Egypt to take USD 5 bn eurobond issuance to market this week

Antitrust decision today: The Cairo Economic Court is due to deliver today a decision on an appeal by pharma distributors of an antitrust fine. Among the appellants is EGX-listed IbnsinaPharma.

Egyptian university students in Sudan should return home and continue their studies here, Egyptian Rep. Mohamed el-Ghoul said yesterday as he tabled a motion in the House to draw attention to Sudan’s suspension of classes across the country. The move in late December came as the government tried to keep students out of ongoing protests against the government of Omar Al-Bashir.

How long can the current emerging markets run last? We’re not in a “classic EM rally,” but emerging markets are off to a great start this year after a punishing 2018. The rest of this year is “unlikely to be plain sailing,” but Fidelity portfolio manager Paul Greer writes for the FT’s Beyond Brics column that “with the USD and US real yields likely to have both peaked in this cycle, we feel positive EM investor returns will be sustainable for the coming months.”

How global trade tensions play out are among the keys to the outlook for emerging markets. So with that in mind, we have two stories worthy of your attention this morning:

US and Chinese negotiators made (some) progress during trade talks in Beijing, the WSJ reports. Officials said that the “bare-bones” of a framework is now in place less than two weeks before the US slaps yet more tariffs on Chinese exports. Negotiations are due to continue in Washington next week ahead of the 1 March deadline (we should note that Trump has floated the idea of extending the deadline should negotiations progress). Assuming an agreement can be reached, The Donald and Chinese leader Xi Jinping would finalize it at a summit.

Meanwhile, another trade war is brewing: The EU has threatened a “swift and adequate” reply if Trump imposes punitive tariffs on European car imports, the FT reports. Trump is mulling action after receiving a US Commerce Department investigation into whether European car imports constitute a threat to national security. The probe’s findings haven’t been disclosed.

Our friends in the Kingdom of Saudi Arabia are making headlines everywhere.

• Crown Prince Mohammed bin Salman has pledged USD 20 bn to Pakistan on the first leg of his Asian tour.

• Saudi has denied MbS is plotting a GBP 3.8 bn takeover bid for Manchester United, Bloomberg says.
• The British are having a tougher time delivering weapons to the kingdom, FT notes.

Meanwhile, Qatar and the United States have inked a pact to rule the world: A natural gas pact between Qatar and Exxon Mobil could allow the two to “dominate the growth of [global LNG] markets over the next two decades,” the Financial Times suggests, writing that from the Persian Gulf and the Gulf of Mexico, supplies can reach markets in Asia, Latin America and Europe.”

Speaking of countries with which we have fraught relations: Did you know that Godiva chocolate and McVitie’s biscuits are owned by a Turkish conglomerate? So sayeth Bloomberg in a report the company is now looking to streamline its portfolio, which also includes mining and brick businesses.

The Aswan International Festival of Arts and Culture kicked off on Sunday. Nearly two dozen folk bands from 13 countries in Africa, Asia and Europe will perform.The event runs until Friday. Read about it here.

Look tonight for the largest, brightest supermoon we’ll see until 2026. The supermoon will be most pronounced in Africa, Europe and Asia. The phenomenon is known as a ‘snow moon’ in those countries in which fluffy white stuff falls from the sky, CNN tells us.

By the time we signed off last night, there was no real mention on the talk shows of the terrorist bomber who killed two police officers near Al Azhar mosque — the news broke too late for most shows. Expect the attack (doubly rare for being a suicide attack and for taking place in the nation’s capital) to feature high on the agenda tonight.

El Hekaya’s Amr Adib took note of the blast, which we cover in detail in Speed Round, below (watch, runtime: 02:46).

Preparations for the African Cup of Nations taking place this summer were the talk of the town as the championship’s organizing committee held its first meeting yesterday.

Sports Minister Ashraf Sobhy blanketed the airwaves, speaking to Al Hayah Al Youm and Masaa DMC about the preparations and reassuring the hosts that officials are working around the clock to get everything in order (watch, runtime: 05:26 and runtime: 03:53). Cabinet spokesman Nader Saad had a similar chat on Hona Al Asema (watch, runtime: 06:21).

The government is currently working on a one-stop shop policy to expedite customs clearance procedures by next year, Transport Minister Hisham Arafat said on Hona Al Asema (watch, runtime: 03:40). Arafat also phoned in to El Hekaya to have a chat about the renovation of the Cairo Metro’s Marg station (watch, runtime: 10:40).

Housing Ministry spokesman Hany Younis provided an update on social housing projects the government plans on delivering this year (watch, runtime: 05:15).

Egypt to take USD 5 bn eurobond issuance to market this week: The Finance Ministry is planning to sell up to USD 5 bn-worth of eurobonds on the Luxembourg Stock Exchange this week, according to the domestic press. The ministry has decided to forgo a roadshow for the issuance, according to an unnamed government source, saying state officials have already tested appetite in meetings with investors regarding over the past several weeks. The proceeds from the issuance will be used “to finance a portion of [Egypt’s] fiscal deficit” or to finance other needs in the state budget, according to the issuance prospectus (pdf).

Whether you’re a finance nerd or just super-curious, the prospectus is a must-read. Or at least a must-skim. Written in dense legalese, it provides simple primers on everything from Egypt and EM risk to a section that, for lack of a better term, describes ‘how Egypt works.’

Advisers: JP Morgan, HSBC, Goldman Sachs, and Citibank will advise on the USD-denominated eurobond issuance, while BNP Paribas, Natixis, Bank of Alexandria, and Standard Chartered were tapped to manage the EUR-denominated portion of the issuance. The National Bank of Egypt and Banque Misr will be “assisting with the offerings.” The ministry also picked Al Tamimi & Co. as domestic legal counsel and Dechert LLP as international legal counsel for all the offerings.

Uber has agreed to charge and remit VAT in Egypt: Ride-hailing app Uber signed on Sunday an agreement with the Finance Ministry that will see the ride-hailing service charge and remit value-added tax (VAT) on its operations in Egypt, state-run news agency MENA quotes Tax Authority head Abdel Azeem Hussein as saying. Reports in the domestic press have Finance Minister Mohamed Maait confirming the agreement. A senior government official told us in parallel that the agreement will see Uber remit VAT retroactive to 2016. The news comes as Uber raised its fares last week.

Background: Rival service Careem has been tacking VAT onto the cost of its rides since early 2018, Hazem Ghorab, the company’s head of corporate comms in Egypt, told Reuters. The Tax Authority had issued a directive requiring ride-hailing apps to charge VAT on transactions last year.

Vodafone Egypt will pay Telecom Egypt dividends worth some EGP 5.5 bn in two installments, Telecom Egypt said in a statement (pdf). The first EGP 4.8 bn tranche is planned in March, with the balance due in June 2020. “Telecom Egypt plans to utilize the cash inflow to deleverage closing all the facilities in EGP to reduce the financing expenses enhancing its profitability, in addition to support its cost cutting initiatives, and continue its strategic investment plans to benefit the telecom industry in Egypt,” TO CEO Adel Hamed said. The payment represents 82% of the dividend payments due Telecom Egypt by Vodafone Egypt, which owns 45% of the mobile network operator, Minister of Communication and Information Technology Amr Talaat said in a statement. Telecom Egypt has netted some EGP 8 bn in dividends from Vodafone since it bought the stake.

Vodafone and TE also signed 10-year infrastructure and transmission agreements worth EGP 10.85 bn. Telecom Egypt will cover Vodafone’s current and future domestic transmission requirements for fixed and mobile services and will make fiber backhauling capacity available to Vodafone Egypt’s network. The agreements will boost Telecom Egypt’s domestic wholesale revenue over the long term and will also improve the quality and speed of fixed and mobile internet for Vodafone customers, CEO Alexandre Froment-Curtil said.

Stake sale? Perish the thought. The agreement made no mention of a time horizon for TE to divest its stake in Vodafone Egypt even as the state-owned company operates We, the nation’s fourth mobile network operator. TE has previously said it has no intention to sell its stake in the “medium term.”

Final contracts for Hamrawein ‘clean coal’ project to be signed mid-2019: The Chinese company constructing the 6 GW Hamrawein ‘clean coal’ power plant aims to sign final contracts with Egypt by mid-2019, said Han Bing, minister-counsellor for commercial Affairs at the Chinese embassy in Cairo. Bing said negotiations between the two sides in regards to the technical logistics are currently underway, adding that the coming months will see agreements on the financial and legislative terms of the six-year project.

Background: The construction of the plant was awarded to a consortium of Chinese companies including Shanghai Dongwei Electric Appliance Co. and Hassan Allam Holding at a total cost of USD 4.4 bn last year. The China Development Bank (CDB) is reportedly offering USD 3.7 bn in financing to the Egyptian Electricity Holding Company for the construction while the remainder is expected to come from local banks. The Egyptian government was said in October to have been seeking better terms from the CDB on the financing package.

Arqaam, Exotix see further interest rate cuts in 2019: Analysts are not making the rounds unpacking the central bank’s surprise 100 bps cut to interest rates last week, which defied the predictions of most analysts who believed the bank would hold off on further easing.

Arqaam sees another 300-400 bps in cuts through year’s end, saying in a tote that all of the subsequent cuts will come in the second half of the year after the short-term inflationary effects of the fuel price adjustment and energy subsidy removal have receded. Inflation will quickly fall back in August, reaching single digits during 2H2019.

Exotix Partners says to keep an eye on the exchange rate in the second half of the year, with head of equities research and strategy Hasnain Malik telling Bloomberg TV (watch, runtime: 2:01) that such a large cut this early in the year underscores a “sense of confident” after the central bank phased out its parallel repatriation mechanism for foreign investors. But the rate cut also points to concerns about economic growth, he added, saying that capex borrowing to fund domestic investment has lagged because rates are too high. With the EGP about 20% over-valued in real effective exchange rate terms, keep an eye pressure on the currency in the second half: The trick is how to bring rates down while keeping the FX rate broadly stable, he suggests.

INVESTMENT WATCH- Household shopping service GoodsMart has secured additional funding from Algebra Ventures: Our friends at Algebra Ventures have made an additional commitment to MENA unattended delivery pioneer GoodsMart, according to a press release (pdf). The news comes as GoodsMart prepares to raise a series ‘B’ funding round. Algebra previously invested USD 750k during the company’s series A round in April 2017. GoodsMart is a shopping app that allows customers to order unattended grocery deliveries; the company has grown its business three-fold in the past six months and is seeking capital to grow its business, upgrade warehouse facilities and bolster its operational capabilities, it said.

M&A WATCH- AIND agrees to buyout UE Finance: Arabia Investment, Development and Financial Investment Holding Company (AIND) has agreed to purchase Incolease’s 20% stake in UE Finance and take full ownership of the company, the company said in an EGX disclosure (pdf). AIND has agreed on a fair value assessment produced by financial consultancy firm FinCorp, the company said, adding that the fair share value will be disclosed after the agreement has been reached.

M&A WATCH- Healthcare outfit ICMI to increase stake in two companies as it eyes EGX listing: The International Company For Medical Industries (ICMI) aims to increase its stake in New Alfa and Alfa Medical, in which it currently owns 5% and 48% respectively, ahead of a potential listing on the Egyptian Exchange, CEO Hisham Saber said, according to Al Mal. ICMI, which is currently listed on the small-cap Nilex, is in talks with foreign investors for capital increases to fund the planned share purchases. Saber gave no further detail on the possible EGX listing.

INVESTMENT WATCH- UAE oil company ENOC has signed a JV agreement with Proserv Egypt to set up ENOC Misr, its first Egypt-based facility to produce high-tier lubricants, Al Mal reports. The JV will market and distribute ENOC lubricants in Egypt. ENOC signed last year an agreement with EGPC to market and distribute jet fuel here. “Investing in Egypt’s market, the third largest in Africa, complements our business strategy to go beyond the UAE and our commitment to industry-leading performance,” ENOC Group CEO Saif Al Falasi said last February.

The oil ministry is talking up Red Sea natgas prospects ahead of new contract terms, E&P bid round: Data from oilfield services company Schlumberger’s seismic mapping of energy and mineral resources in the Red Sea how areas with a 70% chance of making natural gas discoveries, a source from the sector said. Schlumberger’s data found that the seafloor resembles that of neighboring Saudi Arabia, which had recently seen natgas discoveries. Data from the full, 10,000 km 2D seismic survey — which was completed by Schlumberger, Norway’s TGS and three other oil companies — has also been compiled, the source noted. The survey came at a combined investment cost of USD 750 mn.

Expect the tenders in 1H2019: The Oil Ministry will launch exploration and production tenders for the area in the first half of the year. The tenders will be subject to the new production sharing contracts set to take effect this quarter. Their launch was expected upon gathering the seismic scans data, but the source said they will likely come in 1H2019. Red Sea Governor Ahmed Abdallah announced last year that there are potentially “huge amounts” of both natgas and oil reserves in the area. The governor said the fields could be larger than the Zohr supergiant field in the Mediterranean.

EARNINGS WATCH- MNHD reports a net profit of EGP 1.11 bn in 2018: Madinet Nasr Housing & Development (MNHD) reported a consolidated net profit after tax of EGP 1.11 bn in 2018, up 19% y-o-y from EGP 933.1 mn in 2017, according to the company’s earnings release (pdf). Consolidated revenues were up to EGP 2.78 bn, a 14.6% increase y-o-y from 2017. “Net profit exceeds the EGP 1 bn-mark, for the first time ever, on the back of robust revenue growth, and bottom-line margin expansion,” the company said in a separate disclosure (pdf). “MNHD’s performance during the year is a vindication of the strategy we have chosen to pursue in recent years,” CEO Ahmed El Hitamy said. MNHD was recently a target of an all-share acquisition bid by SODIC, but the talks broke down as the two failed to reach an agreement on the share-swap ratio.

GB Auto pushes efficiency, guides for top- and bottom-line growth in 2019. “Our main theme this year is efficiency, as we are focused on the increase of revenues and profitability while maintaining a healthy level of net working capital across all auto and auto business lines,” GB Auto board member Mansour Kabbani told investors during Renaissance Capital’s Egypt Investor Trip last week. The EGX-listed automotive player also sees “portfolio growth across all financing businesses, couple with an increase in profitability while maintaining healthy levels of non-performing loans,” Associate Vice President for Investor Relations Andre Valavanis added.

Two policemen were killed and three others were wounded when an explosive device carried by a terrorist detonated near Al Azhar Mosque late yesterday while security forces were pursuing him, Al Masry Al Youm reports, citing an Interior Ministry statement. The terrorist, who was also killed in the blast, was allegedly responsible for an attempted attack on police forces on Friday. The members of the police service were killed when, “after catching the suspect in Cairo’s ancient Islamic district close to the Al Azhar mosque, ‘one of the explosive devices in his possession exploded, causing the death of the terrorist and the martyrdom of a police officer from national security and an officer from Cairo investigations (department),’” Reuters said, quoting an interior ministry statement. The terrorist has been identified as Al-Hassan Abdullah. Al Azhar and the Grand Mufti have each condemned yesterday’s bombing.

The Egyptian data satellite Egypt Sat A will be launched on Thursday, local press reported. The satellite manufactured in Russia in cooperation with Egypt will be launched from Russian spaceport Baikonur in Kazakhstan.

The EGP 500 mn first section of the fourth phase of Cairo Metro Line 3 will open by the end of this week, Akhbar El Yom reports.

Blockchain-focused talk: The UN Technology Innovation Lab Egypt, Egypt Technology Innovation & Entrepreneurship Center, UNDP, and IBM Egypt are hosting on Tuesday, 26 February a talk to initiate the uninitiated on blockchain and its uses outside of cryptocurrencies. You can find more details and register for the event here.

100 leaders of the biggest Saudi companies are expected to attend a Cairo meeting of the Saudi Egyptian Business Council on 23 February, according to the domestic press. The meeting is expected to discuss ways to further cooperation in infrastructure and agriculture projects as well as how to make the best of Egypt’s one year presidency of the African Union.

A Russian delegation will visit Sharm El Sheikh and Hurghada airports in the second half of February to run a final security sweep ahead of a decision on whether to allow the resumption of direct flights, AMAY reports.

The gov’t will begin rolling out its debt control strategy next month, Finance Minister Mohamed Maait told Al Mal. The four-year strategy aims to bring down Egypt’s public debt to 80-85% of GDP by the end of FY2021-22. Maait had previously said the strategy would be presented to President Abdel Fattah El Sisi in March.

Execs from 50 Japanese companies will be in Cairo in March to discuss potential investment opportunities, Youm7 reports.

Expect draft law to regulate real estate developers in two months: The final draft of proposed legislation which will regulate real estate development should be ready in two months’ time, Prime Minister Moustafa Madbouly instructed relevant officials. The proposed legislation is pending approval from the House of Representatives’ Housing Committee.

Egypt has been tapped to host the 2020 Sustainable Blue Economy water security conference, according to a report in the domestic press.

EM currencies begin giving traders the jitters: Currency traders are beginning to take note of risk in individual emerging-market currencies, Bloomberg reports. EM saw a deluge of inflows at the start of the year, becoming Bank of America Merrill Lynch’s “most crowded” trade for the first time ever. However, developing risks in individual countries are now starting to weigh on traders’ minds. The MSCI FX index has experienced two consecutive weeks of losses for the first time since September, and almost fell below the 100-week average at close on Friday.

Which EM currencies are most at risk? Events in South Africa and Nigeria last week caused currency and equity sell-offs in both countries. The South African rand became worst-performing EM currency, as a potential bailout of the debt-laden state electricity company Eskom prompted warnings of a sovereign downgrade. Meanwhile traders exited the Nigerian naira and sold stocks yesterday after the last-minute delay of the country’s election fuelled concerns about political instability.

Driving the conversation on Egypt in the international press this morning was the terror bombing in which two police officers died while trying to detain a suspect near Al Azhar mosque. We have coverage of the news this morning in Speed Round, above.

The front pages of Egypt’s state-owned dailies are not looking identical this morning. Al Akhbar is running with news that the national referendum on proposed constitutional amendments will likely take place before Ramadan begins in May, while Al Gomhuria focuses on Egypt’s power interconnection project with Sudan.

Syrian reconstruction could prove big business for Egypt: With Bashar Al Assad’s allies (Russia and Iran) noncommittal about providing resources to boost the country’s decimated infrastructure and western countries withholding funding and tightening sanctions, Syria’s immediate hopes for reconstruction seem to lie with Arab states, Chloe Cornish writes for the Financial Times. And Egypt is ready to take the lead, showing strong government awareness of what early entry into post-conflict environments means for revenue generation and job creation. Over 30 Egyptian companies also participated in the Damascus International Fair last August, and in January representatives of the Egyptian Engineers Syndicate met with their Syrian counterparts. “Egypt will greatly feel the economic benefits of such a step, especially when it comes to sectors related to construction and infrastructure,” said economist Khaled el-Shafei.

Is a Saudi partnership the key for Egypt? The costs of reconstruction are estimated to be anywhere from USD 250 bn to USD 400 bn (more than the USD 226 bn that Syria has lost in GDP between 2011 and 2016). The undertaking is huge, and so too are the stakes for countries seeking post-war influence in the country. Egyptian companies and private investors would not be able to enter Syria without financial support from Gulf countries, including Saudi Arabia, while Egypt would provide political cover for Riyadh to become economically involved, generating investment opportunities and enabling them to counter Iranian influence. Egyptian contractors also have the experience with large-scale construction and engineering projects to take the lead.

FM Shoukry goes to Ireland to talk business: Foreign Minister Sameh Shoukry discussed with Irish Trade Minister Pat Breen during his Dublin visit on Monday strengthening economic and trade ties, according to a ministry statement. Shoukry informed the minister about potential investments for Irish companies in light of Egypt’s economic reform program.

Siemens has completed a 400 MW extension to the Toshka substation three months after breaking ground, the company announced yesterday. The project will be a key component in exchanging power as part of the USD 60-70 bn Egypt-Sudan interconnection project, on which phase one trial operations is set to begin in March. Upon completion of all the project’s phases, a 170 km transmission line will have been installed from Toshka to Dongola in central Sudan. The project is crucial to our bid to become a regional energy hub.

State-owned Misr Petroleum Company (MPC) and Malaysia’s Petronas have launched an equally-owned JV to sell refined crude, according a press statement (pdf) from Petronas’ financial advisor NI Capital. The JV will import crude from abroad and use excess capacity at MPC’s refinery plant in Amreya to produce refined products under a shared brand name, government sources previously said. The products will be either re-exported or sold on the local market. The companies signed the JV agreement during last week’s Egypt Petroleum Show. Shalakany Law Office acted as local legal counsel to Petronas on the agreement.

The Oil Ministry has inked a EGP 1.6 bn agreement with Acwa Power to connect natural gas lines to the company’s Luxor power station,reports the local press. Sources familiar with the matter noted that this represents half the overall cost of establishing a natural gas line that will service the plants’ fuel needs. Once fully operational, the power station is expected to generate 2250 MW.

US conglomerate Honeywell will sign an agreement on Thursday with the New Administrative Capital Company for Urban Development to develop security systems at the new capital, Masrawy reported. The company, which won the tender for the job last December, will install public surveillance cameras, posts, control systems, and other devices expected to be operational early 2020.

The USD 1 bn fertilizer factory ThyssenKrupp is building in Ain Sokhna is expected to be completed in March and inaugurated by President Abdel Fattah El Sisi in 2Q2019, Mubasher reports. Construction of the nine-plant phosphate-based fertilizer complex is reportedly 98% complete. El Sisi met Guido Kerkhoff, CEO of Thyssenkrupp, at the Munich Security Conference on Sunday to discuss the project.

Hotelier Nabq Sinai is planning to build a new EGP 300-400 mn hotel in Ain Sokhna, which will be financed through equity and proceeds from its planned IPO, Chairman Hossam Attia tells Al Mal. The company is expecting to finalize the preparations for an IPO to sell 25% of its shares, which we had noted last month, by 31 March. The company’s plans to raise its capital to EGP 100 mn from EGP 60 mn to meet regulatory requirements for the IPO is pending approval from the Tourism Development Authority.

Amer Group will open its “Porto Said” hotel in the first quarter of this year, the company said in a statement to the bourse (pdf). The hotel is part of an estimated EGP 3 bn commercial tourism residential project that has been in the pipeline since April.

The National Bank of Egypt (NBE) is planning to loan out EGP 6 bn to its retail customers by June, bringing the total loan portfolio to EGP 65 bn, retail risk group head Karim Soos told Al Mal. NBE will also finance EGP 600 mn-worth of projects converting homes and cars to natural gas, Soos told Al Mal in a separate story.

Twenty Russian companies are keen to establish facilities in the planned USD 7 bn Russian Industrial Zone (RIZ), Russian Industry and Trade Minister Denis Manturov said, according to MENA. The remarks come days after Suez Canal Authority boss Mohab Mamish arrived in Moscow to finalize the agreement for the zone. RIZ will be operational by June and will include pharma, agricultural equipment, and other industries, Mamish told Sada El Balad TV (watch, runtime: 4:32). Mamish signed an MoU with Russia’s Dubna Special Economic Zone to exchange expertise, local press reported.

The General Authority for Freezones and Investments’ (GAFI) main investors’ services center will only accept electronic payments as of 20 February, GAFI announced yesterday, according to Al Masry Al Youm. GAFI intends for the remaining centers to follow suit as the government pushes to move towards a cashless society.

Measles — that totally preventable disease we’ve been immunizing the world against since the 1960s — is back, the FT reports. The World Health Organization reported that cases of the measles in 2018 rose by 50% globally. Global health experts point to parents’ refusal to inoculate their children as the largest single reason behind the disease’s resurgence. The anti-vaccination movement, once a fringe segment, has found growing support from populist movements that also stress distrust of experts and scientists, creating an alliance with dangerous consequences. The current anti-establishment government in Italy has removed the legal requirement to vaccinate children while France’s Marine Le Pen has publicly endorsed a parent’s right to refuse the state’s mandatory vaccines. Back to the 1950s we go.