Eastern Tobacco kicks-off privatization program

It is shaping up to be a busy few days here at home and in the region as we grapple with the fact that we are already on the third month of 2019. Among the highlights we’re keeping an eye on:

EFG Hermes One on One kicks off: The EFG Hermes One on One conference in Dubai gets underway today and wraps up on Wednesday. The outlook for markets undergoing economic reform, including Egypt and Pakistan, sill be among the top themes this year at world’s largest frontier and emerging markets investor conference. The 2018 event saw more than 500 fund and portfolio managers with aggregate AUM north of USD 8 tn meet face-to-face with C-suite execs from 173 companies spanning 26 countries. Keep an eye out for media coverage starting tomorrow.

The Egypt Investment Forum is on its second day today, where the discussion is focused on Africa, with an emphasis on trilateral cooperation between Egyptian companies, GCC-based investors and suppliers based in developed economies.

The EGX has introduced in its latest monthly (pdf) and weekly (pdf) reports a section tracking corporate actions taken by publicly-traded companies. Aggregates of capital increases, cash dividends and stock splits are provided on pages 9 and 10 of each of the newly formatted periodicals.

Is Kamel El Wazir going to be Egypt’s new transport minister? There have been murmurs around town that Armed Forces Engineering Authority Chief Kamel El Wazir will succeed Hisham Arafat as transport minister following the latter’s resignation after last week’s Ramsis train disaster. Talk show host Amr Adib said on Friday that El Wazir is a “strong candidate” for the appointment (watch, runtime: 9:09), while unconfirmed reports from RT claim that the authority’s chief of staff, Ehab El Far, has been tapped to take El Wazir’s position at the helm of the authority.

The shuffle comes as Prosecutor General Nabil Sadek ordered the detention of six people over the train crash, pending investigation, Reuters reported. The train’s driver, his assistant, another train driver and three railway workers will be detained for four days. The death toll of last week’s deadly accident has risen to 22, Health Minister Hala Zayed said. In the aftermath of the incident, MP John Talaat is preparing a draft amendment to the Penal Code to tighten the punishment of gross negligence to execution instead of prison, Youm7 reported.

On the brighter side of things, CNN turns the spotlight to the hero of the incident: Using water bottles and blankets, Mohamed Abdel Rahman rushed from his kiosk at the station to save as many people as he could from the fire that broke out from the collision.

Famed investor Warren Buffett’s annual letter to shareholders was published last week, in which the Oracle of Omaha attributed the wild fluctuations in Berkshire Hathaway’s 2018 results, including final-quarter losses of USD 25.4 bn to a new accounting rule that requires it to mark its investment securities to current market prices.

The American Tailwind: A highlight of this year’s letter was Buffett’s retrospective look at his 77-year career, in which he attributes many of his achievements to the resoluteness of the American economy. In a riposte to the doomsayers, he reminds us that, despite all the crises the country has faced through its history, it has endured and continued to bring prosperity to those who invest in it.

What everyone else is saying: Much of the global press focuses on Berkshire’s financial losses, including the New York Times, the WSJ and Forbes, while MarketWatch described the results as “one of his worst years ever.” Bloomberg leads with Buffett’s hopes for an “elephant-sized acquisition” in 2019, while The Observer think the letter reveals the probable successors to the 88-year-old investor: Berkshire’s head of insurance, Ajit Jain, and Berkshire Energy chairman, Greg Abel. Read the letter in full here (pdf).

US companies are running for the doors in China over fears of an “endless” tariff saga, Reuters reports. The newswire focuses on how US companies are shifting their business out of China to sidestep potential repercussions from the ongoing trade war, despite the potential for an agreement being reached.

Staying on China, Canada is proceeding with the extradition hearing for Huawei’s Chief Financial Officer Meng Wanzhou, whom US prosecutors have accused of violating US sanctions on Iran, the Wall Street Journal reported.

MSCI is quadrupling the weight of Chinese home-based shares in its global benchmarks later this year, which could draw more than USD 80 bn of inflows to the economy, Reuters reported.

Eurobond prices are on the rise in emerging markets as February sales dwindled despite rushes by Egypt and other “less prolific” issuers to tap the market, according to Bloomberg. The scarcity of issuances during the month, with just USD 104.5 worth of eurobond sales — the lowest recorded figure since December 2016 — “suggests overall supply will remain limited.”

The San Francisco tech IPO race is heating up as car-booking app Lyft posted IPO documents showing a steep increase in revenue, user base, and losses. According to the Financial Times, Lyft has indicated that it will go public with a dual-class share structure to give its founders greater control, and will also allow some of its drivers to buy shares in the IPO, along with more traditional investors.

Saudi Aramco is looking to issue a USD 10 bn debut bond that the FT predicts “could be well received.” Nevertheless, questions linger over the anticipated USD 100 bn proceeds, which are reportedly due to be funnelled into the acquisition of a 70% stake in domestic petrochemicals group Sabic, leading some bankers to characterize the sale as “moving cash from one government pocket to another.”

Another day, another EastMed giant gas discovery: ExxonMobil and Qatar Petroleum have discovered a reservoir off Cyprus’ shores estimated to hold five to eight tcf of gas, Reuters reported. The new gas field is the biggest in Cyprus and one of the biggest finds in the world over the past two years, Cypriot Energy Minister Yiorgos Lakkotrypis said. Disputes with Turkey over the right for exploration and limited network capacities might hold up production.

Our daily talk shows roundup is on hiatus today. We will resume tomorrow with our regular coverage of the lowlights on the nation’s airwaves.

State privatization program finally underway with an oversubscribed Eastern Tobacco offering: The private placement portion of Eastern Tobacco’s secondary offering of a 4.5% stake (equivalent to 101,250,000 shares) was 1.8x oversubscribed, with shares offered at EGP 17 apiece, the Public Enterprises Ministry said in a statement (pdf). The share price is at a 3% premium to the stock price at close on Thursday, the ministry said. Minister Hisham Tawfik had said last month that the government was considering going ahead with the sale of the company when its share price hits EGP 16.83.

Strong appetite so far: Foreign investors bought 94% of the shares offered in the private placement and the stake sale is expected to raise EGP 1.8 bn, Tawfik told Masrawy. The Holding Company for Chemical Industries announced on Thursday it would offer 95% of the shares up for grabs in a private placement and the rest in the public offering that begins today and ends on Tuesday. Reuters also had the story.

The sale is the only the beginning of the ambitious state privatization program which had an initial line up of 23 companies that are either listed already and will offer more shares for sale or brand new stocks coming to the market. The list of companies was later revised and 10 more companies were added and some were put aside. The first phase of the program, which focuses on stake sales by already-listed companies was delayed last year as the emerging markets sell-off bit the EGX. Tawfik said the government is planning for 4-5 companies to go public in the second phase of its share-sale program during 4Q2019, the domestic press reported. The program is expected to raise EGP 80 bn.

So what is coming next? The next stop for the privatization train is the sale of an additional 30% stake in Alexandria Containers & Cargo Handling, Tawfik told Masrawy, without giving details on timing. That leaves Heliopolis Housing and Abou Kir Fertilizers from the first phase, while Alexandria Mineral Oils was sidelined because of its falling profitability.

Is BdC’s IPO going to materialize soon? The government committee tasked with managing the state privatization has also apparently given Banque du Caire the greenlight to proceed with its IPO plans, sources close to the matter told the domestic press. The bank is currently reviewing its financial statements alongside other commitments to finalize logistics needed for the share-sale to take place in 2019, the sources said.

REGULATION WATCH- FRA pushes by six months a grace period for yet-to-be-traded shares: This comes as the Financial Regulatory Authority extended to 30 September a grace period for companies that have listed on the EGX but have yet to IPO, according to an executive decision (pdf). The extension from the previous deadline set for 31 March will apply to listings made before the most recent amendments. The amendments have made it mandatory for companies which have begun the process to go public to debut shares no later than one month after listing, but allowed already listed companies whose shares are yet to be traded to request an extension to no later than 31 March. Banque du Caire has been listed on the EGX since 2017, but has yet to IPO.

New regs for setting fair value: Prime Minister Moustafa Madbouly also issued a decision on Saturday stipulating that the fair share value of a holding company that is either not listed or “not active” and is looking at an IPO be determined based on its close price during the month prior to announcing the appointment of the investment bank that would manage the bookrunning, Al Mal reported.

Egypt’s M2 money supply growth slowed by 11.95% y-o-y in January, CBE data showed. The figure stood at EGP 3.64 tn at the end of the month, up from EGP 3.25 tn a year earlier. The slowdown trend experienced in the second half of last year is making its way into 2019. Growth slowed to 14.04% last November and 13.3% last December. M2 is one of several ways of measuring the quantity of money in the economy, and uses liquid assets such as cash, savings deposits and money market securities as a basis for its calculations.

Foreign holdings in Egyptian treasuries climbed 21.6% to EGP 233.8 bn (c.USD 13.36 bn) in January, up from EGP 192.2 bn (c.USD 11 bn) in December, according to the CBE’s latest monthly statistical bulletin (pdf — pp. 66, table 38). The figure roughly coincides with the USD 13.1 bn previously disclosed by Finance Minister Mohamed Maait. Total holdings of treasuries, meanwhile, recorded EGP 1.37 tn, up from 5.4% m-o-m from EGP 1.30 tn. CBE Governor Tarek Amer had previously told Bloomberg that January was set to see the first positive net inflows since May 2018. The 2018 Emerging Markets Zombie Apocalypse saw the country lose some USD 10 bn in outflows.

REGULATION WATCH- Gov’t issues framework for planned sovereign wealth fund: The government has issued the framework for the planned EGP 200 bn sovereign wealth fund (SWF), identifying it as an independent body in terms of administration, financing, and legality, according to the Official Gazette (pdf). The SWF, which is meant to contribute to sustainable economic development, is mandated with the establishment or capital increase of companies or funds; investing in securities and financial instruments; securing credit facilities; issuing bonds and other financial and debt instruments; purchase, sell, lease, or exploit fixed assets; and loan or guarantee investment funds and their affiliated companies. The decree requires the SWF to ensure its investment policy is consistent with top notch environmental, social responsibility and governance practices.

Bylaws are on their way: Planning Minister Hala El Said had said in January that the bylaws and regulations of the fund would be completed and made public by the end of the month. The domestic press reported last month that four candidates, whose names have been sent to Cabinet, were being considered to head the fund, and that a decision would be made within weeks.

Uber, Careem seem to be closing in on takeover agreement: Talks for global ride-hailing giant Uber to acquire Dubai-based Careem is in an advanced stage, Bloomberg reported. The companies may announce a cash-and-shares transaction that values Careem at about USD 3 bn in the coming weeks but no agreement has been reached yet, sources told Bloomberg. The two companies have repeatedly denied reports on the potential merger.

Egypt’s competition watchdog should keep an ear to the ground: The Egyptian Competition Authority (ECA) has threatened both companies with fines of up to EGP 500 mn apiece if they go through with a merger. “Uber and Careem are the only ride-hailing applications available in Egypt. Any anticompetitive interaction or harmonization of their business strategies including agreement to merge has the potential to cause serious and irrecoverable damage to Egyptian competition and consumers,” ECA Chairman Amir Nabil previously said.

Egypt gets its first federation for securities: The Financial Regulatory Authority (FRA) has approved the bylaws establishing Egypt’s first federation for securities, according to a statement. The FRA will publish in the coming period the bylaws in the official Gazette, and then set up a committee of at least five industry representatives to act as founders. Any company licensed by the authority will automatically gain membership in the body, which will be the first to receive and attempt to resolve complaints brought by its members’ clients.

How is the new federation different from ECMA? The Egyptian Capital Markets Association (ECMA) is an organization whose main role is to represent all capital markets participants. It’s similarly focused on the capital, but is first and foremost a representation organization. The new body has little to do with representation, and more with improving standards and promoting accountability in the sector. It will function as a union of non-banking financial services that have acknowledged the FRA as their central governing authority.

Export incentives program to launch between April and early FY2019-20: Egypt’s export councils have agreed to launch the new export incentives program between April and early FY2019-2020, sources familiar with the matter said, according to Youm7. The new program will focus on incentives to grow value-added exports as well as to push industry to Upper Egypt and to develop shipping and logistics operations. The strategy should be in final form for Cabinet review soon, and the Trade Ministry will discuss the final details of the program with the Cabinet economic group on Monday, the domestic press reported.

LEGISLATION WATCH- Data Protection Act with House: The Madbouly Cabinet has completed its final review of the Data Protection Act, and has sent it to the House of Representatives for discussion, CIT Minister Amr Talaat said, according to Al Mal. The proposed legislation was drafted in accordance with the EU’s General Data Protection Regulation (GDPR), Talaat added. Cabinet signed off on the draft last August, and was due to introduce it to the House in the early months of the current legislative session, which kicked off in October.

Background: Among the proposed act’s key stipulations is making it mandatory for businesses to obtain user approval to share personal data, setting prison terms and fines. The act would also, if approved, set fines of up to EGP 5 mn for violations as well as prison sentences of up to three months, based on the severity of breaches. A data protection unit would also be established within the Information Technology Industry Development Agency (ITIDA).

EFG Hermes tops brokerage league for February: EFG Hermes topped the EGX’s brokerage league table for February with a market share of 27.2%, according to figures released by the EGX (pdf). CI Capital came in second with a 7.6% market share, followed by Beltone Financial (5.5%), Pharos Holding (4.7%) and Arqaam Securities (4%).

EBRD to present report on new labor market trends: European Bank for Reconstruction and Development Managing Director for the Southern and Eastern Mediterranean Janet Heckman will chair a panel discussion on Tuesday to present the findings of a report on the impact of modern trends on the labor markets of Egypt and developing nations, according to a press release.

A consortium of Russian companies is expected to visit Egypt this month to explore investment and operational logistics in the Russian Industrial Zone area of the Suez Canal Economic Zone, reports the local press.

The gov’t will begin rolling out its debt control strategy this month. The four-year strategy aims to bring down Egypt’s public debt to 80-85% of GDP by the end of FY2021-22.

An Egyptian ministerial delegation will visit France this month to discuss boosting bilateral trade, local press reported.

The Egypt-Sudan electricity grid connection project is on track, and is set to begin its first-phase trials next month, according to The North Africa Post.

A delegation of 50 Japanese companies is expected in Egypt early next month to sign several investment agreements and explore areas of cooperation for the development of technical industries, reports Egypt Today.

Default rates low as emerging markets weather crises: Default rates on EM corporate bonds were lower than those in developed markets last year, despite the strengthening USD, the US-China trade war, and financial crises in Argentina and Turkey, Steve Johnson writes in the Financial Times. New data reveals that just 1.4% of non-financial EM corporate bonds rated by Moody’s defaulted last year, compared to 1.6% in developed economies. EM companies represent 14% of the 4,500 bonds rated by Moody’s but were responsible for only 11% of defaults.

Speculative-grade bonds may be entering choppy waters: While Moody’s (which rates both investment-grade and speculative-grade bonds) sees default rates rising slightly during 2H2019, data from investment consultancy Fundamental Intelligence suggests that rates on speculative-grade bonds may be in for a sharp rise post-2019. The company is currently projecting rates to rise to 3.2% in 2020 and 5.2% by the end of 1H2021, with the majority of at-risk companies being concentrated in China and Argentina. Fundamental Intelligence founder David Spegel tells the FT that we should expect knock-on effects in emerging markets in 4Q2019 or 1Q2020 should these figures prove accurate.

The fourth iteration of the Underwater Photographer of the Year competition attracted thousands of entries that beautifully capture the weird and wonderful creatures that dwell beneath the waves. The Guardian offers a selection of the winners for your perusing pleasure.

The ongoing debate over the constitutional amendments continued to fill opinion pages in the Western press over the weekend. Michael Wahid Hanna writes in the Financial Times that the opposition marks Egypt’s last chance to “preserve [its] republican character,” while Yasmine El Rashidi wonders in a piece for the NYT if the proposed constitutional amendments will spark another revolution.

Other headlines worth noting in brief include:

• The National takes a look at how Egypt became MENA’s fastest-growing startup scene.
• Whose place is it to speak about LGBT+ rights in the Arab world,asks a Thomson Reuters Foundation piece, following controversial remarks made by Xavier Bettel, Luxembourg’s prime minister, at the Sharm conference last week.
• Four members of Hamas who had been detained in Egypt since 2015 were returned to Gaza on Thursday, reports The Times of Israel.
• Supply Ministry reforms on food subsidies are seeing opposition, as the ministry restricts subsidies to only the neediest members of society, according to The Arab Weekly.
• Rami Malek’s Oscar win is great, but where is the home-grown Arab representation? Such is the question posed by an opinion piece in the NYT that explores the political, financial and social struggles of movie makers in the region hoping to leave their mark in the annals of Oscar history.

El Sisi pushes for infrastructure development; state newspapers take note: A meeting between President Abdel Fattah El Sisi, Prime Minister Moustafa Madbouly and Housing Minister Assem El Gazzar to follow up on the condition of casualties from last week’s deadly train accident is the main story on the front pages of all three state-owned newspapers this morning. El Sisi urged the officials to keep up efforts to improve the country’s infrastructure, Al Ahram reported. Al Gomhuria and Al Akhbar carried stories along the same lines.

The rise of the Phubbers: How China is trying to prevent smartphone-related fatalities: Chinese cities are imposing fines on people using smartphones while crossing the road in an attempt to prevent road accidents, according to the FT. The city of Wenzhou has begun handing out RMB 10 penalties to people caught texting on their phones while walking on the street, while Xian has even started painting designated smartphone lanes on pavements. The new measures show that the authorities have little faith that common sense will prevail among the so-called Phubbers, and have decided to take more coercive action.

And it’s not just pedestrians causing problems: Statistics from 2017 suggest that more than half of all US road accidents involve a driver using a mobile phone. And more recent figures haven’t shown any improvement: Last year, the number of US pedestrians killed in road accidents rose to its highest level in almost three decades, preliminary government data showed last week. Smartphones were identified as one of the main culprits behind the rising figures.

Phubber? Why the hate, man? Phubber is just one of a few pejorative terms used to describe people whose eyes are more often than not locked onto their phone screens. You may also use “smombie” (a lazy neologism of smartphone zombie), or if you’re in Hong Kong you can refer to them as members of the “head-down tribe.”

India, Pakistan, and the nuclear dance: Recent hostilities between Pakistan and India have deep roots and global significance, according to this video published by the WSJ (watch, runtime: 2:47). While decades-long tensions have continued to constitute “a dangerous and delicate dance that’s scary to watch,” in the last 45 years the two countries have managed to avoid all-out war. And with Pakistan’s release on Friday of an Indian pilot captured in Kashmir, it seems as though a showdown between the two nuclear powers has been avoided. But is this a real de-escalation or the start of something much more serious?

Egypt, Romania sign business, investment agreements: Investment Minister Sahar Nasr and Romanian Business Minister Ștefan-Radu Oprea signed four investment and trade agreements during the Egyptian-Romanian joint business council meeting last week, according to a ministry statement. The agreements include a cooperation protocol which will see the Romanian business council explore investment prospects in the Suez Canal Economic Zone, and a memorandum of understanding to boost bilateral trade through non-listed companies.

Authorities warn travelers to Sudan of new foreign exchange rules: The Foreign Ministry cautioned travelers to Sudan on Friday to abide by the new currency regulations, according to the State Information Service. The regulations place a legal limit on cash, ban the use of foreign currency for transactions outside formal channels, and prohibit the transfer of rough gold overseas.

The UNHCR in Egypt has warned that its essential programs are under threat due to a huge funding gap, with the combination of “increasing arrivals and inadequate resources” leaving some quarter of a mn registered refugees struggling to get by. Programs designed to support refugees — primarily from Syria, Sudan, Ethiopia, Eritrea, South Sudan and Yemen — are currently operating on only 4% of the annual USD 104.2 mn annual budget.

Egypt’s natural gas exports to Jordan have reached approximately 350 mcf/d, up from 100 mcf/d in January, Oil Minister Tarek El Molla told Daily News Egypt. The news means that Egypt has beaten its export targets, which would have seen gas shipments rise to 250 mcf/d by the summer. Egypt and Jordan signed a gas export agreement back in September that will see Egypt provide as much as 10% of the kingdom’s gas needs.

Royal Dutch Shell’s natural gas output from the West Nile Delta Burullus and Rashid fields has declined to 250 mcf/d from 400 mcf/d the previous year due to decreasing well productivity, an Oil Ministry source told the domestic press. The company is aiming to link 100 mcf/d from Phase 9B of the Burullus gas field in 1H2019 to make up for part of the drop, the source said. The company had previously hoped to increase output to 450 mcf/d by the end of FY2018-2019, an EGAS source said.

The government is in talks with international lenders to finance studies to link Argeen on the Egypt-Sudan border to Khartoum as part of a proposed Cairo-Cape Town highway project, sources said. The African Export–Import Bank, the European Bank for Reconstruction and Development and the International Finance Corporation have been approached by the government for the project, which has already entered its first EGP 7 bn phase. The first phase involves a direct link between Cairo and Minya. The second, third and fourth phases will begin at Minya and end at Argeen.

The Supply Ministry secured USD 213 mn in funding from the Islamic Trade Finance Corporation (ITFC) to buy 1.02 mn tonnes of wheat, sufficient till the end of the fiscal year in June, Reuters Arabic Service reported, citing a ministry statement. State grain buyer GASC secured last month USD 1 bn of a USD 3 bn funding agreement with the ITFC, USD 2 bn of which will be spent on petroleum products. Egypt will receive more than USD 700 mn for petroleum products this year, CEO Hani Sonbol told Masrawy.

Chairman of the Arab Organization for Industrialization Abdel Moneam Al Tarras signed a manufacturing cooperation agreement with Romanian Business Environment Minister Radu Oprea for car tyres, oil pumps, railways, elevators, medical equipment, electric cars and smart systems, MENA reported.

The government-sponsored nationwide campaign to detect and treat Hepatitis C has entered its third phaseand is expected to cover another 23 mn individuals, according to statements from Health Minister Hala Zayed cited by Ahram Online. The first two phases screened 30 mn people as part of an effort to completely eradicate the disease from Egypt by 2022.

The state-owned General Company for Tourism and Hotels (EGOTH) will sign an EGP 85 mn contract with Plaza Inn next month to develop the Cosmopolitan Hotel, a subsidiary of the Three Corners Hotels and Resorts, Chairman Sherif El Bandari told Masrawy. The 3-star hotel in Bab Al Louq was built in 1902 and expanded in 1956.

Telecom Egypt has signed an MoU with Nokia to provide Internet of Things (IoT) services to businesses in Egypt through the Nokia Worldwide IoT Network Grid (WING), according to a ministry statement. The MoU will see the state-owned fixed-line monopoly develop cloud infrastructure and provide IoT services under its own brand at local prices to its corporate clients. The MoU will also see both sides cooperating to develop and test new uses for 5G.

Telecom Egypt has announced a partnership with Microsoft to bring the American company’s cloud network to Egypt, Zawya reports. The announcement, made on the sidelines of the World Mobile Congress last week, follows a raft of MoUs on cloud computing with Huawei and Ericsson, as well as a cooperation agreement with American hardware company Cisco Systems. Cisco Systems also signed an agreement with the government-sponsored Information Technology Industry Development Agency (ITIDA) to encourage Egypt’s app and video game development industry according to presidential mandates, reports Masrawy.

Amer Group’s board approved a plan to delist the company’s shares from the EGX, the company said in a bourse filing. The decision was taken to allow investors to look for “alternative” options as the company’s revenue structure changes after it shifts most real estate development activities to Porto Group and diversifies its operations. The company will buy the shares of investors objecting to the delisting decision. A general assembly will be held to vote on the decision.

The endless fascination with ancient Egypt is currently centered on the “fierce female leadership” of its ruling queens. “Queens of Egypt” is a new exhibition at the National Geographic Museum which showcases more than 300 artifacts from the Egypt’s past while examining the power structures that prized female leadership in a patriarchal society.