Gov’t considers jumpstarting privatization program in March

Good morning, friends, and thank you for choosing to end your week with us. We’re still in the process of moving into our new offices in Maadi, from which we look forward not just to launching exciting new products, but to meeting many of you in person. Starting a move in the midst of an epic sandstorm was an experience we won’t soon forget. Thankfully, it looks like the weather will cooperate today: We can look forward to low winds and a daytime high of about 16°C in the capital city and, our favorite weather app suggests, to a gorgeous weekend.

Extra-special thanks this morning are due to the good people at Orange Egypt. Moving is never easy — and moving two fast-growing businesses while still delivering your morning read has been a challenge. As we unpack servers, computers and the like today, we have incredibly fast internet across all five floors because Orange Egypt CEO Yasser Shaker and his team pulled out all the stops to deliver reliable connectivity when we needed it most. That includes a microwave link that stood up beautifully to the insanity that was yesterday’s sandstorm. Thank you, folks — you stepped in when others wouldn’t, and we look forward to being clients for years and years to come.

BlackRock founder Larry Fink doesn’t see a recession coming and “sounded a positive note on the global economy despite ‘many reasons to be worried and hit pause,’” the Financial Times writes. “We are seeing stresses in Europe, in China, and an anticipation of a [slowdown] in the US,” the head of the world’s largest investment manager told the salmon-colored paper. “Overlay that with trade fears, the US government shutdown, the rise of populism in France and Brexit, and there are many reasons to be worried and hit pause.” Despite that, he said, “2019 feels good to me. We are recalibrating growth assumptions, but I don’t see a recession coming.”

A supporting glimmer of good news across the pond: Shares of Goldman Sachs and Bank of America shot up yesterday after the two reported better-than-expected fourth-quarter 2018 results. Barron’s and the FT have the story.

In miscellany this morning:

Saudi equities are in for a mixed year, Nomura Asset Management predicts. Although stocks are currently performing well on the back of the country’s upcoming inclusion in EM benchmarks (it joins the MSCI EM index in two phases later this year), the Tadawul is likely to suffer in 2H2019 as concerns about oil and economic reform creep back into the picture, the investment bank says.

Not clear on what countries are emerging, frontier or unclassified? MSCI’s categorization is here in a nice, easy-to-understand graphic.

Pour one out for John “Jack” Bogle: The iconic fund manager and investor rights advocate founded Vanguard and led the charge to create index funds and [redacted] fee investing. Vanguard today is the second-largest asset manager in the world and had some USD 4.9 tn in assets under management at the end of 2018. His death at age 89 is front page news in the global business press: Wall Street Journal | Financial Times | Reuters.

UK Prime Minister Theresa May narrowly survived a confidence vote in parliament yesterday. She is due before MPs on Monday with a new plan for how she intends to pull the UK out of the European Union, the New York Times reports.

China’s central bank made its largest net single-day injection on record into the country’s financial system on Wednesday, as part of measures being taken by the government to alleviate pressure as economic growth cools to a 28-year low. The USD 83 bn injection accompanies policy measures designed to stimulate growth rates without resulting in a mountain of debt, Reuters reports.

Smart proposal of the morning: Four former Fed chairs call for US carbon tax.

WEEKEND READ- Our century’s challenge to capitalism as we practice it today is changing global politics — and that process is going to accelerate in 2019, the gang at Axios predict in their geopolitical forecast for the new year. The global economy “has left behind swaths of populations around the world, disregarded them in political decisions, and all in all forgotten them in the calculus of power.” The backlash against Big Tech in western democracies has so far been the only reaction here, but you can expect to see it transmogrify this year into a “push to break up big companies whose market power may be behind a long period of essentially flat wages and productivity” — and that’s just for starters. Read The world buckles: Our geopolitical forecast for 2019.

Need more for your TBR pile? Check out the FT’s Business books of the month: January edition.

Talks between Egypt and Italy’s Eni got some attention on the airwaves last night, with Al Hayah Al Youm‘s Khaled Abu Bakr dissecting what President Abdel Fattah El Sisi and Eni CEO Claudio Descalzi said in their sit-down (watch, runtime: 03:53) The host highlighted that the Italian company has invested a total of USD 13 bn in Egypt over the past three years. We more on the meeting in this morning’s Energy section, below.

Abu Bakr also praised El Sisi for ordering that an elderly homeless woman named Safia be provided shelter and medical attention after pictures of her sleeping by a metro station circulated on social media (watch, runtime: 07:33). Abu Bakr said the government is dispatching buses to look after others who appear homeless and urged that citizens do the same as Egypt muddles through cold winter temperatures. Masaa DMC’s Osama Kamal also discussed the story of Safia, airing footage of the police relocating her to a safe place (watch, runtime: 04:07).

Al Hayah Al Youm also featured a segment on homeless children, who are the beneficiaries of a new Social Solidarity Ministry drive (watch, runtime: 08:09). DMC also had the story(watch, runtime: 05:00).

Cabinet Spokesman Nader Saad told Al Hayah Al Youm that Egypt winning rights to host major sporting events, including the 2019 African Cup, underscores the world’s trust in our organizational abilities as a country (watch, runtime: 04:21).

The largest textile and clothing complex yet in Sadat City will be finished in four years, instead of seven, Al Hayah Al Youm highlighted (watch, runtime: 08:08). We have in this morning’s Manufacturing section, below.

Four people were killed and 43 injured in yesterday’s sandstorm, Yahduth fi Masr’s Sherif Amer said (watch, runtime: 02:52).

EXCLUSIVE- Gov’t considers jumpstarting privatization program in March: The government committee tasked with managing the state privatization program is considering jumpstarting share sales in state companies as early as March provided market conditions hold up, a senior government source told Enterprise yesterday. He made sure to note that at this point, the date remains under discussion in the committee and with advisers to the program. The story comes as new mandates were reportedly awarded to investment banks to advise on key stake sales. A consortium formed by EFG Hermes and Citi has reportedly won the mandate to run the sale of an additional stake of Alexandria Container and Cargo Handling, while CI Capital and Renaissance Capital will jointly advise on the sale of a 30% stake in Abu Qir Fertilizers.

A shakeup in the program lineup? The source said that the committee was mulling changes to the initial list of 23 companies that were set to see stake sales. The committee has provisionally added c. 10 new companies to the list, the source said, confirming previous statements by Public Enterprises Minister Hisham Tawfik. Other companies on the original list have been set aside for now, the source said.

Eastern Tobacco still likely to kickstart the program: The sale of a 4.5% additional stake in Eastern Tobacco is likely still in line to pilot the program, the source told us. Advisers, including EFG Hermes — which was tapped to manage the transaction last September — are continuously monitoring markets to ensure that the target share price can be met, the source added.

Background: Phase one of the program was delayed last year as the Emerging Markets Zombie Apocalypse bit the EGX. A number of companies in the program announced conditions before proceeding, including Eastern Tobacco, whose stake sale hinges on the share price rising to EGP 18.70, and AMOC, which is looking to return to profitability before selling shares.

M&A WATCH- Qalaa inks MoU to raise stake in key subsidiary Egyptian Refining Company: Qalaa Holdings has signed an MoU with Qatar Petroleum to purchase an additional stake in the Egyptian Refining Company (ERC), which owns the USD 4.3 bn Mostorod refinery, Qalaa said in a statement to the EGX (pdf). Qalaa is in “advanced stages’’ of securing the financing needed for the transaction, which would raise its effective ownership of ERC to 23%, and expects to reach financial close in 2Q2019. The statement did not provide further details on the anticipated value of the transaction.

Background: Qalaa Managing Director Hisham El Khazindar had said in September that Qalaa could increase its stake in ERC through a capital increase. Qalaa is planning to sell shares in the parent company of ERC along with its unit TAQA Arabia at early 2020. ERC’s USD 4.3 bn refinery in Mostorod is slated to begin operating in May 2019 and hit its stride in revenue and profitability in the second half of the year.

M&A Watch- Cairo 3A in talks to acquire Pyramid Poultry: Agricultural commodity trader and manufacturer Cairo 3A is in talks to acquire Pyramid poultry as part of its expansion plan, sources tell Al Mal. The negotiations are in an advanced stage and a deal might be reached 1Q2019.

Advisors: CI Capital and Al Tamimi & Company are advising Pyramid Poultry while Matouk Bassiouny is advising Cairo 3A.

M&A WATCH- Bank Audi mulls acquisition of National Bank of Greece branches in Egypt: Bank Audi is considering an offer for the local branches of the National Bank of Greece (NBG), sources tell Al Mal. The Lebanese lender has requested approvals for due diligence before making an offer. NBG was given the green light last summer to receive acquisition offers for its portfolio and assets and exit the Egyptian market.

Raya boss says he’s redirecting EGP 300 mn in investments outside Egypt: Raya Holding for Financial Investments is redirecting elsewhere up to EGP 300 mn of investments that were initially planned for Egypt, Chairman and CEO Medhat Khalil tells Al Mal. Raya is in talks to raise its stake in Poland’s Makarony Polskie to 30%, putting it on equal footing with the Polish pasta-maker’s biggest shareholder. The company is also expanding its electronic devices and home appliances distribution business in Nigeria. In the Gulf, Raya has established a logistics company at Dubai’s Jebel Ali and will import electronics raw materials for resale to entities operating in the area. It has also finished the procedures for establishing a contact center company in Saudi Arabia.

Raya is also holding back on the potential listing or spin-off of a number of its units, he told the newspaper.

So why is Raya changing its mind about Egypt investments? Red tape: Raya subsidiary BariQ’s recycling factory halted production for over a month and a half after running out of raw material after the Environment Ministry revoked its approval of imports. The Administrative Control Authority stepped in to resolve the issue, but the factory, which exports most of its production to the US and Europe, cannot sell its output locally due to the absence of Egyptian standards. Raya has also faced licensing hurdles to sell or export products from several other facilities, including locally-assembled three-wheelers and frozen food products.

All of this comes as Khalil is pushing ahead with a take-private bid for Raya, which has transformed from a distributor and call-center operator into an investment company. That bid was effectively forced on him by the Financial Regulatory Authority (FRA), which found that Khalil and related parties control a combined 42% stake in the company, a percentage that requires an MTO under s securities regulations. Khalil is bidding to take Raya private via a mandatory tender offer for 36.7% of the company’s shares.

CI Capital and Shuaa Securities Egypt want to become market makers: CI Capital Securities Brokerage and Shuaa Securities Egypt are in talks with the Egyptian Exchange to become market makers, according to local press reports. Brokerage firms are standing in line for the market maker license after the EGX issued its regulations earlier this month. Under the regulations, brokerages are required to receive approval from the Financial Regulatory Authority (FRA) to act as market makers, after which they must register with the EGX before carrying out any transactions.

Emaar vs. El Nasr dispute resolved, minister says: A settlement has been reached between Emaar Misr and state-owned El Nasr Housing & Reconstruction over a disputed land plot and delays in execution pertaining Emaar’s Uptown Cairo project, Public Enterprise Minister Hisham Tawfik tells Masrawy. The companies are now in talks about post-resolution issues regarding the project, Tawfik said.

Background: El Nasr alleged that Emaar Misr failed to develop 3 mn sqm of land allotted to it back in 2005. The state-owned company also alleged that there are 215k sqm of Uptown that are technically outside the project’s borders. Emaar offered EGP 100 mn settlement but received no response and the dispute was sent to the Cairo Regional Center for International Commercial Arbitration awaiting a ruling. Tawfik told CBC channel earlier that Emaar would pay the EGP 100 mn to El Nasr while 5% of the project land would either be returned to Cairo Governorate or Emaar would buy it at market value.

EARNINGS WATCH- Cairo for Real Estate and Investment (CIRA) reported a 39% y-o-y increase in net profit to EGP 74.3 mn in 1Q of its fiscal year, which ended 30 November 2018, according to the company’s earnings release (pdf). Revenues rose 31% y-o-y in the quarter, coming in at EGP 200.9 mn, following the enrollment of an additional 2,833 students across 19 K-12 schools as well as 2,309 new enrollments at Badr University, the company said. “We delivered double-digit growth of 31% at our top-line driven by the strong demand for our services, while prudent cost management has allowed us to improve profitability with a two percentage-point expansion in our net profit margin for the quarter,” the company noted.

Looking ahead: CIRA is focused on growth, planning to fast-track its EGP 1.1 bn, 3-5 year investment plan focused on primary and tertiary education as well as healthcare. “CIRA is intent on developing the capabilities and infrastructure to accommodate the forecast growth in BUC’s student body and establishing Badr University as one of Egypt’s premier institutes of higher education. We are also actively screening opportunities to expand our K-12 presence leveraging our plug-and-play business model.” The company is also looking to begin with the EGP 2.5 bn development of a university west of Assiut after being awarded an 81-feddan plot.

MOVES- Well-known tax professional Nesreen Maher (LinkedIn) has joined PricewaterhouseCoopers Egypt as a partner. She joins PwC from EY and, if we’re not mistaken, has her first day in the office today. Maher has more than 20 years of experience in compliance and advisory roles across corporate, indirect and withholding taxes (including in dispute resolution) and is both a qualified chartered accountant and a CPA. “Nesreen will help PwC drive growth in the market using her extensive network of relationships and contacts,” a company exec told us. “She has a particular interest in the coaching and development of her team members and is very focused on the diversity agenda, having been an active member of EY's Middle East and North Africa Women's Network.”

Egypt secures USD 1.2bn China EximBank loan for new capital light railway: China’s Export-Import Bank (EximBank) has agreed to extend a USD 1.2bn loan to Egypt for the construction of a light railway running between Egypt’s new administrative capital and 10th of Ramadan city, Transport Minister Hisham Arafat has said, according to Reuters. The loan carries an interest rate of 1.8% and matures in five years, he said, adding that $739 million will be spent on trains and the remaining $461 million on infrastructure. The 68-km line will be built by five state-owned companies alongside three private sector firms over the next two years, Arafat said, without naming them.

Gov’t inks PPP schools agreement with investors: The government has signed a public-private partnership pacts with a number of investors to build and operate schools with a total of 910 classrooms and an estimated cost of EGP 500 mn as part of the first phase of the program, the Cabinet said in a statement on its website. The first offering saw 24 land plots in six governorates awarded on 30-year usage terms to five consortiums. A second offering will take place in February.

Background: The government expanded the PPP schools program in September to include 1,000 schools and said phase two of the program consisting of 200 schools will be offered in a tender that was planned to take place last December. It isn’t clear, however, if yesterday’s announcements were for the second phase or another program.

CABINET WATCH- Madbouly Cabinet focuses on Afcon 2019: The Madbouly cabinet focused at its meeting this week on preparations for the African Cup of Nations 2019 tournament, for which Egypt host rights earlier this month. Prime Minister Moustafa Madbouly instructed the cabinet that the tournament, which will be held from 15 June to 13 July, is a top priority, charging the Planning Ministry with obtaining funding for the preparations, according to a cabinet statement. He also ordered the government to coordinate security for the tournament with the Armed Forces and the other security agencies.

Other cabinet decisions included:

• Approving Egypt’s membership to the African Continental Trade Agreement (AfCFTA);
• Approving a draft law establishing a Technology and Innovation Finance Authority which will be charged with funding research and technology development;
• Approving EUR 48 mn in funding from Germany for renewable energy, SME finance, and education projects;
• Classifying all development work undertaken by the Armed Forces Engineering Authority on the state’s 1.5 mn feddan land reclamation program projects as a national project. Cabinet also granted the Armed Forces the authority to issue licenses and subcontract to anyone it sees fit on its end of the project.

Two Danish tourists reportedly dead in Hurghada, cause unclear: Danish paper CPH Post Online reported that that two Danish men died under unclear circumstances while on holiday in Hurghada around New Year’s. Verner Strunck and Leif Kristensen, both apparently healthy men in their sixties, died two days apart at their hotel in what family members have speculated may have been due to bacteria from the air conditioning systems in their rooms. The case has echoes of another case that saw a British couple die after apparently having contracted Legionnaire’s disease through an air conditioning system.

FinMin to select adviser on eurobond issuance next Thursday: The Finance Ministry will select the investment banks that will advise on its upcoming USD 4-7 bn eurobond issuance, set to take place sometime in 1Q2019, on Thursday, 24 January, local news reports. A number of top tier banks including HSBC, Citi, and JP Chase & Co are reportedly bidding on the mandate. All three, along with Morgan Stanley and National Bank of Abu Dhabi had led past eurobond issuances.

This comes as a number of German investment banks are reportedly looking to bid for the position of legal adviser. As we noted earlier this week, Shalakany Law Office, Zulficar & Partners, Zaki Hashem & Partners, White & Case, and Baker McKenzie, have submitted bids to the Finance Ministry to act as legal advisers.

The final draft of the amended NGOs Act is due to be finalized in March before being sent to the Madbouly Cabinet and parliament, Talaat Abdel Qawi, the head of a national association of NGOs, told Egypt Today. Local civil society, international NGOS and other organizations were apparently involved in consultations about the proposed amendments. President Abdel Fattah El Sisi had called in November for a review of the contentious law, which after being signed into law in May 2017, received criticism from civil society actors and international commentators.

Also coming up in the next few weeks:

• Our friends at AmCham will be hosting ICT Minister Amr Talaat at their monthly luncheon on Sunday, 20 January. You can register for the event here.
• French President Emmanuel Macron is visiting Egypt soon, with the French Chamber of Commerce set to host an investment-focused forum on 28 January.
• The Social Solidarity Ministry should be presenting a draft of the new Social Welfare Act to the House of Representatives sometime soon,according to previous statements by Minister Ghada Wali.
• The Egypt-Sudan electricity grid connection will begin operations in February, Electricity Minister Mohamed Shaker said.
• A government committee mandated with defining Egypt’s informal economy is set to meet for the first time this month.

Market instability? It’s gold rush time. Investor fears about the impact of volatile markets and global uncertainty seem to be yielding a return to form for gold, typically bought as a hedge or haven, which is up 10% from its lows of August 2018, according to the Financial Times. Analysts see the trend holding up for most of the year, as the surge in holdings of gold-backed exchange traded funds shows an appetite for gold likely precipitated by a weakened USD, fragile stock markets and the expectation that the Fed will hold off on increasing interest rates. Central banks, apparently eager to diversify from the USD, are also buying gold at a level that hasn’t been seen since 2015.

But not everyone is convinced: Heeding the maxim that not all that glitters is, in fact, gold, some analysts remain wary of becoming complacent about a continued increase in the level of ETF holdings. One notes that “If any of the recent tailwinds for gold were to abate, it increases the likelihood for a period of price consolidation.”

Don’t we all just feel this man’s pain? Egypt’s prolonged bout of uncharacteristic weather may require a change in the description of Egypt’s climate (those Social Studies books were clearly lying) due to climate change, Egyptian Meteorological Authority Chairman Ahmed Abdel Aal said, according to Egypt Today. Authorities shut down yesterday Egypt’s main Red Sea ports, Suez and Zeitiyat, due to the stormy conditions — a decision that will come as no surprise to literally anybody who was awake yesterday — according to Ahram Online. (Photo by Tarek Wajeh, courtesy of Everyday Cairo.)

Insane freedive in Egypt’s Dahab: A daring Red Sea freediver went all the way down a 30-meter canyon at Dahab’s Blue Hole in one breath, according to Daily Mail Australia. “Freedivers are literally superhuman. The fact that they can hold their breath for that long is both terrifying and impressive,” a commentator said (watch, runtime: 3:01).

El Sisi talks policy with top fund managers: President Abdel FattahEl Sisi held talks yesterday with representatives of international and regional investment firms and funds who took part in this week’s CI Capital MENA Investor Conference, Ittihadiya said in a statement. The talks featured an “open discussion” with the president and Investment Minister Sahar Nasr, Planning Minister Hala El Said and Trade Minister Amr Nassar on long-term economic and investment prospects in Egypt and the government reform program.

El Sisi holds talks with China’s Communist Party official: President Abdel Fattah El Sisi held talks yesterday with the director of the Office of Foreign Affairs of the Communist Party of China Yang Jiechi, who invited El Sisi to attend a summit on China’s Belt and Road Initiative in April, according to an Ittihadiya statement.

Egypt condemned Tuesday’s attack on a luxury hotel and office complex in Nairobi, in a Foreign Ministry statement. Militant Islamist group al-Shabab have claimed responsibility for the attack, which targeted one of Nairobi’s most secure areas, according to the New York Times.

President Abdel Fattah El Sisi and Prime Minister Moustafa Madbouly held two separate meetings with Italy’s Eni CEO Claudio Descalzi yesterday — both attended by Oil Minister Tarek El Molla. According to the statements, Descalzi discussed potential future investments by the firm and the status of the current development of the giant Zohr field. He added that Eni’s investments in Egypt have reached USD 13 bn in the last three years, but didn’t give an exact figure or timeline for future investments.

The Egyptian Businessmen’s Association’s energy committee is urging the government and parliament for legislation to regulate the energy sector to attract foreign investors, committee head Osama Guindy told Al Shorouk. Describing the sector as a lucrative one whose potential is being wasted, Guindy said the committee is planning to raise the issue with the House’s energy committee next month.

1_StoryTags_! Logistics, ElSewedy Electric, Hassan Allam, PSA Malaysia, DP World, DB Schenker, 3A International, Concorde Logistics India

Three consortiums are competing in a tender to build and operate the planned 6 October dry port, Al Mal reported. The first consortium is led by Concorde Logistics India and includes PSA Malaysia and Hassan Allam, the second is an alliance between the Holding Company of Maritime & Land Transport with DP World, while the third is led by ElSewedy Electric and includes DB Schenker Egypt and 3A International. The port is planned to be built over 100 feddans with an estimated cost of USD 110 mn

Construction works on the first phase of the USD 2 bn Chinese textile industrial complex in Sadat City is 50% complete, according to a Trade and Industry Ministry statement. The EGP 2.1 bn (c.USD 117.2 mn) first phase will comprise 150 factories, not 100 as earlier reports had suggested, and will be operational by year-end, with 75% of output earmarked for exports. China-based Mankai Investment is developing the project alongside the Armed Forces Engineering Authority.

Global hotel company InterContinental has signed a management agreement with Arab International Tourism Investment Company to construct a new up-market Voco hotel next to the Giza Pyramids. The 17,000 sqm complex will be situated next to the new Grand Egyptian Museum and the entrance to the Pyramids, and is scheduled to open in 2022.

Aracan Hotels and Resorts plans to invest EGP 500 mn in 2019 on various tourism projects, said Chairman Fouad Naeem. The firm plans to invest EGP 120 mn on a 107-room hotel in Ain Sokhna. The company will spend around EGP 400 mn on various developments where it is a partner or is acting as an operator, he added.

The Customs Authority has begun implementing a blacklist, which will be shared across all ports and customs checkpoints, so that authorities can keep track of them and their goods, according to a statement from the agency picked up by Al Mal. The decision comes as the authority moves to automate its services and set databases across all points of entry. All importers should be registered with the authority’s database, which will be used across all ports. The amended Customs Act already has a whitelist of importers, who could see clearance of their goods expedited.

The General Authority for Investments (GAFI) decided to begin issue warnings to joint stock companies (basically, any company with “SAE” at the end) that have not yet registered their shares with Misr for Central Clearing, Depository and Registry. These companies have three months to complete registering their shares or face penalties which include barring the companies from transferring shares or distribute dividends, with GAFI refusing to sign off on decisions reached by the companies’ boards and general assemblies, sources tell Al Mal. The deadline to register, as per the directives of amendments to the Companies Act, was yesterday.

The US Department of Defense has awarded a USD 20 mn Foreign Military Sales contract to Tecmotiv to overhaul engines in Egyptian M60 tanks, the US government said in a press statement. Work is being carried out at Niagara Falls and is scheduled for completion on 25 November, 2020. The statement did not clarify further details on the contract.

Egypt’s national handball team ended yesterday’s Handball World Championship fixture against Hungary in a 30-30 draw, according to KingFut. The Pharaohs will need to secure a win in today’s game against Angola, to advance in the tournament — provided Qatar survives against Argentina and Angola doesn’t miraculously defeat a much better Sweden.

Sports Minister Ashraf Sobhy has turned down proposals to cancel the Egyptian Premier League to focus on preparations to host the African Cup of Nations this summer, he told ONTV, according to Al Ahram.

Legendary American rock band Red Hot Chili Peppers will be performing live at the Giza Pyramids on 15 March in their first-ever gig in Egypt and their second in Africa, the band announced yesterday. The band’s 36-year-long career has seen them produce songs recognizable in every corner of the globe, including tracks such as Californication, Snow (Hey Oh), Otherside and By The Way. Tickets will go on sale tomorrow at 8 am CLT on TicketsMarche.com.