Magued Sherif, Hazem Barakat on Egypt’s largest-ever M&A

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We’re back this morning with a taste of the type of content you’ll be seeing in Enterprise One, our forthcoming professional-grade business intelligence service offering actionable insights into the trends, transactions and news that should be shaping your business and investment decisions.

We’re including this morning two exclusive interviews: one with SODIC CEO Magued Sherif and MNHD Chairman Hazem Barakat on what could be the largest M&A to ever be executed in Egypt (and the country’s first all-share transaction) and another with new Renaissance Capital MENA CEO Amr Helal.

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An inaugural flight landed at Sphinx International Airport yesterday, officially marking the facility’s soft opening phase, Civil Aviation Minister Younes El Masry said, according to Al Shorouk. Our take is that the airport could be a driver of value on the west side of the city: A functioning international airport could boost appetite for housing in Six October and Sheikh Zayed, among other points to the west, and open them to international companies that require proximity to airports in choosing neighborhoods for headquarters and staff housing. El Masry spoke last night with Masaa DMC about the airport’s strategic location (watch, runtime: 9:51).

** #7 A growing number of asset managers are taking environmental, social and governance issues into account when pulling the trigger on an investment, but they’re more likely to do so with public markets investments than with private equity transactions, according to research by Cambridge Associates. That’s one of the more interesting takeaways from the firm’s September study Gender lens investing: Impact opportunities through gender equity. A long teaser is linked there, and you can get the full study by handing over a bit of information about yourself.

We were reminded of the Cambridge paper as the Financial Times came out with its latest special report on responsible investing, with stories including:

• ‘Quiet diplomacy’ the weapon of choice for passives: Managers use private meetings to effect change at companies — but are coy on results
• ESG strategies lengthen hedge fund holding periods: Client demand prompts managers to embrace responsible investing techniques
• Battle to recruit ESG specialists intensifies: Applications are up but the right skills are hard for funds to find

The full landing page for the package is here.

World leaders point to uneven global growth as Bali meeting wraps up: Global leaders emerged from the IMF and World Bank fall meetings with apparent consensus that “a synchronized pickup in global growth” is not in the cards, Mohamed El Erian writes for Bloomberg, noting that “in a tone that contrasted with the optimism of their spring meetings in April, members of the International Monetary and Financial Committee, or IMFC, listed many fragilities, and cited a set of risks that ‘are increasingly skewed to the downside.’”

Key takeaway #1: “The less optimistic outlook for the global economy comes with a long list of gathering clouds that were listed not only in the [traditional IMFC] communique but also in virtually every one of the public statements by officials from the most influential countries. I suspect the worries were even more pointed in private. They include heightened trade tensions, ongoing geopolitical concerns, tighter financial conditions that affect many emerging economies, policy uncertainty, historically high debt levels, rising financial vulnerabilities and limited policy space, which could further undermine confidence and growth prospects.”

Key takeaway #2: Markets are “undergoing a gradual transition from an overwhelmingly liquidity-driven paradigm to one that is more reflective of the underlying fundamentals. This shift is made more complicated by, in particular, divergence and trade.”

US buys Saudi story that Khashoggi was killed in an interrogation gone wrong? US President Donald Trump appears to have bought into Saudi Arabia’s trial balloon that dissident journalist Jamal Khashoggi was killed during an interrogation gone wrong. Both CNN and the New York Times cited anonymous sources yesterday saying that Saudi was prepared to acknowledge Khashoggi’s death after days of denying involvement in his disappearance, succumbing to pressure from the international community. Trump, who had threatened to take punitive measures against Saudi earlier this week, dispatched State Secretary Mike Pompeo to Riyadh to meet King Salman, who he also spoke to yesterday, Reuters reports. “The king firmly denied any knowledge of [the incident],” Trump said after. “He didn’t really know … maybe these could have been rogue killers. Who knows?” The Wall Street Journal, FT, and Bloomberg are all singing the same tune.

US stocks fluctuated amid the tension on Monday while the USD dropped to a two-week low, Bloomberg reported. The Saudi riyal fared even worse, dropping to its lowest level in two years. More high-profile speakers also continued to drop-out of Saudi’s upcoming Future Investment Initiative conference, including Ford Motor Company’s Bill Ford, the Financial Times says. JP Morgan boss Jamie Dimon had earlier bowed out, as had Uber boss Dara Khosrowshahi.

In miscellany this morning:

Whether you grew up in the US, worked there, or did college / grad school / a year abroad, odds are good you’ve shopped at Sears, the once-iconic retailer that shaped and dominated retail in the US and parts of Canada for much of the twentieth century. About a year after it went bust in Canada, the chain has filed for bankruptcy protection in the United States. A judge approved some USD 300 mn in financing to keep it open through the holiday season and give it a chance to continue in business. The only people who are happy: Real estate investment trusts in the US, which have apparently long wanted Sears out of their malls.

Also this morning:

• Microsoft co-founder Paul Allen died overnight at age 65 after a bout with cancer. (Wall Street Journal)
• All those books you’ve bought but haven’t read? There’s a word for that. (And that fact alone is enough to make us feel better about our mental health…) (New York Times)

Living with a teenage vegetarian.“On one hand, inhumane levels of animal cruelty; on the other, cheeseburgers.” (Financial Times)

It was a ‘dry’ night on the airwaves, with no particular topic leading the conversation.

Egypt will be receiving a GBP 12 mn loan from the UK to support education, British Middle East Minister Alistair Burt told Hona Al Asema’s Lama Gebril in a pre-recorded interview (watch, runtime: 37:22). The amount, which will be funneled through UNICEF, will be used to train teachers under the Education Ministry’s new K-12 educational reform strategy, according to a UK embassy statement.

BP is expecting to begin production at its Giza and Fayoum gas fields by year’s end, Oil Ministry spokesperson Hamdy Abdel Aziz told Hona Al Asema. Both fields will begin by producing 400 mcf/d and gradually ramp up output to 700 mcf/d. BP is also looking into drilling another well at Atol field in order to increase production, he said (watch, runtime: 5:39).

Meanwhile, Amr Adib discussed the importance of water rationing with Irrigation Ministry spokesperson Youssry Khafaga on El Hekaya (watch, runtime: 3:15 and here, runtime: 6:59), while Al Hayah Al Youm’s Lobna Asal aired a pre-recorded interview with Labor Minister Mohamed Saafan that centered mainly on unemployment (watch, runtime: 5:16).

** #2 Sarwa Capital shares closed down more than 11% in their EGX debut, raising questions about the outlook for the fall equity raisin season: Consumer and structured finance player Sarwa Capital saw its shares dip 11.14% on its first day of trading on the EGX amid concerns over a stock market slump, according to EGX data. The drop came as the EGX30 closed the day essentially flat, off 0.1% on moderate volumes. Sarwa’s shares opened at EGP 7.36 and were down as much as 18.5% before clawing back to close at EGP 6.54. The company’s first-day performance comes despite strong appetite for its shares during the bookbuilding process, with the institutional offering more than 10x oversubscribed and the retail component of the IPO even more in demand. The debut came as the EGX remains under pressure from a global sell off of emerging markets assets that saw the EGX30 fall to its lowest level in over a year last week.

Did Sarwa’s first day signal the fall IPO window may be closing? That’s the blunt headline from Bloomberg, which declared that “IPO flop sounds alarm for Egypt before USD 6 bn selling spree,” a reference to the state’s ambitious program to IPO state companies and offer for sale stakes in some already listed entities.

Catch 22 for the state: Analysts quoted by the business information service don’t think the government should be selling with the EM Zombie Apocalypse apparently still upon us — but say the state loses credibility if it is seen as pulling back from the IPO program for ideological second-thoughts. “It is likely that the government is only trying to sell the stakes because it wants to save its reputation, regardless of the cost,” said Naeem Aslam, chief market analyst at Think Markets U.K. in London. “We do not think it is the right time for the government to sell them, and launching them now could actually create some panic in the market.” Stephen Bailey-Smith, senior economist and investment strategist at Global Evolution Funds AG in Denmark, tells Bloomberg that, “If they postpone because they have second ideological thoughts, that would be taken badly.”

** #3 Is the Eastern stake sale about to be postponed? Against this backdrop, Public Enterprises Minister Hisham Tawfik is meeting today with members of the committee overseeing the state privatization program, as well as execs from state-owned investment bank NI Capital, EFG Hermes, and the Chemical Industries Holding Company. On the agenda: Setting a date for the sale of a 4.5% stake in cigarette maker Eastern Company. EFG Hermes — which is quarterbacking the transaction — called for the meeting to discuss dates in light of the recent drop in the EGX’s performance and tumble in Eastern’s stock price by more than 11%, sources told a local newspaper yesterday. They added that they expect EFG to try and push officials to postpone the sale beyond the 21-25 October slot, allowing Eastern’s share price to recover as market conditions become clearer. Tawfik had said last week that the sale would go on as intended despite conditions potentially cutting into proceeds. NI Capital had said it expects to raise as much as EGP 2 bn from the transaction.

All of this comes as capital raising in emerging markets has fallen to a seven-year low in the three months to September, the Financial Times reports, saying that market turbulence has prompted a slide in bond, equity and loan issuances. “The figures come amid a broad sell-off in emerging markets with the JPMorgan EMBI dollar bond index down 4.8% this year and the MSCI equity index tumbling 15.4%.” Read Emerging market capital raising falls to seven-year lowfor plenty more.

** #4 EXCLUSIVE- Online retailers now have to charge and remit VAT: The Finance Ministry has notified e-commerce platforms, including Souq, Jumia, and OLX, that they will be required to begin charging value-added tax (VAT) on all transactions in goods that would be subject to VAT if sold offline, government sources told Enterprise yesterday. Some platforms have already responded and incorporated the 14% duty into their billing systems, the sources said, adding that companies will be required to settle their VAT payments to the government at the end of every month as other retailers do. We had previously reported that the Finance Ministry had developed a framework for taxing e-commerce platforms, which it was planning to introduce alongside a batch of other amendments to the Income Tax Act.

Taxing social media ads is proving harder than the government expected, according to one source, who told us that the Tax Authority has been facing difficulties liaising with companies including Facebook and Google. We had reported last month that the ministry was completing a study on how to tax ads on social media and was considering provisions that would have them pay the VAT on sales.

On a related note, the Finance Ministry has apparently rejected proposed legislative amendments that would raise the ceiling for VAT exemptions, according to the sources. As it stands, businesses with turnover of less than EGP 500k a year are exempt from VAT. We had heard that were suggestions to raise that ceiling to EGP 1 mn in order to accommodate SMEs making less than that amount.

** #5 Wheat hedge talks still “in the early stages”? Egypt’s talks with international banks about a potential hedge against volatility in global wheat prices are not that advanced and remain “in the early stages,” an unnamed government source said yesterday, Reuters reports. The source downplayed the progress the government has made so far on the program, saying there is no deadline for completing talks and that the government is only “surveying, taking presentations, not more than that.” Supply Ministry aide Ibrahim El Ashmawy had told Enterprise earlier this week that Egypt is in “serious” negotiations with the National Bank of Abu Dhabi (NBAD) and an unnamed Kuwaiti lender about the wheat hedging program. According to El Ashmawy, the wheat hedge could be a trial balloon for a wider program to hedge against rises in the prices of key commodities Egypt imports. The wheat hedging program mimics a fuel hedge the Finance Ministry had reportedly been mulling, but seems to be on the back burner for now.

M&A WATCH- Ethydco, SIDPEC among three state-owned companies looking to buy out chemicals company CCI: The Egyptian Ethylene and Derivatives Company (Ethydco) is expected to acquire 60% of Solvay Alexandria Sodium Carbonate (CCI) as part of a takeover plan for three state-owned companies to buy 100% of CCI, unnamed government sources said. Sidi Kerir Petrochemicals Company (SIDPEC) has already reached a preliminary agreement to acquire 20% of CCI, which suspended production in 2016 amid high losses caused by a hike in energy prices. It remains unclear which company completes the trio that is buying out CCI.

Yields eased as Egypt sold EGP 1.25 bn worth of treasury bonds yesterday, central bank data showed. Yields on both three- and seven-year T-bonds averaged 18.3%. Last week, Egypt had sold five- and ten-year bonds at yields averaging 18.41% on shorter-term offerings and 18.37% on the longer term. Yields on domestic debt have been nearing the 20% mark in recent months, straying far from an average 14.7% projected for the fiscal year, down from 18.5% in FY2017-18. The Finance Ministry had canceled four bond auctions in September and said that it would continue to do so if yields remain outside acceptable bounds. Sources had told us that a continued rise in yields could add as much as EGP 50 bn to Egypt’s debt service bill this fiscal year.

Background: The Finance Ministry is already moving to diversify its sources of funding by tapping the global debt market with FX-denominated issuances to counter rising yields on domestic offerings and is considering Asia for its next sale. Finance Minister Mohamed Maait had reported “very positive” results from meetings with Asian investors last week and said that the government would decide soon on whether it would issue ‘samurai’ and ‘panda’ bonds. We were told that the government is planning to issue as much as USD 20 bn in foreign-currency denominated bonds between now and 2022

** #6 El Sisi kicks off Russia visit: President Abdel Fattah El Sisi met yesterday the chairman of the Eurasian Economic Union (EAEU), Tigran Sargsyan, to discuss a potential trade agreement between Egypt and the EAEU, Ittihadiya said. The sit-down kicked off El Sisi’s trip to Moscow, where he is expected to meet with President Vladimir Putin on Wednesday to discuss issues including military cooperation, according to an announcement from the Kremlin. This came as Putin signed an order yesterday greenlighting the signing of “comprehensive partnership and strategic cooperation agreement” between Egypt and Russia, the details of which have not been disclosed yet.

Also on the agenda: El Sisi is scheduled to meet with Prime Minister Dmitry Medvedev and will address Russia’s upper house of parliament. Electricity Minister Mohamed Shaker is also set to meet today with Rosatom executives to discuss the latest development on the USD 30 bn Dabaa nuclear power plant project.

El Sisi’s meetings will focus on economic cooperation and investment in fields including railway development and energy, Ittihadiya spokesperson Bassam Rady told Hona Al Asema (watch, runtime: 5:02 and here, runtime: 2:32). Masaa DMC (watch, runtime: 3:31) and Al Hayah Al Youm also covered the visit (watch here, runtime: 3:33 and here, runtime: 5:13).

War games underway: The visit coincides with the beginning of Egypt and Russia’s Protectors of Friendship 2018 counter-terrorism drills in Egypt, which will run until 26 October.

Nasr meets with international lenders to talk financing Sinai development plans: Investment and International Cooperation Minister Sahar Nasr met yesterday with representatives from several international financing and development institutions to look into locking down funding for Egypt’s planned development of the Sinai peninsula, according to a ministry statement (pdf). Among those attending the meeting were officials from the World Bank, EBRD, Saudi Fund for Development, Asian Infrastructure Investment Bank, Islamic Development Bank, and the Abu Dhabi Fund for Development. The World Bank is expected to provide a USD 1 bn package for the development efforts, which Nasr is reportedly looking to lock down before the year is out.

Egypt and Tatarstan agreed yesterday to form a joint business council to boost trade between the two countries, Egypt’s Trade and Industry Ministry said in a statement yesterday. The announcement came after Trade Minister Amr Nassar met with Tatarstan President Rustam Minnikhanov, who is currently in Cairo.

Mercedes-Benz is sitting as the world’s top premium automobile brand after being ranked eighth in US brand consulting company Interbrand’s ranking of “Best Global Brands” for 2018, according to an emailed statement (pdf). Mercedes remains the only European automobile brand featured among the ranking’s top ten. “The strengths of the Mercedes-Benz brand lie in its long tradition, great innovative strength, the will to constantly reinvent itself and the abiding principle of its founding fathers only to be satisfied with the best.”

CORRECTION- The New and Renewable Energy Authority reached out to us to correct a few details that Al Mal got wrong last weekwhen it reported that a consortium made-up of Elsewedy Electric and UAE’s Masdar reached an agreement with the Electricity Ministry to build a wind farm in the Gulf of Suez. First, Elsewedy isn’t new to the project, having joined Masdar and NREA (who were taking it on 50/50) as a partner in 2017. The project, in which NREA currently holds a 23% stake, is also expected to cost EUR 200 mn and not EUR 300 mn as the newspaper said, and will produce 200 MW of power and not 220 MW. NREA also told us that the reason that work on the wind farm has stalled is a delay in setting the feed-in tariff for the power purchase agreement with the Electricity Transmission Company. The story has been deleted from our website.

** WE’RE HIRING: We’re looking for smart, talented, and seasoned journalists and editors to join our team at Enterprise, which produces the newsletter you’re reading right now. We’re looking for people who can work on this product and help us launch exciting new stuff. Applicants should have serious English-language writing chops, a strong interest — and preferably some professional experience — in business journalism, and solid analytical skills. The ideal candidate for us is a native-level-writer of English with the ability to read and understand Arabic. We offer the chance to work in a unique and casual work environment that promises to be intellectually challenging and rewarding. If you’re interested, please submit your CV along with 2-3 writing samples and a solid cover letter telling us a bit about who you are and why you’re a good fit for our team. Please direct your applications to jobs@enterprisemea.com.

** #1 EXCLUSIVE- Magued Sherif, Hazem Barakat on timeline, integration and appetite for further acquisitions amid their landmark tie-up: We caught up yesterday with our friends SODIC CEO Magued Sherif and Madinet Nasr Housing and Development (MNHD) Chairman Hazem Barakat, who gave us color and new insight on SODIC’s bid to acquire at least a 51% stake in MNHD through a share swap. Our conversation was their first joint interview since the transaction was first hinted at back in April.

Barakat and Sherif point to a historic transaction in terms of size, scope and type. The transaction will likely be the very first all-share M&A on the EGX, with regulations allowing the transaction still in the pipeline. The acquisition will rank as one of the largest in EGX history — we’re hard-pressed to think of one that was larger.

How big would the new entity be? Taking a sum of the parts approach, Sherif and Barakat estimate the market cap of the combined entity based on today’s market prices would be EGP 16 bn and create what should be the second-largest player in the domestic real estate industry. Based on 2017 figures, the company would have turned in a net profit of EGP 1.5 bn on revenues of EGP 4.7 bn and would have debt of about EGP 2 bn. It also has cash to work with, with cash and cash equivalents on the balance sheet of about EGP 4.2 bn as of 30 June 2018.

What’s the timeline for execution? The two say they expect the transaction to be completed at the end of the year, and both sides will hire an independent financial advisor to push things through.

Who’s advising: MNHD had tapped EFG Hermes to advise on the transaction, while Zaki Hashem & Partners are serving as legal counsel. SODIC had previously appointed CI Capital and White & Case as its advisers.

Excerpts from our conversation late yesterday:

Enterprise: In your words, what exactly is happening here?

Hazem Barakat (HB): Basically, we are combining SODIC and MNHD to create one of the largest players in the market. We believe that the real estate market is ripe for plenty of consolidation, and we feel that both companies are the perfect fit for each other.

Magued Sherif (MS): We are looking to create an entity that would be among the biggest players in the market. As far as I know the combined entity would be the second-biggest real estate company in Egypt. Shareholders, management and employees are very excited about creating additional value on both sides through the transaction.

Walk us through the transaction details and structure?

HB: This will be the very first all-share transaction that will take place on the EGX. Current regulations enforce a cash component for issuing a mandatory tender offer. Regulators are now working to amend that to allow for an all-share transaction. These regulations are expected to come out sometime soon. This was not on the table during our initial discussions earlier this year, but when this became a possibility, both parties decided that this was the best route to take. An all-share transaction preserves cash for the organization to grow.

MS: When looking to create this new entity, there were several alternatives we looked at, including a merger. This, however, would have taken a very long time to complete, which would not have been healthy for the transaction. We narrowed down the options to either a partial acquisition of shares from one side to the other or an all-share transaction. After several discussions we decided to go for the latter in order to not lose any financial muscle and to maximize the combined entity’s financial resources.

HB: I don’t have the exact figures with me right now, but I think this will be one of the largest acquisitions on the EGX to date.

MS: And the most liquid, which is very important as it is the healthier option for both companies.

What is the expected value of the transaction?

MS: The combined market cap for the companies prior to the transaction based on today’s market prices is EGP 16 bn.

Why combine the businesses in the first place and why now?

MS: We are operating in a fragmented and competitive environment, where consolidation is important to achieve greater synergies, especially as both companies have very strong land banks, brands, and experience. Why now? Now is the right time to do it where survival will be for the fittest, strongest and biggest.

Why is this good for your respective shareholders?

HB: I think if we look at the combined entity, we’re looking at a very sizeable and diversified land bank of over 15 mn sqm across East and West Cairo in addition to the North Coast. We’re also looking at an expanded client base. So we’re leveraging both brands and their strong equity in every segment with these consumers.

MS: I completely agree. The combined entity will tap into a wider market, be it geographically, demographically, or economically. And that’s where the value creation for both companies’ shareholders comes in.

How long you continue to have stand-alone brands, management structures and strategy?

HB: We have agreed to hire international consultants to advise on the best way to extract synergies between the companies so that the sum of the parts is greater than the whole. Regarding the two brands, I am not in a position to comment on that at this stage, because that would depend on the advice we’re going to get from the consultants on the best way of going forward. There’s detail, depth and study needed to decide on the best route to maximize value for shareholders. In the meantime we continue to build and strengthen the two brands to perform strongly in their respective markets.

MS: Absolutely. The only way we get the best out of the synergies between the two is to have someone independent look at the model. We are hiring the consultant jointly and whatever makes sense, we will adopt.

Can you give us an idea on the transaction timeline?

HB: We’re hoping to close on the transaction before year end. The difficult part is behind us and it is down to execution now. Both parties are excited and we want to close this as soon as possible.

What does your board structure look like post-transaction? Shareholder structure?

MS: The shareholder structure depends on the MTO and the uptake of the swap. The board structures will be decided based on where we land. But, generally speaking, board structures reflect shareholding while accounting for corporate governance best practice.

HB: I agree. It’s about who is going to swap and who isn’t. We won’t know until the execution and shareholders (at least the major ones) make their decision about staying in MNHD or swapping.

What regulatory approvals does this transaction require?

HB: The MTO will require the Financial Regulatory Authority’s approval.

What have we not asked about that you would have liked to have been asked about?

HB: What’s the next acquisition? We do have to make use of SODIC’s EGP 4 bn in cash equivalents. After all, SODIC is the acquiring vehicle. Seriously, though: There’s a lot we can do on the M&A front as a combined entity and there are a lot of different ideas for where we might go next. Whether they work or not has to be discussed.

MS: I’m very optimistic. Like you say, we have plenty of ideas and we want to see this happen.

** #8 Meet Renaissance Capital’s new CEO for North Africa, Amr Helal: Amr Helal (LinkedIn) has been appointed CEO for North Africa at Renaissance Capital, the company announced yesterday morning (pdf). Helal will be taking on the duties of outgoing CEO for MENA and head MENA equities — and longtime friend of Enterprise — Ahmed Badr, who is leaving the emerging and frontier markets specialist to return to Credit Suisse after a four-year run. “[Badr] was instrumental in building Renaissance Capital’s franchise in the MENA region, one of our core markets,” Renaissance Capital Co-CEO Anna Vyshlova said.

Helal will oversee the firm’s regional strategy from its Cairo office, leading the firm’s North Africa franchise and senior client coverage in the region, the company said. He comes to the firm with over 17 years of private equity and investment banking experience in the region, having held senior roles at EFG Hermes and the Abraaj Group. Most recently, Helal was head of corporate private equity at Capstone Group, which bills itself as Egypt’s first dedicated real estate private equity fund manager.

Excerpts from our conversation:

A fascinating and promising time for the region: “I am delighted to be part of Renaissance Capital’s story at such a fascinating and promising time for the region,” Helal said of his appointment. This theme of interesting times pervaded our exclusive sit down with Helal on Sunday, where we looked at everything from the outlook of the fall and winter IPO and M&A seasons against a turbulent EM backdrop to the Madbouly government’s reform program.

It’s going to be a busy IPO season this fall and winter thanks to an improved macro climate market conditions notwithstanding: Obviously, from our perspective, there is a full IPO pipeline that has been building up and expected to come to market in the fall and winter and expected to continue until the first half of 2019, market conditions notwithstanding. We haven’t seen this level of activity coming out of the Egyptian capital market for a while now. I think Egypt has become extremely attractive and investible again as the reforms addressed structural problems and not simply a band aid. The long-term outlook is promising. Inflation has been coming down and the currency has been stable despite all that is happening around us. On that, we are cautiously optimistic. Obviously, we need the global backdrop to be conducive, as there has been concerns of rising interest rates, prospect of a US-China trade war, and volatility in global equity and emerging markets. Nonetheless, we are very excited about the offerings.

M&As also to pick up in the fall and winter: Outside the general trends of the Egyptian capital markets, there has already been interest in M&As over the past couple of years. We expect this to pick up as we go forward.

Renaissance Capital is building a pipeline of mandates in Egypt: We’re focusing on where we can add value and where we have an edge as the leading dedicated EMEA and frontier markets financial services platform with on the ground presence in the markets we operate it.

Sector-wise, RenCap likes the Egyptian consumer story: With the demographics of a 100 mn population, and an improving economic outlook, we find that the consumer-space, such as food, healthcare, and retail sectors, is quite interesting. You have to be selective though. We also like the export-driven story, given the renewed cost-competitiveness of Egypt and businesses that are well positioned to benefit from the continued infrastructure spending and investment.

With the EM Zombie Apocalypse upon us, is this the right time for the state privatization program? Ultimately, market sentiment will dictate the pace and progress of the program. Having said that, the government is committed to the privatization program and it is a full pipeline. Some of the state companies are already listed, as it was a good way to kick off the program with these. The markets do, however, need to be conducive. And if they are not, everyone will need to take stock. However, market conditions are changing on a daily basis. We are all rooting for the success of the program, but if the timing is not right, I don’t think it’s the end of the world.

Despite EM selloff, Renaissance Capital is still bullish on Egypt equity and debt: From a macro perspective we are bullish on Egypt and the outlook is positive. We also like the reform-driven story. All the economic indicators have been improving but we are cautiously optimistic, as Egypt is not insulated from the global market conditions. We see that now in the pause in interest rate reduction by the central bank.

Future growth driven by capex and monetary easing: Interest rate reductions are bound to continue, which will spur capex-led borrowing and investment by corporates over the next three to five years. We’re waiting for global market conditions to moderate before we see interest rates go down and this capex-led recovery to start filtering down. There is no incentive for the CBE to have a rate cut from now until the end of the year.

In a high interest rate environment, what’s happening in Egypt is not a deleveraging story, but an investment in the future: Corporates now are seeing improvement in consumption after the economic reforms. Borrowing has been funneled towards working capital, which is normal in the current interest rate climate. But they are waiting for interest rates to go down to begin borrowing for capex.

Is interest in the carry trade fading? One needs to be careful about the carry trade. What had made it attractive was the high yields and the relative stability of the exchange rate, despite many indicators, including the real effective exchange rate, pointing to the EGP being undervalued by around 15%. The current short-term risk for the carry trade is how stable the exchange rate will be.

Gov’t debt strategy moving Egypt towards further diversification of funding sources: The government said it will put in a self-imposed debt ceiling, which makes sense. Diversifying its borrowing is a prudent strategy, particularly with the pan-Asia road show, as it will attract interest from markets that have not been necessarily well-invested in Egypt. We also like the diversification in terms of short, medium and long-term financing as ultimately, you need to match tenor with usage. Furthermore, there has to be a mix between long-term debt, and the opportunistic short-term for the lack of a better term “hot money.” Initially, the latter was targeted, but now the government is diversifying across the board, which is the right thing to do.

Is the firm still bullish on KSA in light of the negative attention it has been receiving? I cannot speak to the impact of specific incidents, but in general, one cannot ignore Saudi Arabia. It is the largest market in the GCC and it, too, is a reform-driven story. They have an ambitious Vision 2030 platform, and like Egypt, they are committed to implement it. Are there hiccups? Yes, but that can be expected when there is an ambitious reform program. It’s like a large oil tanker changing course. It needs time.

Morocco looks interesting, too: The Moroccan market is of interest to us and the economy has sound fundamentals with good growth prospects.

It’s a quiet morning for Egypt in the foreign press, with only a few things to note:

• Terror groups are systematically kidnapping Coptic Christian women as a means of targeting Copts, Al Bawaba says.
• Egyptian security forces killed nine terrorists in a raid on a terrorist hideout yesterday located between Assiut and Sohag, according to the AP.
• Morsi sentence stands: The Court of Cassation upheld a three-year prison sentence and EGP 1 mn fine against ex-president Mohamed Morsi on charges of insulting the judiciary, the AP says.

Singapore, which once faced a severe housing shortage, now has one of world’s most effective housing programs. When Singapore declared independence from the UK in 1959, the new government set up a new housing board with a five-year mandate to resettle the poor into public housing. Even though a disastrous fire broke out shortly thereafter, the board not only contained its impact but also achieved its mandate by constructing 51,000 apartments and having 400,000 people housed by 1965, according to Bloomberg. Now, 82% of the city-state’s population live in HDB-built blocks, and they are far from your typical shabby and crime-infested public housing ‘zones’ (watch, runtime: 3:59).

The oldest artificial pigment known to man, which was invented by ancient Egyptians, can be applied to save and generate energy, according to a study conducted by Berkeley Labs The study shows that since the dye, dubbed “Egyptian Blue,” can emit as much as 100% of the light it absorbs, it can potentially be painted on rooftops to keep buildings cool and reduce reliance on ACs, as well as generate electricity through concentrating the light photons it emits. The ancient Egyptians had originally intended to use it as color for their depictions of pharaohs and gods in tombs, but researchers are increasingly finding modern applications for the pigment, including in anti-forgery and medical scanning techniques.