. “The funds will finance urgent works on Line 1 — the oldest of the Cairo underground lines — which remains the backbone of the system and is used by 500 mn customers per year. Investments will increase the line’s capacity by 40 per cent by reducing headway (the time between trains) from 3.5 minutes to 2.5 minutes, thereby improving levels of safety, comfort and service reliability,” according to an EBRD statement.

Background: The loan is part of a EUR 600 mn funding agreement — the balance of which will be provided by the French Development Agency and the European Investment Bank — for the first phase of the line’s development. The National Authority for Tunnels is expected to contribute an additional EUR 145 mn for the first phase. The EUR 650 mn second phase will entail the purchase of an unspecified number of metro cars, Transport Minister Hisham Arafat said yesterday.

CABINET WATCH- The Madbouly Cabinet signed off yesterday on a EGP 2.5 bn plan to develop the country’s education infrastructure, according to a statement. The plan will build some 2,500 new schools across Egypt as part of the government’s plans to overhaul the education sector. No further details were provided on what these developments entail, or when the government expects them to be complete.

Madbouly forms committee to amend Mineral Resources Law: The prime minister also decided to form a committee with representatives oil, investment, environment, finance, local administration, defense, and public enterprises minister and representatives from the Federation of Egyptian Industries’ mining and quarries division to draft amendments to the Mineral Resources Act. The House of Representatives’ Industry Committee had been looking at changes to the act, including cutting licensing fees, royalties, and tolls payable to the state by 50% last year.

(Background on the mining law: Industry players have argued that Egypt could be one of the top mining destinations in the world — if it dumps the oil and gas production sharing model that it now follows. Instead, Egypt should resort to the “transparent model” of a tax and royalty regime, Aton Resources’ Mark Campbell argued in a piece for Enterprise last year. Read: Egypt’s golden opportunity: Mining for the 21st Century.)

Also approved during yesterday’s weekly meeting:

• Draft regulations on unpaid vacations for employees covered under the Civil Service Act;
• Extending the grace period for tourism investors in Luxor and Aswan to complete payments owed to the state for an additional six months;
• A direct order agreement between Cabinet’s Information and Decision Support Center and Telecom Egypt to provide call center services until 30 June 2019;
• Several decisions and recommendations from the Investor Disputes Resolution Committee.

France looks for ways to skirt US restrictions on Rafale sales: France is looking to free itself from US restrictions on key components of its Rafale jets that have blocked the sale of 12 jets to Egypt, France’s Defense Minister Florence Parly told France’s National Assembly early last month, Defense News reports. France lacks the means to be totally independent of the US, she said, adding that French authorities are looking for ways to boost its autonomy.

The solution? France appears to want to encourage manufacturers of the components, particularly the Scalp missile, to invest in developing similar systems. “That the manufacturer of these missiles, namely MBDA, make the investment in research and technology to be able to make a similar component, which would avoid [US military export protocols]," she added. “We are able to do it for this contract because the component can be built within a reasonable amount of time even if the client, naturally, sees it as too long.”

So what’s the status of the Rafale sale? From what we’re seeing from Parly’s statements and remarks in March by the chairman and CEO of Dassault Aviation — the manufacturers of Rafale — the sale of the planes remains blocked. This comes despite reports from January that Egypt had quietly signed a security agreement with the US to remove the block on the sale. Earlier this month, French daily La Tribune reported Egypt could ink an agreement with France as early as this year to purchase another 24 Rafale fighter jets.

A delegation of 60 US companies will visit Egypt in October to explore potential investments across a variety of sectors, a Trade and Industry Ministry statement says, without naming the companies. The delegation’s visit was organized by our friends at the American Chambers of Commerce. A Japanese trade delegation is also due to visit the new capital and Suez Canal by the end 2018, Al Mal reports.

Foreign Minister Sameh Shoukry should be landing in Washington next week to meet with US Secretary of State Mike Pompeo over developments in the Middle East and US-Egypt relations.

The CBE will be hosting the 41st annual meeting of the Association of African Central Banks (AACB) at Sharm El Sheikh from 5 to 9 August.

Prime Minister Mostafa Madbouly has yet to select the board of directors for Egypt’s EGP 200 bn sovereign wealth fund.

An 1899 edition of our EGP 1 note sold for USD 26,400 at an auction last month at the International Paper Money Show in Kansas City, according to Numismatic News.

Egypt’s energy transformation and its shift to green energy “is definitely a move in the right direction,” Marissa Higgins writes for Green Matters. Higgins notes that Egypt’s renewables program is a “multi-nation effort” encouraged by the IMF-backed economic reform program, which has seen Egypt significantly scale back its fossil fuel subsidies. With the inauguration of the USD 2.8 bn Benban solar power park and the USD 670 mn Gabal El Zeit wind farm, Egypt is well on its way to sourcing 42% of its energy needs from renewables, “leaving a healthy 5-year window for their 2030 sustainability goals with the United Nations,” says Inverse’s Matthew Phelan.

Other headlines worth a look this morning:

• A petition calling for President Abdel Fattah El Sisi to remain in office for a third term has been making the rounds, Ruth Michaelson writes for the Guardian.
• NPR weighs in on Cairo’s congestion problems and the promise of escape to the city’s outskirts by building a new capital.
• African countries including Egypt stand to benefit from China’s experience in using tech to spur growth, particularly in e-commerce, Peking University’s Luyolo Sijake writes for China Daily.
• Egypt, Kenya, Tanzania, Nigeria, and South Africa are Africa’s top exporters to India, according to recent findings by the Observer Research Foundation.
• Visiting the pyramids of Egypt is the third most popular must-do for British travelers, according to a survey carried by Brinkwire.

What happened to Egypt’s Child Protection Law? It has been over a decade since Egypt drafted and passed its Child Protection Law, but the legislation has yet to be enacted due to its pending regulations, Iqbal Baraka writes for Al Masry Al Youm. Baraka wonders whether it would be best to scrap the law altogether and draw up a new version that is up-to-date with the country’s conditions, but stresses that the law must see the light in any form to help curb violence against children and child labor, among other issues.

An abundance of “pointless jobs” is behind the world’s stagnant productivity levels: The service sector seems to have created an abundance of “pointless jobs which could be eliminated with absolutely no loss to society,” Mark Buchanan writes for Bloomberg. A new book by anthropologist David Graeber claims that businesses in this age are less concerned about creating value and more concerned about solidifying and maximizing their existing wealth and stature, which ultimately resulted in the existence of jobs that feel unfulfilling, unrewarding, and probably cost more than they’re worth.

It’s all about control: These jobs — which according to surveys are typically found in fields including public relations, human resources, corporate law, finance and banking, etc. — are “generated naturally out of the corporate managerial struggle for influence, status and control of resources,” Graeber argues. A UK-government funded 2012 review of financial markets, for example, “concluded that lots of finance is senseless zero-sum activity that drains investment away from useful enterprise.” Another study by MIT economist Xavier Gabaix found that the wealthiest among us nowadays “have skewed the playing field in their favor, finding ways — such as access to better information, legal or tax planning services — to capture more of the profits coming from productive work.”

Is that really so bad, you ask? The lack of “real value” in many of the jobs that people is the likely culprit behind the world’s slowing levels of productivity, Buchanan argues. Around 37% of the participants in a 2015 survey in the UK said that they believed their jobs “did not make meaningful contribution to the world.” A similar survey in the Netherlands “found 40% saying the same thing.” So perhaps, Buchanan suggests, that a shift in philosophy towards solving problems, rather than turning a profit, is in order.

The Dirar family built a replica of their refugee tent during their stay in Egypt for an art installation. The replica tent featured paintings and sketches depicting scenes from the Sudanese family’s everyday life for four years before they were finally able to resettle in Hull in 2015 after escaping war-torn Darfur (watch, runtime: 01:01).

The Agriculture Ministry has issued a set of new regulations on grape exports to India, Al Masry Al Youm reports. The regulations include requiring cargoes to be stored at 0°C for 10 days prior to shipping and throughout the shipping process, submitting samples from the shipment for testing at the Agricultural Research Center, and including the testing certificate with the shipments. The ministry has been imposing more stringent regulations on exports after several countries moved to ban imports of Egyptian agricultural products due to high levels of residual pesticides and suspected Hepatitis A contaminations.

The Egypt-Uganda Food Security Co. (EUFS) exported the first 50-tonne shipment of Ugandan beef to Egypt, EUFS CEO Sherif El Kallini said, according to ChimpReports.The shipment comes after the signing of three MoUs between President Abdel Fattah Al Sisi and his Ugandan counterpart Yoweri Museveni during the latter’s visit to Egypt in May.

BP is set to begin drilling its first well in a concession in the Gulf of Suez by October of this year, a company source said yesterday, Al Masry Al Youm reports. BP’s JV with the Egyptian General Petroleum Corporation (EGPC), Gulf of Suez Petroleum Company, will be carrying out the drilling and production works. BP had signed last week a USD 46 mn agreement with the EGPC for oil and gas exploration in the Gulf of Suez, including USD 4 mn to cover the cost of drilling three wells. The report comes as UK Trade Envoy Sir Jeffrey Donaldson assured Oil Minister Tarek El Molla that British oil and gas companies are keen on investing further in the sector, according to an Oil Ministry statement picked up in the local press.

The General Authority for Supply Commodities (GASC) issued yesterday an international tender for an unspecified amount of wheat, to be shipped between 11 and 20 September, according to Reuters’ Arabic service. The tender results are expected to be announced later today.

Military Production Ministry subsidiary Helwan Machinery and Equipment company will be working with Belarussia’s Bobruisk Agromash to locally assemble and manufacture agricultural machinery and equipment at company facilities, Al Shorouk reports. No additional details were provided. A delegation of Belarusian businessmen and government officials had visited Cairo last year to discuss establishing joint projects in agricultural production and agricultural equipment manufacturing.

The Transport Ministry will announce next week the results of the tender to supply the Egyptian National Railways with 1,300 railway cars for around EGP 19-20 bn, Minister Hisham Arafat tells Al Mal. The top offers were presented by China’s CRRC Corporation Limited and a Russian-Hungarian consortium. The Ministry has been embroiled in heavy negotiations with the bidders in an attempt to lower costs, including extending CRRC’s four-year repayment grace period, and lowering the price offered by the Russian-Hungarian consortium from EUR 1 bn to EUR 950 mn as well as cutting maintenance and shipping costs. The agreement stipulates that the locomotives meet a 40% domestic component requirement by cooperating with either SEMAF or one of the Military Production Ministry’s factories.

The Federation of Egyptian Industries’ (FEI) tax committee has laid out its recommendations and reservations on the Finance Ministry’s draft of a new Customs Act, Youm7 reports. These appear to be minimal, with its major concerns boiling down to ensuring compliance of the law to the Investment Act, clearly defining production inputs, and making sure that penalties under the act are not extreme. Committee chair Mohamed El Bahey had said that their points of concern include stipulations requiring importers to submit letters from an accredited bank acting as a guarantor for the cost of customs duties and taxes, in addition to higher penalties for customs evaders and smugglers. Finance Minister Mohamed Maait had previously told us that the ministry would introduce a “whitelist” of importers who benefit from expedited clearance of goods. The committee’s report was sent to the FEI’s board before being passed on to the ministry.

The Egyptian Football Association (EFA) appointed former Mexico and Japan coach Javier Aguirre to manage the national team. His appointment comes at a steep USD 120k a month. Aguirre was chosen over Thierry Henry, who was highly interested in the job and had been shortlisted. Henry was the EFA’s third choice (and perhaps football fans’ first), with the second choice being Spaniard Quique Sanchez Flores. Local coaches Hossam El-Badry, Hassan Shehata, Hossam Hassan, and Talaat Youssef were also considered, according to Ahram Online.