The African IPO outlook for 2019 is … mixed

We are, to quote corporate Egypt, “cautiously optimistic” that the weeklong news drought is slowly coming to an end. Top execs at listed companies have largely wrapped FY2018 earnings season and still have a few weeks before finance starts peppering them with flash notes on 1Q performance — and we have all suddenly awoken to the notion that we have less than two months before Ramadan in which to get meaningful work done.

Look for the House to launch its hearings on constitutional amendments as early tomorrow. The hearings were to have begun yesterday, but were pushed back to allow MPs time to get back to the capital from Aswan, where they were attending President Abdel Fattah El Sisi’s Arab African Youth Summit.

Good news for Qalaa’s ERC? Oil refineries in Europe, the US and Asia are preparing to turn the volume up to 11 ahead of an expected surge in demand before the introduction of new fuel regulations in January 2020. The IMO 2020 rules will place a 0.5% cap on sulfur content in fuel used by the shipping industry in an effort to reduce emissions. The International Energy Agency predicts that the switch to low-sulfur fuel will dramatically raise its price — and refiners are keen to capitalize. Bloomberg has more.

In news relevant to our regional energy hub dream: Delek Drilling could potentially spin off its operations in natural gas fields Leviathan (Israel) and Aphrodite (Cyprus) — and list the shares of the new company on the London Stock Exchange, according to Bloomberg. Delek is looking to combine output from both fields and on-sell it to Alaa Arafa’s Dolphinus Holdings to be liquefied in Egypt as part of the USD 15 bn agreement signed last year. The Israeli energy company had previously tried to go to the LSE in 2014, but failed to draw interest.

The US Federal Reserve kicks off its two-day meeting today at the end of which it’s expected to leave interest rates on hold. The Financial Times has a rundown on views.

You can expect chatter today about infrastructure in the Suez Canal region and on tech exports to Russia. The Suez Canal Authority is talking today about infrastructure and sustainable growth, while ITIDA, the tech industry’s guardian angel, is meeting with a Russian delegation today on boosting tech exports to that market.

It’s a big day for Saudi Arabia, which yesterday saw the Tadawul upgraded join the FTSE Russell and S&P Dow Jones emerging markets indices in a major step forward for its inclusion in global equity benchmarks, the FT reports. Saudi will join the MSCI Emerging Markets index at the beginning of June. The announcement prompted substantial passive inflows into Saudi equities, lifting the Tadawul to near four-year highs, according to Reuters, which notes that the Tadawul “will have a weighting of 2.9% in the FTSE Emerging All Cap Index … The market is positioned for passive fund inflows of around USD 20 bn” when all is said and done with the various upgrades.

The UK’s Brexit drama took another unexpected turn last night after House Speaker John Bercow ruled out a third parliamentary vote on PM Theresa May’s Brexit agreement, the BBC reports. Apparently the country is now in a “major constitutional crisis,” according to the UK’s solicitor-general. Stay tuned for the Brexit season one finale on 29 March.

Other things to keep an eye on this week:

• Conferences and gatherings: The Portfolio Egypt conference is taking place today, and Planning Minister Hala El Said is guest speaker at AmCham’s monthly luncheon meeting on Thursday.
• Dame Minouche Shafik, director of the London School of Economics and Political Science, will give the Nadia Younes Memorial Lecture on “Global Leadership in a Changing World” at AUC’s Tahrir Square campus on Wednesday.
• Trade show: The Trade Ministry will open a trade show on Wednesday featuring products from six countries including Sudan, Kuwait, Uganda, and Burkina Faso.

Econ and business news kept the talking heads busy last night for a change as the Arab African Youth Platform in Upper Egypt came to an end.

The EGP continued strengthening on Monday, hitting 17.32 against the USD, a fresh two-year high.GAFI boss Mohsen Adel told Al Hayah Al Youm that the jump came as a result of higher foreign currency inflows and stable demand (watch, runtime: 00:52).

What else? National Bank of Egypt (NBE) Deputy Head Yehia Aboul Fotouh told Hona Al Asema that the country’s improved credit rating helped too, alongside a recovery in tourism revenues, exports and remittances from Egyptians living abroad (watch, runtime: 03:54). Amr Adib also offered his two piasters, wondering why prices aren’t going down as the EGP gets stronger (watch, runtime: 07:23).

The Investment Ministry has launched a drive to improve the country’s investment environment, GAFI’s Adel told Al Hayah Al Youm’s Lobna Assal (watch, runtime: 06:13). The program aims to fix individual problems — and create a database of common obstacles so as to avoid them. Adel told Hona Al Asema that the “Invest Without Obstacles” will fast-track solutions (watch, runtime: 07:07). Read the Investment Ministry’s English-language press release on the initiative here (pdf).

Don’t complain about rising pigeon prices, Amr Adib told us, referring to the ‘Lewis Hamilton of pigeons’ that was reportedly sold for EUR 1.25 mn (watch, runtime: 02:22). While we are grateful that we don’t have to shell out seven figures for a pigeon, his words are unlikely to resonate with those of us who have to contend with rising food prices.

IPO WATCH- IPO activity in Egypt and the rest of North Africa rose 115% in 2018, but 2019 looks like it’s going to be a bit slower -PwC: IPO activity was up 115% y-o-y last year in value terms in Egypt, Morocco, Tunisia, and Algeria, according to PwC’s annual Capital Markets Watch report (pdf). The jump was driven primarily by “renewed IPO activity on the Casablanca Stock Exchange and a near doubling in value of IPO proceeds on the EGX compared to the prior year,” the report says. The four IPOs on the EGX last year raised USD 315 mn, compared to USD 179 mn raised through four IPOs in 2017. Over the course of 2014-2018, the Johannesburg Stock Exchange (JSE) has accounted for the lion’s share of IPO activity and value in Africa’s capital markets with USD 5.9 bn raised over 43 transactions. The EGX is a distant second “with 17 issuances accounting for USD 1.6 bn.”

Sarwa Capital (IPO) and Orange Egypt (delisting) were also among the top five equity capital market (ECM) transactions in Africa last year, the report says. Other high-value transactions that went to market in Africa last year include the IPOs of UK-based Vivo Energy plc on the JSE and Ghana-based Scancom plc-MTN on the Ghana Stock Exchange, as well as the secondary offering of South Africa’s Sanlam and Nigeria’s Lafarge.

(Oh, and Orange may re-list — we have more on that below.)

Proceeds from IPOs on African exchanges rose 4% y-o-y in 2018, with Ghana’s bourse raising USD 240 mn from two transactions and Uganda ending “a seven year listing drought” with one USD 45 mn listing. Secondary offering proceeds rose to USD 6.1 bn from 77 transactions.

On the whole, ECM lost steam as 2018 ground on — and it’s not looking like this year will be much different. Although several “landmark” IPOs and secondary offerings went to the market at the beginning of 2018 to start the year on a good note, the momentum “deteriorated throughout the year due to various factors, including the increase in US treasury yields, the continued global trade dispute between the US and China, and local economic challenges.” In other words, the EM Zombie Apocalypse took a bite out of the market.

PwC expects subdued activity in 2019 “despite the pipeline of announced and expected local and cross-border listings.”

Egypt’s IPO pipeline for 2019 includes three unnamed private companies so far, EGX boss Mohamed Farid said yesterday, according to Reuters. The three companies are “working on finalising their prospectuses [and] finalising the issue requirements,” with at least one of the three expecting to list by mid-2019, Farid said. All three transactions should go to market by the end of the year. Two of the companies’ combined market value is around EGP 14 bn, while the third has not yet conducted a valuation report.

IPO WATCH- Orange Egypt mulls re-listing, plans to invest EGP 5.3 bn this year: Our friends at Orange Egypt are looking into a potential return to the EGX, CEO Yasser Shaker tells Reuters. The company’s board of directors agreed to voluntarily delist from the exchange last year after failing to meet the EGX’s new requirements on minimum free float. Shaker did not provide further details on the MNO’s potential return to the public market, but said Orange is planning to invest EGP 3.8 bn this year in network improvements and a further EGP 1.5 bn in upkeep. Orange had been recording losses since 2016 on the back of the float of the EGP and subsequent interest rate hikes, but is set to report positive results beginning with 1Q2019, Shaker said.

The Egyptian Stock Exchange is planning to establish a real estate index that has companies’ performance and unit prices, EGX Chairman Mohamed Farid said during an AmCham conference, according to Al Mal. The index is intended to make accurate data available on the prices of different types of development across the country, as well as demand for real estate products, in addition to tracking changes in both, according to earlier reports.

M&A WATCH- Cleopatra completes acquisition of El Katib, adds 100 beds: Cleopatra Hospitals Group (CHG) has completed its acquisition of the assets of El Katib Hospital in Dokki, adding 100 beds to its inpatient capacity, according to the group’s annual report (pdf). Alongside the added capacity, the move will see Cleopatra inaugurate a urology center at the hospital. The plans were made public a little less than a year ago and shareholders greenlit the move last December.

CHG shareholders also previously approved a long-term lease agreement of Queens Hospital, a 50-bed facility in East Cairo which the group is in the final stages of taking over. Queens Hospital is specialized in women’s health and is expected to contribute to the group’s consolidated financials by 2Q2019. Queens’ name was previously not disclosed when Cleopatra first announced the takeover in its 3Q2018 report (pdf). There are “parallel plans to better utilize the facility to offer additional specialities after obtaining the necessary regulatory approvals,” CEO Ahmed Ezzeldin said.

EXCLUSIVE- Egypt considers tying local bond yields to CBE corridor rates: The government is considering tying the yields on local bond issuances to inflation or the central bank’s corridor rate, a senior government official told Enterprise. The move could reduce the state’s debt service burden, according to the source. Also currently under consideration is a return to zero-coupon bond issuances, which can be reclaimed within three months if the central bank cuts benchmark interest rates within that time frame.

Zero-coupon bond crash course: Zero-coupon bonds are a debt instrument “that doesn’t pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value,” Investopedia explains. That means the price at which the bonds are purchased is much lower than the actual value, and the difference between these two values represents the return on investment. Longer-tenor bonds are purchased at a lower price than short-tenor issuances, and investors allow the interest to accrue until the date of maturity. Most zero-coupon bond issuances carry tenors of at least 10 years.

Background: Egypt has embarked on a comprehensive strategy to reduce debt to GDP to 80% by 2022 and is planning to prolong debt maturities and diversify sources of borrowing. The government wants to bring the average maturity for local debt to four years and to restructure debt so that 70% of it would be long term bonds.

Egypt’s tourism industry grew 16.5% in 2018, according to new data by the World Tourism & Travel Council. The industry now accounts for 11.9% of GDP and 9.5% of total employment or some 2.5 mn jobs. International visitors spent EGP 218.1 bn in Egypt last year, with Germans accounting for the single largest bloc of tourists. Job growth in the sector is expected to continue to grow to 3.2mn jobs, while the number of visitors is forecast to reach 11.7 mn.

The research got wide play in the domestic and industry press, with some noting that this increase came despite the UK and Russia dragging their feet on restoring flights to Sharm. Travel Weekly highlighted the role of an “improved security infrastructure,” which facilitated travel companies restoring operations to major tourist destinations.

Maridive Oil Services turned in a net profit of USD 14 mn (-40% year-on-year) in FY2018 on revenues of USD 208 mn (-13%) in a year in which “E&P spending bottomed out and daily charter rates in our industry hit historic lows,” the company said in a regulatory filing (pdf). Revenues contributed by the company’s offshore services business (accounting for 51% of 2018 revenues) grew 5%, with Maridive Chairman Tarek Nadim noting that performance at the division is “less susceptible to industry cyclicality, with vessel utilization typically driven by ongoing rig operations rather than rig deployment.” The construction side of the business faced challenges: “Subdued market activity took a toll on our subsidiary Valentine Maritime’s award book in 2018 and weighed down on the Group’s consolidated performance,” the company said.

Maridive is one of the few global players in its bracket that has remained profitable throughout the industry downturn of the past several years, a period that saw key competitors including Bourbon and Tidewater seeking bankruptcy protection.

Outlook: Management thinks the industry downturn is ending, saying it expects a “steady increase in offshore capex and opex over the coming year.” Egypt and MENA will be leading the pack: The MENA region’s “low extraction and breakeven points position it as a primary beneficiary from the anticipated turnaround.” Maridive says “the expected growth in spending comes at a time when Egypt is positioning itself as a regional energy hub, with increased exploration activities and significant natural gas finds.”

In numbers: Maridive sees total offshore capex rising from USD 77.5 bn in 2018 to USD 99.6 bn in 2021 at the same time as opex spending offshore grows from USD 94.2 bn last year to just under USD 100 bn in 2021. It sees average daily rates industry-wide growing c. 50% in the same period while utilization rates also climb. Improved capex spending is already hitting Maridive’s construction backlog: One of its construction arms has already landed a new contract with a contractor to Aramco in Saudi Arabia, and its other construction subsidiary is set to bring a new fabrication yard into operation this year.

Egypt leaps 10 places to rank #95 in the 2018 Global Innovation Index: Egypt is the most improved country in the North Africa/West Asia region in the 2018 Global Innovation Index, moving up 10 places to #95 in the global rankings from last year. The report notes that Egypt has exceeded its expected performance as a lower-middle (LM) income country, rising three places to rank 16 among LM states. Regionally, Egypt’s position remains unchanged at #17 among North African/West Asian countries.

There were improvements in almost every category: Most notably, Egypt leapt 27 places in the knowledge and technology category — which looks at patents, intellectual property and tech exports — to #66 in the world. The creative outputs rating — which accounts for trademarks, industrial designs, creative goods and services and online creativity — also jumped eight places to #89. There were also slight improvements in the market sophistication, infrastructure, institutions, and business sophistication categories.

Except one: Egypt fell seven places in the human capital and research category to #89. The category measures the performance of education systems, government spending on schools and universities, and activity and investment in research and development. Egypt’s regression in the ranking was driven by the education rating, which fell by 16 places to #74 in the world. Drilling into the figures though, it appears likely that our descent in the rankings has more to do with greater improvements in other countries relative to ours, rather than a declining education system.

The Supply Ministry plans to begin the third and final phase of its purge of subsidy rolls next month, an unnamed ministry source tells Al Shorouk. The ministry is currently reviewing grievance appeals by Kramers who think they were unfairly removed from the state’s welfare program during the second phase of the purge, which one-time beneficiaries can submit until 27 March. Once the review is complete, the ministry will announce the exact start date of the third phase.

Background: The first phase of the purge, which began in 2017, aimed to purge 10% of ration card holders by weeding out fraudsters, while the second phase is meant to remove 40 mn people. The ministry had laid out last month new criteria for individuals no longer eligible for welfare benefits, including consuming more than 650 KW of electricity or paying phone bills in excess of EGP 800 per month. Those spending more than EGP 30,000 on school fees for their child at an international school can also expect to be cut from the welfare rolls, alongside senior corporate officers and those owning a luxury car made in 2014 or later.

LEGISLATION WATCH- The House ICT Committee preliminarily approved yesterday the draft Data Protection Act, Youm7 reports. The Madbouly Cabinet completed its final review of the proposed legislation earlier this month, but it remains unclear when the House committee plans to complete its review of the bill and refer it to a vote in parliament’s general assembly. The proposed law would, if passed, make it mandatory for businesses to obtain user approval to share personal data or face prison terms and fines. The draft also draws a line between what it defines broadly as “personal data” and what it considers sensitive information. Data considered sensitive includes information revealing people’s mental, physical, or genetic conditions, as well as their biometric data, religious or political affiliations.

Egypt orders upward of 20 Russian fighter jets in USD 2 bn agreement: Egyptian officials have signed a USD 2 bn agreement with the Russians to purchase over 20 Su-35 fighter jets, the Kommersant business daily quoted two defense industry sources as saying. The agreement will see Russia supply the jets, alongside aircraft weaponry, in 2020-21. The pact could present problems for Cairo’s relations with the US, which has threatened to place sanctions on countries which do business with Russian arms companies, Stratfor warns in a situation report. Russia is one of the leading suppliers of arms to Egypt, and data released last week has shown Egypt is the world’s third largest arms importer. Reuters also has the story.

The second-oldest profession could help SMEs grow in Egypt and Africa: Factoring could be a viable and sustainable solution to address the funding gap for SMEs in Africa and help them grow, the African Export-Import Bank (Afreximbank) has stated. Africa accounted for less than 1% of global factoring volumes in 2017, although it has shown rapid growth in concentrated areas, including Egypt, Tunisia and Morocco. But senior members of the bank have argued that factoring is an important alternative to other financing solutions, such as bank loans, and could help to overcome impediments such as a lack of access to appropriate finance. Factoring volumes across Africa are predicted to reach some Euro 200 bn by 2021.

So what is factoring? Sell your invoices at a discount to a third party — called a factor — who goes on to collect them instead of you. As factors effectively extend credit to the customers of a business, the financial status of the business itself won’t necessarily be of concern to the factors. This means that businesses that do not qualify for loans, for instance, may still be able to factor — as long as their customers are creditworthy.

Investors are once again bullish on emerging markets, but the return of exuberance could be a “worrisome milestone,” Colby Smith writes for the Financial Times. Analysts at EPFR Global have reported 10 consecutive weeks of large inflows into hard currency emerging market debt. And although appetite for local currency-denominated fixed-income assets has waned, interest in hard currency debt has “more than made up for it.” As it currently stands, there isn’t much more space for continued upside on EM investment, indicating that the tide could soon turn against investors who may have been a little bit too bullish on EMs after last year’s sell-off. When sentiment enters “exuberance” territory, a sell-off usually follows, but brighter global prospects could further bolster investments in EM, Smith says.

It’s another painfully slow news day in the international press as far as Egypt is concerned. African startup news site Disrupt Africa is running an interview with Egyptian trucking startup Trella, which raised USD 600K in pre-seed funding with the help of our friends at Algebra Ventures. They’re not planning any major regional expansion any time soon, instead taking their growth one step at a time.

Other stories worth skimming this morning:

• The NYT picked up on Nubian photographer Mohamed Altoum’s journey to rediscover his Nubian heritage.
• A joint school feeding project between Canada and the World Food Programme has provided access to education, enhanced nutrition and greater social cohesion for over 1 mn Egyptian and Syrian children in over 570 public schools in the last four years, according to the UN Information Center in Cairo.
• 130,000 tickets have reportedly already beensold to the Tutankhamun treasure exhibition taking place at the Grande Halle at La Villette in Paris, in advance of its public opening on Saturday.

El Sisi visits key sites in Aswan with Arab-African Youth Forum guests: President Abdel Fattah El Sisi’s visits to major ancient Egyptian sites in Aswan with officials and visitors of the Arab and African Youth Platform that kicked off earlier this week topped the front pages of all three state-owned newspapers this morning (Al Ahram | Al Gomhuria | Al Akhbar).

Regs for initial coin offerings are coming to MENA, courtesy of the Emiratis: Safe, investor friendly initial coin offerings (ICOs) are set to debut in the Middle East and North Africa as the UAE takes the lead, placing itself among the first in the world to step in and regulate ICOs, Matt Smith writes for Wamda. The Emirati Securities and Commodities Authority (SCA) announced last December it would introduce rules to govern ICOs by the end of June.

What on earth are ICOs? As the name suggests, ICOs are the rough, cryptocurrency-based equivalents of IPOs — a crowdfunding method and essentially a way to speculate on cryptocurrencies. They are today’s biggest trend in the crypto-world. An ICO works in similar ways and achieves the same aims of IPOs. But instead of issuing shares, a company issues a coin, or token, of its own making, and offers it to investors as a blockchain project associated with a quality whitepaper. Willing investors then purchase the tokens for their price-equivalent in other, more widespread coins, such as Bitcoin and Ethereum, or just plain flat currencies. Unlike IPOs, however, investors cannot claim stakes in, and do not receive dividends from, the issuing companies.

Is this just another crypto fad? ICOs raised USD 5.6 bn in 2017 alone, and some USD 6.3 bn in the first four and a half months of 2018, according to figures cited by Blockgeeks. But ICOs have gained a reputation of attracting ponzi schemers and con artists, mainly because they are subject to little regulation and a lack of required paperwork. Although average returns are staggeringly high, ICOs are also based purely on speculation since investors are investing in “an idea of a project.” However, ICOs give promising blockchain projects a chance to make an impact and are also easier to launch than IPOs.

The General Authority for Freezones and Investments signed yesterday an MoU with Oman’s Investment Promotion and Export Development Authority for increasing bilateral cooperation and investment, according to an Investment Ministry statement (pdf). The signing came on the sidelines of a meeting between Investment Minister Sahar Nasr and Omani investors. We noted in January talks regarding setting up a joint Egyptian-Omani investment fund, with the Omanis particularly keen on Egypt’s tourism and manufacturing sectors.

A Federation of Egyptian Industries delegation led by Chairman of the African Cooperation Committee Sherif El Gabaly is visiting Zambia to explore investment opportunities, the Lusaka Times reports. Gabaly reportedly called Zambia a “priority country for investment,” and voiced intentions to bring high quality Egyptian products to the Zambian market.

Thyssenkrupp has won a major engineering, procurement and construction (EPC) contract from Egyptian chemical and fertilizer manufacturer El Nasr Company for Intermediate Chemicals (NCIC) to build a new fertilizer complex in Ain Sokhna, it announced in a statement. Thyssenkrupp said that the contract’s value is in the “mid-three-digit mn euro range”. The new complex is expected to be operational by 2022. The German conglomerate is already working on a fertilizer plant in the Ain Sokhna area, which is scheduled for completion this month.

Ashry Steel is planning to invest EGP 4 bn in new projects over three years, bringing its total investments to EGP 10 bn, Vice President Norhan El Ashry said, according to Al Mal. The company recently broke ground on a EGP 2 bn rebar, sections and steel tubes, and pipes factory in 6 October, which is expected to go online in June.

Amer Group has won a tender to develop the Ras Ghamila diving destination in Sharm El Sheikh with EGP 3 bn in investments, Mervat Hataba, chairperson of the state-owned General Company for Tourism and Hotels (better known as EGOTH), told Youm7.

Egyptian electronics manufacturer SICO aims to produce 1.2 mn phones this year at its facility in Assiut’s technological park, CEO Mohamed Salem said, according to Al Shorouk. SICO, which produces the first Egyptian-made mobile phone, began producing a tablet in mid-2018. We had reported that SICO was looking to enter joint-manufacturing agreements with several unnamed foreign companies.

The Central Bank of Egypt (CBE) has instructed commercial banks to begin extending facilitated loans to Egypt’s farmers, according to a note picked up by Al Mal. This came after the CBE granted farmers access who have formed cooperatives or associations aimed at adopting modern farming practices access to its low-interest SME financing initiative. The news followed an announcement last January that the CBE has excluded retail-focused SMEs from the initiative to reroute funding toward the service, agriculture and manufacturing sectors.

The State Security Prosecution has ordered the detention of 10 individuals on charges of belonging to an illegal terrorist organization, spreading false news on social media, and calling for illegal protests against the proposed constitutional amendments, reports Al Masry Al Youm. The detainees, who deny all charges, will be held for 15 days pending investigations.

House Rep. Salama El Gohary is planning to submit a proposal for parliament to request presidential pardon for nine police officers convicted of involuntary manslaughter, according to Al Mal. El Gohary argues that the situation, in which the officers killed four civilians during a shootout in Tanta, was beyond their control. The Court of Cassation, Egypt’s highest court, upheld last week the seven-year prison sentences handed down to the officers in the case, denying them the right to further appeals.

The Egyptian Football Association yesterday unveiled the national team’s new Puma kit ahead ofSaturday’s Africa Cup of Nations (AFCON) qualifying match against Niger. The EFA posted an image of the new red home shirt and white away shirt on its Facebook page. The Pharaoh’s will use the kit until 2022, but the EFA did not say when they will begin wearing it.

Yes, the machines are coming to enslave humanity — but at least we’ll be healthier: Delving into the findings of cardiologist Eric Topol in his book Deep Medicine, this piece in Vox examines some of the ways in which AI is already improving our health. Ophthalmology? Check. Colonoscopy? Check. Improving the efficiency of doctors? Check. And for sufferers of depression or anxiety, it turns out that the robots are pretty good therapists too.