Fawry sets its IPO price and the subscription period begins

Good morning, everyone, and welcome to an unusually quiet Sunday morning. We’re not entirely sure if we should chalk that up to half the country bridging the 23 July vacation for a mega-long-weekend or if it’s just a regular summertime fluke. In all cases, we’re not ones to complain.

Defense Minister Mohamed Zaky is in Washington, DC today to meet US Secretary of Defense Mark Esper, according to an Armed Forces statement. The statement is otherwise scant on details beyond noting that the two will discuss military cooperation and issues of mutual interest.

Esper was officially sworn in to the position last week, just hours after the US Senate confirmed his nomination to succeed Jim Mattis, who resigned in December.

The Fab15 conference kicks off today in El Gouna, bringing together participants from over 1,600 Fab Labs worldwide for discussions around digital manufacturing, innovation, and technology. Egypt is the first country in the MENA region to host the event, which has been running for 14 years. The event runs from 28 July-2 August in El Gouna, before moving to Cairo on 3-4 August.

The seventh edition of the National Youth Conference kicks off on Tuesday at the new administrative capital. The last iteration of the conference was held one year ago.

All eyes will be on the Fed later this week: The US Federal Reserve is widely expected to cut rates when the Federal Open Market Committee meets on Tuesday and Wednesday this week. Markets were all but certain of a July cut even before Fed officials began unambiguously telegraphing a shift to a more accommodative stance earlier this month. But over the weekend a fresh Reuters poll confirmed that pretty much everyone is banking on an imminent return to easing: 107 out of 111 economists expect the Fed to make a 25 bps rate cut, two forecast a deeper 50 bps cuts, and two said they expected no change rate all.

The first rate cut in a decade would come against a fairly positive economic backdrop: A surge in non-farm payrolls in June and sustained growth in consumer spending over the second quarter are hardly signs of a weakening economy. And although preliminary GDP figures showed over the weekend that US economic output slowed to 2.1% from 3.1% in the second quarter, a recession is nowhere near in sight, and the effects of the US-China trade war have remained fairly muted.

This raises the question: Why would the Fed cut? To put it simply: Because the market demands it. “The biggest reason for the Fed to cut rates is because it has been priced into the markets for a while now,” Andrew Hunter, senior US economist at Capital Economics, told Reuters. “If they didn’t follow through and cut, it would cause a bit of a shock.”

Emerging markets won’t complain: EM currencies and bonds would perform better than those in advanced economies if the Fed follows through and cuts rates, a Bloomberg survey suggested a few weeks ago. EMs should be in for a strong second half of the year as falling interest rates in developed countries cause a pickup in demand for higher-yielding assets.

EMs should take advantage of easier monetary policies to fix their underlying productivity issues, the FT’s editorial board writes. The IMF’s recent downgrade to its outlook for global growth was fuelled by falling output in emerging economies, making it all the more important that they make use of the low interest rate environment to invest in boosting their productive capacities, it says.

Expect eurozone stimulus in September: The European Central Bank held off on introducing further stimulus measures last week, but signaled that it could restart its bond-buying program and cut rates further when it meets in September, the FT reports.

Tunisian President Beji Caid Essebsi died on Thursday at the age of 92. Essebsi was the world’s oldest sitting president, coming to power in Tunisia’s first free elections in 2014. A vote to choose his successor was due to be held on 17 November but will now be held sooner, the electoral commission said. The speaker of parliament will take over as interim president in the meantime. President Abdel Fattah El Sisi announced on Thursday that Egypt would observe three days of mourning to mark Essebsi’s death.

The list of candidates to succeed Christine Lagarde as IMF head has been whittled down to five — and Mohamed El Erian hasn’t made it: Spanish Finance Minister Nadia Calvino, Portuguese Finance Minister Mario Centeno, Dutch Finance Minister Jeroen Dijsselloem, World Bank CEO Kristalina Georgieva, and Bank of Finland Governor Oli Rehn have made the shortlist to become the IMF’s next managing director, the French Finance Ministry said on Friday, Bloomberg reports.

In global business news: LSE could acquire Refinitiv for USD 27 bn: The London Stock Exchange (LSE) is in talks to acquire global financial data provider Refinitiv in a landmark transaction that could be valued at USD 27 bn, reports Reuters. The agreement would see Refinitiv’s existing shareholders, which include majority shareholder Blackstone and 45% stake-holder Thomson Reuters, turned into shareholders in LSE.

MbS’ plans for Neom are ambitious — and that’s putting it mildly. Documents for the USD 500 bn tech city Neom have outlined plans for flying taxis, a glow-in-the-dark beach, and robots. Lots of robots. The Wall Street Journal has more.

It was a mixed bag of nuts on last night’s talk shows, which covered everything from record-high Suez Canal revenues to social housing projects and export growth.

SCZone revenues reach record high: Al Hayah Al Youm’s Lobna Assal was happy to report that the Suez Canal Economic Zone achieved record revenues for the second consecutive year (watch, runtime: 0:55). We have the story in this morning’s Speed Round, below.

Cabinet says growing exports, FDI made the EGP 2019’s second best currency: An increase in exports and higher FDI have prompted Bloomberg to rate the EGP as the world’s second-best performing currency in 2019, Assal said, noting that the news information service had flagged the EGP as the Middle East’s second-worst currency back in 2015 (watch, runtime: 2:28).

El Sisi, Madbouly, El Gazzar talk new cities: Masaa DMC’s Eman El Hosary took note of President Abdel Fattah El Sisi’s meeting with Prime Minister Moustafa Madbouly and Housing Minister Assem El Gazzar to discuss progress in building new cities, which El Sisi instructed them to expedite (watch, runtime: 3:40).

El Gazzar had a prolonged chat about “fourth generation cities” with El Hekaya’s Amr Adib, telling him that these developments are meant to support development throughout the entire country by boosting our competitiveness in attracting both local and foreign investment. The minister also discussed social housing, which is aimed at beneficiaries below the poverty line (watch, runtime: 26:25).

IPO WATCH- Fawry sets IPO price at EGP 6.46 / share as private placement gets underway: Egyptian e-payments giant Fawry has set its share price for the upcoming IPO at EGP 6.46/share for its private placement and retail offering, a discount from its EGP 6.9 fair value price, the company said in a statement (pdf). Fawry will sell 36% (254.6 mn) of its shares owned by PSI Netherland Holding, of which 7.2% will be sold to Actis, 7% to the National Bank of Egypt, and 7% to Banque Misr. Meanwhile, 9.8% will be sold in the private placement and 5% in the retail offering.

Regulators give the all-clear: The Financial Regulatory Authority last week gave its approval for the company to publish the public subscription notice.

The private placement began on Friday and runs until Wednesday, the company said. The retail offering will begin today and finish on Monday, 5 August. Trading is expected to begin on Thursday, 8 August.

Remember: This is the first IPO since Sarwa Capital’s EGX debut last October. Fawry’s initial public offering is expected to act as a litmus test for the equity raising climate in Egypt, particularly after last year’s emerging markets selloff and Sarwa’s rocky IPO led several other planned IPOs and secondary listings to be put on ice. Chief among those who had postponed their offerings were companies in the state-owned privatization program, which is expected to see its first IPOs in September.

Advisers: EFG Hermes is the global coordinator and bookrunner for the share sale. Zulficar & Partners is serving as the local counsel, and Zaki Hashem & Partners is serving as local counsel to the issuer.

IPO WATCH- Sidpec stake sale advisor to be named “in days”: NI Capital will announce “in days” the winning bid out of six offers it received from investment banks to advise on the planned sale of an additional 23% stake in Sidi Kerir Petrochemicals (Sidpec) as part of the state privatization program, government sources told the press. The state investment bank, which is in charge of getting the privatization program off the ground, invited the private sector to bid for the job earlier this month. The bidders include EFG Hermes, CI Capital, and Beltone’s investment banking arm. Law firm Sarie Eldin & Partners has been tapped as legal counsel on the sale.

Sources had previously said that Sidpec was planning to offer a 30% stake, which appears to have been revised down. Share sales in the program are not expected to take place before September, Public Enterprises Minister Hisham Tawfik told us previously.

East Med states reiterate need for energy cooperation at regional gas forum: Energy ministers from eastern Mediterranean states vowed to increase cooperation over developing the region’s gas reserves following talks in Cairo last week. Ministers from Egypt, Israel, Cyprus, Greece, Italy, Jordan and the Palestinian Authority met as part of the East Mediterranean Gas Forum, set up in January to develop the region’s gas resources, infrastructure and trade links. Member states agreed to “accelerate the economic exploitation of existing gas reserves, benefit from existing infrastructure, and develop more infrastructure to facilitate the exploitation of future gas discoveries,” the final communique said. US Energy Secretary Rick Perry, European Commissioner for Energy Miguel Arias Canete, and representatives from the World Bank and France also attended the meeting.

Encouraging the private sector: The forum will set up an advisory committee tasked with increasing private sector involvement in the gas industry, the statement said, without providing further details.

The details about this “regional gas market” are still pretty vague, with the statement shedding little light on the practical steps that countries will take to develop the region’s gas resources.

We’ll have to wait a while before things become clearer: The next meeting will not be held for another six months, when ministers reconvene in Cairo in late January 2020.

Turkey’s recent indiscretions in Cypriot waters came up during the forum, Perry told reporters without providing details, according to Reuters. The Turkish government recently stepped up its gas exploration efforts in the disputed waters, facing down EU threats to impose sanctions if it continued to ignore demands.

Egypt, US sign energy cooperation MoU: Oil Minister Tarek El Molla and Secretary Perry signed an agreement on the sidelines of the meeting to exchange knowledge and expertise, according to an Oil Ministry statement. Perry has also met with President Sisi and discussed increasing US investments energy investments in Egypt, according to an Ittihadiya statement.

EXCLUSIVE- Gov’t targeting USD 5 bn auto sector FDI over two years: The government is hoping to attract USD 5 bn of foreign direct investment into the automotive sector within the next two years, two government sources told Enterprise. The target is part of a plan to develop the sector by growing local car assembly and manufacturing through a package of incentives authorities revealed last month, one of the sources said. The proposed incentives program could see the finance and trade ministries provide custom breaks to local assemblers and manufacturers that use at least 45% local components.

Expect agreements with US companies soon to help reach our goal: Government officials were in discussions last week with US-based auto manufacturers, including Ford, on the sidelines of a meeting on procedural and administrative matters for the Trade and Investment Framework Agreements (TIFA) in Washington last week. TIFA — which could lead to freetrade with the US, provided Egypt relaxes non-tariff trade barriers and tackle several other issues — will “pave the way for American auto manufacturers to set up shop here,” one of our sources said. The ongoing talks will likely result in a number of agreements by the end of the year, according to the source.

The Japanese are also looking to get in on the action, but want more benefits: Four Japanese companies with which the government is in talks are “welcoming” of the idea of setting up shop here, the other source tells us. Toyota, Suzuki, Nissan, and Isuzu have, however, requested a 100% customs discount for imported materials if they achieve the 45% minimum for domestic components. “We have rejected this request to drive more assemblers past the 60% mark [for the minimum use of local components],” the source said. Companies which reach 60% already pay close to 0% customs, he added.

BMW, Honda are queuing up, too: Officials are also in talks with BMW and Honda to assemble motorbikes locally, the source added. Since assembling motorbikes is similar to putting together passenger cars, motorbikes will also enjoy custom breaks too, he pointed out.

Who else is looking at the sector? Sources told us last month that the discussions underway involve US, Chinese, Japanese and Korean automakers. Alongside the four Japanese companies, China’s Dongfeng and India’s Tata joined in as potential investors. Brilliance Bavarian Auto is also planning to invest USD 120 mn to return to domestic assembly in Egypt using the existing facilities of its parent company, BMW Bavarian Auto Group.

British Airways resumed their flights to Cairo on Friday as scheduled after having suspended them a week ago “as a security precaution,” a spokeswoman said in an email seen by Reuters. “Following a thorough assessment of the security arrangements, we are pleased that our service to and from Cairo will resume from Friday 26 July.”

We’re still none the wiser about why BA suspended flights: The spokeswoman did not provide any further details about the nature of the company’s security review. The UK ambassador to Cairo and BA both said last week that Cairo’s airport security did not play a part in the decision. Germany’s Lufthansa had also suspended its flights to Cairo from Munich and Frankfurt but resumed them after only a day.

The story is getting attention in the foreign press: AFP | BBC | NYT.

The EGX could list an exchange-trade fund containing sovereign bonds issued by eight African countries under plans put forward by the African Development Bank (AfDB), the bank said in a statement. The EGX and AfDB last week organized an investor roundtable to discuss listing the African Domestic Bond Fund — which tracks the Bloomberg African Bond Index — on the Egyptian bourse. Representatives from the Central Bank of Egypt and the Financial Regulatory Authority held talks with EGX officials about the plans.

STARTUP WATCH- Egyptian startups Forasna, Taskty among finalists at MIT innovation challenge: The MIT Inclusive Innovation Challenge (IIC) has selected Cairo-based blue collar jobs platform Forasna and home services online marketplace Taskty as regional finalists, reports Menabytes. The two were the only MENA startups to be selected alongside 60 “exemplary inclusive innovation organizations” from around the world. The finalists will be pitching live to a selection panel of innovation experts in events in the US, Canada, Latin America, Europe, Africa and Asia. Four will be selected from each region to proceed to the Global Grand Prize Gala at MIT on November 21, where USD 250k will be up for grabs.

Egypt moved up 10 places to rank #92 in the 2019 Global Innovation Index (pdf), while its position remains unchanged at #17 among North African/West Asian countries. The report notes that Egypt’s strengths include knowledge-intensive employment, the state of cluster development, knowledge impact (particularly when it comes to the percentage growth of PPP and GDP per worker, as well as GDP spending on computer software), creative goods exports, and our trade, competition, and market scale. On the flipside, Egypt’s general infrastructure, regulatory environment, and investments were among the weaknesses in our country profile (pdf).

The improvement in overall ranking comes despite our performance in some metrics taking a hit, including the human capital and research category, which dropped seven places to #96. The category measures the performance of education systems, government spending on schools and universities, and activity and investment in research and development. Egypt also regressed in the education rating, which fell by 10 places to #94 in the world. These two metrics had also been Egypt’s most significant weak points in last year’s ranking.

SCZone revenues hits new record: Revenues from the Suez Canal Economic Zone recorded EGP 3.7 bn in FY2018-2019, the highest recorded level since the zone’s inauguration, Suez Canal Authority Chairman Mohab Mamish said. Net profit for the fiscal year, meanwhile, came at EGP 2.2, up 35% from EGP 1.6 bn in FY2017-2018.

Service revenues from Vodafone Group’s Egyptian operations rose 26.2% y-o-y in the first quarter of the company’s current fiscal year, which runs between 1 April and 30 June, “supported by growing data usage,” according to the group’s financials (pdf). Organic growth for the period was 13.6%. Revenues for the period came at EUR 3.13 bn (c.EGP 6.15 bn), compared to EUR 2.48 bn (c.EGP 4.88 bn) during the same period last year. Vodafone Group’s total revenue dropped to EUR 10.7 bn during the period, down from EGP 10.9 bn in the same period last year.

MOVES- Prime Minister Moustafa Madbouly has appointed Hala El Gohary (LinkedIn) as CEO of the Information Technology Industry Development Agency (Itida), MENA reported. El Gohary has more than 25 years of experience in the field, and has held several leadership and executive positions in IBM.

Still driving the conversation on Egypt in the foreign press: Emigration Minister Nabila Makram’s “throat-cutting” snafu. Makram said that people have taken out of context comments she made last week that anyone who speaks badly about Egypt should be “chopped.” Makram was speaking to a crowd of Egyptian expats in Canada when she made the remarks. A video was uploaded onto the internet which quickly went viral and drew significant criticism on social media. She has since posted on the ministry’s Facebook page that her intentions were not to promote violence. Reuters and the BBC have more.

Other headlines worth a skim:

• Egyptians are apparently the kings of golf croquet, a sport which has evolved into something more exciting than the game first introduced by the British in the early 20th century, the Economist says.
• Egyptian authorities are taking “concrete steps” to put an end to animal abuse at Cairo’s Birqash camel market, says Voice of America.

The story of human evolution is getting more complicated, the Natural History Museum's Chris Stringer says in a video for the Financial Times (watch, runtime: 2:57). Recent discoveries have now falsified the belief that ancient Neanderthals were wholly replaced by modern humans. In fact, most humans alive today have traces of at least 2% Neanderthal DNA. “This means our ancestors must have mixed with Neanderthals, [and] interbred with them maybe 50 or 60 thousand years ago,” Stringer tells us. This, he says, alongside the continued examination of fossils, is leading to a whole “reevaluation” of the last 500k years of our evolution.

Ethiopia is keen to resume negotiations with Egypt and Sudan over the Grand Ethiopian Renaissance Dam (GERD), Ethiopian Foreign Affairs Minister Gedu Andargachew told President Abdel Fattah El Sisi in a meeting in Cairo over the weekend, according to an Ittihadiya statement. Foreign Minister Sameh Shoukry called on Sudan and Ethiopia to speed up negotiations back in June, and announced plans for the countries’ foreign and irrigation ministers to continue discussions. 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.

Elsewedy Electric will complete in September a 185 km, 500 kV overhead power line to connect Benban 3, a transformer station in Benban’s solar park, to the grid through Naga Hamady in Upper Egypt, sources from the Electricity Ministry told the press. The transmission line, for which Elsewedy signed a EGP 1.7 bn agreement with the Egyptian Electricity Transmission Company, is now 88% complete.

Jordan has temporarily stopped importing natural gas from Egypt amid low demand from Jordanian electricity producers, a source from the Egyptian Natural Gas Holding Company (EGAS) told the press. The kingdom imported 75 mcf/d from Egypt last month, and has been importing variable amounts since we resumed exporting natural gas to Jordan last September under a supply resumption agreement providing as much as 10% of Amman’s natural gas needs.

The government will begin using public auctions on a trial basis in Fayoum and Beni Suef to sell local short staple cotton to bidding companies in the coming harvest season, which begins in September, government sources told the press.The auction mechanism could be standardized starting the 2020-2021 harvest if it proves successful.

China’s Hangzhou Jinjiang Group and Saudi’s Ajlan & Bros Group are planning to establish an aluminum factory in Egypt, according to a Trade and Industry Ministry statement. Details on the project’s timeline, location, or expected cost were not disclosed. The facility would include aluminum and caustic soda processing plants, as well as two water desalination and electricity stations. It is set to be implemented over four phases. The project will help close the aluminum supply gap in the Middle East. Aluminum production in the region stands at 1.2 mn tonnes a year, while demand exceeds 10 mn tonnes.

Cairo University will open Egypt’s first nanotechnology faculty in the upcoming academic year after Cabinet greenlit plans on Thursday, Ahram Online reports. The faculty will train researchers on the applications of nanotech, and build on the research undertaken by the Egypt Nanotechnology Center (EGNC).

The New Urban Communities Authority (NUCA) is planning to auction 5k land plots in 18 new cities before the end of 2019, Housing Ministry sources told the local press. The authority, which is currently conducting an evaluation to determine the size of available land in new cities, has yet to decide the prices.

Egyptian Olympian swimmer Farida Osman brought home a bronze medal after finishing third in the women’s 50m butterfly finals at FINA World Championships 2019 in Gwangju. Osman finished third after Sweden’s Sarah Sjöström, who claimed gold, and the Netherlands’ Ranomi Kromowidjojo, who secured the silver medal. Osman, one of Egypt’s best-ever swimmers, won the country’s first-ever World Aquatics Championship medal in 2017.

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Egyptian Museum renovation to be complete in 4Q2019: The Antiquities Ministry will complete the EGP 12 mn renovations to the Egyptian Museum in downtown sometime in the final quarter of the year, head of the ministry’s projects division Waadallah Abul Ela told the press. The project comes as authorities are set to move some of the country’s most treasured antiquities to the Grand Egyptian Museum in Giza, which is due to open by the end of next year.