Gov’t could offload bns in debt if Zarou or Edra take over the country’s three largest power plants

We finally have some corporate news today, with a rare case of M&A in the legal industry, interest from Blackstone in running Egypt’s largest power plants, and Edita inaugurating a new investment. This at the same time as EGX boss Mohamed Farid tells us that a tax on capital gains made in the stock market could be back on the agenda for next year. We have chapter and verse in this morning’s Speed Round, below.

Still, it’s a slow morning as western markets return from holiday long weekends and as Cairo slips quietly into the final days of Ramadan. Conventional wisdom is that Eid El Fitr starts next Tuesday, though Wednesday isn’t out of the question.

It’s day two of UK International Trade Secretary Liam Fox’s visit to Cairo. Fox will meet Investment Minister Sahar Nasr and Trade and Industry Minister Amr Nassar, according to an embassy statement picked up by Ahram Online.

Also happening today:

• Saudi becomes an emerging market: 30 Saudi stocks will be included in the MSCI EM Equities index at the close of play today.
• AmCham will hold its annual general meeting and iftar tonight.

Take that, robots: Stock-picking is (allegedly) making a comeback in the US. Market volatility is driving some investors to exit index-tracking funds in favor of picking individual stocks, according to the WSJ. Analysts point to equities’ poor 1Q performance, a less hawkish Federal Reserve and strong economic indicators as factors tempting investors into choosing individual names to own. The move could gain momentum as escalating trade tensions between the US and China see stocks trading more independently of each other.

Fiat Chrysler wants to merge with Renault: Italian-American auto giant Fiat Chrysler has proposed a EUR 32.6 bn merger with Renault to form what would be the third-largest car manufacturer in the world. The companies would have combined annual sales of 8.7 mn vehicles, putting it behind only Volkswagen and Toyota. The FT and Bloomberg have the story.

Is Riyadh holding an olive branch out to Doha? Qatar’s emir Sheikh Tamim bin Hamad Al Thani has received an invitation from the Saudis to attend the upcoming emergency summit in Mecca, the New York Times reports. The letter is reportedly the highest-level direct communication between the two countries since Riyadh severed diplomatic and economic ties in 2017.

Get up to speed on the 2020 elections in the US of A. We figure most of you (like most of us) need to start keeping an occasional eye on the race to choose a Democratic challenger to The Donald (presuming, of course, he wins his party’s nomination). Essential primers on the current state of a very crowded race for the Democratic nomination are here in the NYT and here in Politico. Then bookmark Politico’s 2020 Elections feed, which pulls together all of the site’s coverage of the presidential, House and Senate contests.

Crypto-winter is over, contends the Financial Times, writing that the asset class is back after bitcoin rose yesterday to a new 52-week high, taking its gains so far this year to about 140%.

What We’re Tracking Today, the Ramadan edition:

Is it okay to be good instead of great?From Outside last fall and squirreled away in our files: “Research shows that sustainable progress, in everything from diet to fitness to creativity, isn’t about being consistently great; it’s about being great at being consistent. It’s about being good enough over and over again.”

It’s a play on Good to Great, by Jim Collins— a book which we confess to having irrationally resented for years because a certain type of business striver aggressively quoted it at us (over and over and over again) as if it came down from Gabal Moussa engraved on stone tablets. We’re softening on Collins after listening to this awesome interview with the incomparable Kara Swisher (podcast here, along with transcript if you prefer to read it).

A pre-iftar reading list to kill time between your post-workout shower and the breaking of the fast:

• She’s the coolheaded, one-legged spy who changed the course of World War II. Read the New York Times’ review of Sonia Purnell’s A Woman of No Importance, which just made our to-be-read list.
• The CEO and COO of a software company each took three months of paternity leave — at the same time. The world apparently did not end. Read The bosses who walk the walk on paternity leave. (WSJ)

RAMADAN PSA- Bank hours are at 9am-2pm for employees; doors are open from 9:30am until 1:30pm for customers. The trading day at the EGX runs 10:00am until 1:30pm.

So, when do we eat? Maghrib is at 6:49pm CLT today in Cairo. You’ll have until 3:13am tomorrow morning to caffeinate / finish your sohour.

Meet our newest staff member. Her name is Luna and, like all Enterprise staffers, she is smart, has a sense of humor, and lives in the office. Come join us as our next writer-reporter and you get to play with her, too.

We’re looking for ambitious journalists who aren’t afraid of business, finance and economics. We’re particularly interested in someone with the right mix of print, audio and / or video skills + great English and the ability to read and speak Arabic at a native-speaker level.

Interested? Send your CV along with 2-3 writing samples and a solid cover letter telling us a bit about who you are and why you think you’d be a great fit with us. Email us at jobs@enterprisemea.com.

** Thinking of getting your own Luna? We point you once more to There’s no such thing as a good dog in Outside magazine.

INVESTMENT WATCH- Blackstone portfolio company and Edra express interest in operating Siemens power plants: Blackstone Group’s Zarou and Malaysian company Edra Power Holdings have both expressed an interest in taking over the operation of the three Siemens-built, combined-cycle power plants inaugurated in July, Electricity Minister Mohamed Shaker told Bloomberg, adding that both offers were under consideration. Neither Edra, which already runs three gas-fired thermal power plants in Egypt, nor Zarou have formally confirmed their interest in acquiring the plants.

Where does Siemens stand in all this? Shaker said that Siemens would continue to work alongside any new operator. The German conglomerate currently holds an eight-year contract to operate the plants. Siemens Egypt CEO Emad Ghaly has previously said the company is committed to operating and maintaining the power plants until 2024.

A move to get debt associated with the plants off the government’s balance sheet? A transaction could “set the stage for [Zarou or Edra] to assume responsibility for any financial dues,” Bloomberg’s Mirette Magdy suggests. The power plants cost EUR 6 bn to construct, with about 85% of the cost being financed by a consortium of lenders including Deutsche Bank, HSBC, and KfW-IPEX Bank, all backed by a sovereign guarantee.

Treasury-guaranteed debt reportedly stood at 20.4% of GDPas of the end of 2018, with about 25% of that owed by electricity companies.

Background: The Electricity Ministry had initially planned in 2017 to establish three companies to separately manage the plants and then list each of them on EGX as part of the state privatization program. Later, the Egyptian Electricity Holding Company (EEHC) issued an open tender for the operation and maintenance of the plants, for which ten companies bid in early 2018. The plan spin off the plants and list them on the EGX was reportedly shelved in September 2018 when the EEHC signed a USD 352 mn, eight-year contract with Siemens to operate, maintain, and manage the facilities.

EXCLUSIVE- FinMin, EGX are in “serious talks” to bring in a capital gains tax next year: The Finance Ministry and EGX are working on potential scenarios for the implementation of a capital gains tax on stock market transactions when the levy comes back into effect next year, EGX boss Mohamed Farid tells Enterprise. The Egyptian Capital Markets Association and Financial Regulatory Authority are also providing suggestions and input to figure out a workable scenario.

What kind of amendments are we looking at here? Among the scenarios currently on the table is calculating the tax differently for domestic and foreign investors, Farid tells us, but declined to provide further details on the proposed mechanism. Although it is still early days, the EGX boss said the capital gains tax will not replace the stamp tax on EGX trades — the two could be in effect simultaneously.

Background: After a revolt by retail investors, a tax on capital gains made on the EGX was shelved in 2017 for a three-year period and replaced by a provisional stamp tax. The full introduction of the tax was a recommendation of the IMF, and reports in the local press citing unnamed government sources had suggested earlier this month that the government would not be bringing back the tax “anytime soon” despite deciding to keep the stamp tax on EGX trades unchanged at 0.150%.

M&A WATCH- Youssef & Partners acquires corporate practice Moharram Law Firm: Our friends at Cairo-based arbitration firm Youssef & Partners have made a move into the corporate and transactions space with their acquisition of Moharram Law Firm, an Egyptian corporate-focused office, Youssef & Partners announced yesterday. Founding Partner Mahmoud Moharram (bio) will now be taking the lead on “a number of practice areas within the firm’s corporate and transactional practices.”

The firm also announced it has hired Paris-based practitioner Sally El-Sawah (bio) as a partner in its flagship international arbitration and disputes practice. El-Sawah will lead the firm’s international enforcement, asset tracking and debt recovery practice. El-Sawah “brings more than a decade of experience as an international lawyer and arbitrator in high profile cases in Egypt and the MENA region” in the oil and gas, telecoms, and infrastructure projects fields, among others.

Edita has installed a new Freska wafer production line at a cost of some EGP 14 mn inits E08 factory in the Polaris Al Zamil district in 6 October, the country’s largest snack food maker said in a press release (pdf). This came with the launch of Freska Pops, a new rolled cocoa wafer product retailing for EGP 3. The move is part of the company’s strategy to grow its market share in the segment. “Edita is taking full advantage of the solid fundamentals of the fast-growing wafer segment, where we plan to funnel investment in adding new capacities and new products,” Edita boss Hani Berzi said.

MOVES- Coca Cola Egypt has appointed Ahmed Rady (LinkedIn) as general manager, Masrawy reported. Rady has been working for the company for 20 years and previously served as General Manager for East Africa.

LEGISLATION WATCH- Maglis El Dawla to finalize review of draft customs and SMEs acts this week: The Council of State (Maglis El Dawla) is expected to finish reviewing the draft customs and SMEs acts this week and send them to Cabinet before Eid El Fitr, the local press reports. Sources claim the council will hold two meetings this week to wrap up its work.

What we know so far: Customs Act. The proposed amendments to the Customs Act would expedite customs clearance, create a “whitelist” of trusted importers, and broaden the Custom Authority’s discretion, according to the final draft released by the Finance Ministry last year.

What we know so far: SMEs Act. The bill includes a number of tax and non-tax incentives for SMEs to go legit. Government entities will also be working to issue licenses and ensure SMEs are included in tenders, government auctions, and banking facilities. The SME tax incentives package could cost the government EGP 1.5-2 bn each year.

What’s next? Presuming the bills get cabinet sign-off, they then head to the House of Representatives review in committee and votes by the House General Assembly.

The government could slash the discounted customs exchange rate to EGP 15 from EGP 16 from 1 June on the back of the recent strengthening of the EGP against the greenback, an anonymous official told Youm7. The EGP hit fresh two-year highs against the greenback last week, breaking the EGP 17 / USD 1 barrier for the first time since March 2017. The government scrapped last December the discounted customs rate for non-essential imports — including tobacco, pet food, mobile phones, and cosmetics — but kept the lower rate in effect for strategic and essential goods.

The EGP rally continues to gather pace: The EGP has gathered significant momentum against the USD in recent weeks, gaining 5.7% against the USD since the start of the year and breaking the EGP 17 barrier to reach 16.9317. The rally picked up steam this week, with the CBE average EGP-USD market rate closing at 16.8872 yesterday. Pharos head of research Radwa Elswaify told us earlier this week that USD inflows into government bonds and increasing tourism receipts are behind the recent appreciation.

REGULATION WATCH- FRA issues e-payment regulations for non-banking financial services: The Financial Regulatory Authority (FRA) has issued new regulations to ensure all non-banking financial service providers use non-cash methods when making or receiving payments exceeding the EGP 500 threshold specified by the recently-approved E-Payments Act, according to an FRA statement. The FRA-regulated providers will have to ensure loan, salary, dividend, employee health insurance and syndicate membership fee, and other payments are made electronically. All over-the-limit payments received by the providers will also have to run through online gateways.

Background: The E-Payments Act, which the House approved last March, makes it mandatory for government and private sector entities to make all payments to subsidiaries, suppliers, and contractors electronically. The law is part of the government’s plan to gradually transition towards a cashless, paperless economy.

Some exporters will get tax breaks instead of cash payment of export subsidies. That’s the key takeaway from a Trade Ministry statement (pdf) issued after a meeting between ministry officials and representatives of Egypt’s export councils. The proposal, part of a bit to prompt the ministry to make good on overdue export subsidy payments, will next be taken up at a meeting of the Export Subsidy Fund in the second half of June. Manufacturers claim to be owed bns in overdue export subsidy payments.

STARTUP WATCH- Swvl to make a Ford minibus its vehicle of choice: Mass transportation app Swvl has announced a partnership with Ford that will see the Ford Transit minibus used as the preferred vehicle of choice, MENAbytes reports. The first Ford Transit consignment has already arrived in Egypt. Swvl’s existing partnerships with Nasser Social Bank and EFG Hermes will also offer its drivers the chance to purchase their own Ford Transits.

The news comes as Ford appears to be showing rising interest in the ride-sharing market in the US and beyond.

Egypt is still enjoying a lull in foreign coverage, with no significant stories getting digital ink this morning.

Other stories worth a brief skim:

• Turkey’s support of “Islamist militias” in Libya threatens Egypt’s security and regional stability, Arab Weekly’s Hassan Abdel Zaher says, citing the claims of Egyptian officials.
• Polish archaeologists have uncovered the remains of a 4th century church in Egypt’s ancient port of Marea near Alexandria, potentially making it one of the oldest in the country, the First News reports.

El Sisi again urges gov’t to improve investment environment: President Abdel Fattah El Sisi’s renewed calls for his government to step up efforts to improve the investment environment topped the front pages of Egypt’s three main state-run newspapers (Al Ahram | Al Akhbar | Al Gomhuria). This marks the second time in two weeks for this theme to make the top headlines in all three newspapers.

Uber’s latest publicity stunt is ScUber, billed as the world’s first rideshare submarine, Reuters reports (watch, runtime: 00:56). The service allows visitors to explore the state’s Great Barrier Reef. ScUber was officially launched this week. Want to get on board? You’re going to have to cough up around USD 2,000 for a two-person ride.

Better Egypt, Sudan relations could improve negotiations over GERD: The strengthening relations between Egypt and Sudan’s ruling military council will have a “positive impact” on negotiations with Ethiopia over its planned Grand Ethiopian Renaissance Dam (GERD), political expert Rani Haslan tells Asharq al-Awsat. The head of Sudan’s Transitional Military Council, Abdel Fattah El Burhan, said that he would not build relations with states that would harm Egypt or the Gulf during his meeting with President Abdel Fattah El Sisi on Saturday. The planned construction of the 6 GW GERD has been a source of tension between Egypt, Sudan and Ethiopia for several years now, and the issue remains unresolved.

The National Food Safety Authority (NFSA) has made it mandatory for vegetable and fruit producers wishing to export to Saudi Arabia to register their products online, Al Mal reports. The authority has instructed exporters to finalize the necessary procedures before 31 August and said Saudi won’t allow products that don’t meet the conditions stipulated by the Saudi food safety authority. Saudi Arabia last month lifted a temporary ban it had imposed on Egyptian onions.

Elco Steel signed the ownership and licensing agreement for its new EGP 700 mn steel factory south of Port Said, Al Shorouk reported. The company is planning to expand exports, Chairman Joseph Aoun said without providing further details.

The Japan International Cooperation Agency (JICA) has promised a USD 250 mn loan to help finance the state’s health insurance plan under the Universal Healthcare Act, according to a cabinet statement. JICA is willing to take part in funding the construction of the hospitals and centers required to implement the scheme, JICA delegation members told Finance Minister Mohamed Maait in a meeting. Doubts were cast earlier this month on the Health Ministry’s ability to fund universal healthcare after Health Minister Hala Zayed requested an increase in the ministry’s FY2019-2020 budget allocation, claiming that the EGP 73 bn earmarked for the sector was not sufficient to implement the scheme.

Real estate player El Attal Holding will break ground on its planned tourism project in El Galala, Ain Sokhna in 4Q2019, Chairman Ahmed El Attal said. The project, which El Attal announced in earlier press statements, will come at an investment cost of EGP 2.5 bn.

Easyjet has begun operating weekly flights directly to Marsa Alam from Napoli and Milan, said Asser Hamdy, the chairman of a Marsa Alam tourism company, according to Al Shorouk. The British budget carrier made a comeback to Red Sea destinations last October after a near three-year hiatus following the 2015 Metrojet crash.

The Industrial Development Bank is providing USD 10 mn in a syndicated loan for El Canal Sugar Company, a bank official told Masrawy. The loan is divided into a EGP 1.2 bn tranche and another USD 100 mn tranche. The additional funding will be used to finance the establishment of its sugarcane factory in Minya. The syndicated facility was provided by the National Bank of Egypt, QNB Al Ahli, Bank of Alexandria, the United Bank of Egypt and Suez Canal Bank.

The Supreme Media Council has decided to suspend talk show Sheikh El Hara over an episode in which a guest made racist comments, the council said on Sunday. The guest had recounted a story in which he had a “nighttime rendezvous with three women … and was ‘shocked’ to discover the women were ‘Africans,’ referring to black sub-Saharans,” according to Ahram Online.

Netflix announces first series to be produced in Om El Donia: Netflix has announced its plans to produce its third Arabic original series — and its first in Egypt, Variety reports. “Paranormal,” an adaptation of the best-selling horror books written by late author Ahmed Khaled Tawfik, will be directed by Amr Salama (of “Sheikh Jackson” fame) and produced by Mohammed Hefzy (also responsible for “Yomeddine” and other films with international reach). “Paranormal” is set in the 1960s and tells the story of a doctor facing a series of supernatural events.