Thursday, 7 November 2019

CBE to cut rates by 50-100 bps next Thursday -Enterprise poll of economists.

TL;DR

What We’re Tracking Today

We’re heading into a long weekend: Banks and the EGX are taking Sunday off in observance of Prophet Mohamed’s birthday, which falls on Saturday. We’re following suit and will be back in your inboxes at the usual time on Monday morning.

That said: We have plenty of news in a packed Speed Round this issue to kick off the holiday weekend.

GERD talks in Washington yesterday appear to have moved in the right direction, with the Foreign Ministry announcing in the wee hours of the morning that it had agreed Ethiopia and Sudan to set a 15 January deadline to try and reach an agreement. Before that, our only source of intel was somewhat predictably Donald Trump’s Twitter feed, where he posted a surprisingly jovial image of the Egyptian, Ethiopian and Sudanese foreign ministers posing in the Oval Office. We have the full story in this morning’s Speed Round, below.

October’s foreign reserve figures were out yesterday: They rose ever so slightly to USD 45.25 bn from USD 45.11 bn in September.

The Institute of International Finance’s Digital Financial Inclusion summit gets underway today at the Four Seasons Nile Plaza. Delegates will discuss mainstreaming financial inclusion, partnerships between financial services firms and startups, public-private cooperation, machine learning as applied to customer behaviours and credit, digital identity and interoperability across borders. You can check out a summary of the agenda here (pdf). Our friends at CIB are hosts of the high-profile event and welcomed attendees and guests last night with a gala dinner by the Pyramids.

Key dates on which to keep your eye:

  • Sunday, 10 November is inflation day, with the CBE and state statistics agency CAPMAS releasing figures for headline and core inflation;
  • Thursday, 14 November is interest rate day, when the CBE’s Monetary Policy Committee meets to seat interest rates. The committee has cut rates at its last two meetings.

SoftBank founder makes WeWork mea culpa: Founder and CEO of SoftBank Masayoshi Son has admitted that he turned a “blind eye” to the failings of WeWork and pledged to resurrect the troubled office-space company, the Financial Times reports. “I made a bad investment decision and I am deeply remorseful… But there is no change to my strategy or vision,” he said a press conference yesterday. SoftBank was forced to bail out the company to the tune of USD 9.5 bn last month after its valuation plummeted more than 80% to just USD 8 bn following a failed IPO attempt.

Uber shares plumb new lows as early investors get cold feet: Uber shares continued to fall to new lows yesterday after the lock-up period for early investors expired, according to the FT. Shares recovered to close 4% in the red, having at one point sunk 9% to USD 25.58 per share — a stunning 43% decline from the initial IPO price in May.

Xerox is contemplating making a cash-and-stock takeover offer for HP, which has a market value of roughly USD 27 bn, in what the Wall Street Journal terms “an audacious move that would unite two fading stars of technology.”

Enterprise+: Last Night’s Talk Shows

There were a few interesting talking points on an otherwise bland night on the nation’s airwaves. National projects continued to get attention for the second consecutive day, alongside an analysis of the ongoing Grand Ethiopian Renaissance Dam (GERD) negotiations in Washington.

GERD negotiations: The Trump administration is “especially keen” on steering the stalled talks toward a constructive outcome, Asharq Al Awsat’s Heba El Koudsy told Masaa DMC’s Ramy Radwan in a video call (watch, runtime: 11:26). Proposals on the table include World Bank-funded development projects to improve water efficiency in the Nile Basin, sources from the US Treasury Department told the Washington bureau chief of the London-based newspaper. El Kousy also said US Treasury Secretary Steven Mnuchin laid out a few proposals for a timeline of filling GERD’s reservoirs and Ethiopia’s storage capacity, notable issues of contention between the two countries.

Yahduth Fi Misr’s Sherif Amer, meanwhile, sought out Moustafa El Feki, a veteran politician and the current director of Bibliotheca Alexandrina (watch, runtime: 4:04). El Feki gave his two cents on the relationship between President Abdel Fattah El Sisi and Donald Trump, and said the talks must be kept under wraps and conducted “behind closed doors” with little to no publicity in order to reach an agreement.

The government has enrolled 273k families in social safety programs this year, Abu Bakr quoted Deputy Social Solidarity Minister Nevine El Kabbag as saying (watch, runtime: 20:10). This brought the total number of beneficiaries of the Takaful and Karama cash subsidy programs to 2.4 mn families, up from less than 2.2 mn in 2018. The state had allocated EGP 18.5 bn to both programs in its current fiscal year budget.

Authorities release “the Ayat girl”: A girl who stabbed to death a micro-bus driver for allegedly attempting to “[redacted] assault her at knife point” last July was released from detention yesterday. Amira Rizk, a 15-year-old known in the local media as “the Ayat girl” after her home district, sat down with her lawyer in the studio with Yahduth Fi Misr’s Sherif Amer (watch, runtime: 5:58 and runtime: 2:18).

Talking point of the night: The Suez Canal Economic Zone (watch, runtime: 1:35) and tunnels in Port Said running under the canal (watch, runtime: 1:38) are on President Abdel Fattah El Sisi’s watch list.

Speed Round

Speed Round is presented in association with

SURVEY- Economists predict CBE will make third consecutive rate cut next Thursday: The Central Bank of Egypt (CBE) could cut benchmark interest rates by 50-100 bps when its Monetary Policy Committee (MPC) meets a week from today, according to five of six economists polled by Enterprise. The economists cited the surprising drop in inflation figures in September, a trend they expect to continue through December thanks to a favorable base effect. “We think the ongoing deceleration in inflation will support the current pro-easing trend. We expect a 100 bps cut in the upcoming MPC meeting,” said Shuaa Securities Esraa Ahmed. Pharos, Prime, Beltone and HC are all forecasting a 50-100 bps cut, while Renaissance Capital sees the central bank holding.

The CBE cut rates by 100 bps in September, bringing the overnight deposit rate to 13.25% and the lending rate 14.25%. The main operation and deposit rates were both cut to 13.75%. The central bank has cut rates by 350 bps so far this year, with 250 bps coming in the past two meetings.

Inflation to fall again in October: All analysts we surveyed see inflation continuing to fall in October, albeit at a more moderate pace than over the previous quarter that saw the urban rate plunge to 4.8% in September from 8.7% in July. Prime Holding Senior Economist Mona Bdeir expects urban inflation to ease further in October to range between 2.6-3.0%, Pharos’ head of research Radwa El Swaify forecasts it to fall to 3.5%, Shuaa’s Ahmed sees 3% inflation. Monette Doss, macroeconomist at HC, expects inflation to average 4.6% during the final quarter, remaining well below the CBE’s target range of 9% (± 3%). Inflation figures for October are due out Sunday, 10 November.

This supports a third consecutive rate cut next week: “A weak inflation reading is still supportive of further rate cuts in the next MPC meeting, with an expected 100 bps cut as the anticipated drop in October inflation figures are coupled with a third Fed rate cut at its last meeting,” Bdeir said. HC’s Doss said that recent inflation data will give the CBE space to make another half-point cut this month.

Fed easing gives extra encouragement: Pharos’ El Swaify told us that the Federal Reserve’s decision last week to cut rates by another 25 bps will give additional incentive to the CBE to continue easing.

Renaissance Capital’s Ahmed Hafez thinks it is more likely that the CBE will keep rates on hold next week: “We see no change in policy rates in the upcoming meeting, while there is a room for a cut, which would be a positive surprise,” he said.

Egypt’s carry trade remains attractive in comparison to other emerging markets: Egypt is still providing one of the most attractive yields, with real interest rates still competitive and above peers in emerging markets — especially after Turkey last month slashed rates by 250 bps.

The months ahead: Bdeir expects the overnight deposit rates to end the year at 12.25%. while she predicts inflation to pick up due to faded base effect, it would remain within the CBE target of 9% +/ -3% until the end of 2020.Beltone’s Alia Mamdouh sees the CBE cutting rates by another 300 bps through 2020.

M&A WATCH- The CBE is officially intervening in the NBG-Bank Audi acquisition as deadline to resolve employee dispute expires: Officials from the Central Bank of Egypt (CBE) meet next week with executives from Bank Audi and the National Bank of Greece (NBG) in a bid to resolve an employee compensation dispute that has blocked the execution of the Lebanese bank’s acquisition of NBG Egypt, a source told Masrawy. According to the source, the grace period the CBE had granted the two banks to resolve the issue and complete the transaction expired last Saturday. NBG did not request an extension, which has threatened to bring the acquisition to a dead end.

Bank Audi could decide to back away from the acquisition altogether, as the due diligence it conducted is now outdated as a result of the delays, and is not willing to incur additional costs to repeat the process, the website reports. The bank is also reportedly demanding a CBE-backed agreement as a prerequisite to moving ahead with any procedures.

Background: NBG has reportedly been in talks with Bank Audi over extending its acquisition deadline by between one and six months amid an ongoing pay dispute with its employees. The employees claim that they are entitled to severance pay if the transaction goes through, as they see the acquisition being tantamount to wrongful termination under article 122 of the labor law (pdf). The employees are demanding the CBE intervene. The NBG and legal counsel at Matouk Bassiouny have told employees that no staff member will lose his or her job as the bank is rebadged to Bank Audi, so no severance is payable.

IPO WATCH- Banque du Caire to IPO 1Q2010 -Amer: Banque du Caire (BdC) will go ahead with its anticipated IPO in the first quarter of next year, Central Bank of Egypt Governor Tarek Amer said on the sidelines of a startup competition yesterday, according to Al Mal. BdC Chairman Tarek Fayed said in August that it will likely go public either at the end of 2019 or early 2020 while it completes the remaining pre-IPO procedures. Public Enterprises Minister Hisham Tawfik then said less than two weeks later that IPOs under the state program would be pushed to the new year. BdC will offer 30-40% of its shares through a capital increase and selling a stake owned by the government, generating between USD 300-400 mn.

In related news: Banque Misr has raised its direct ownership of BdC to more than 50% through a rights issue to raise BdC’s capital to EGP 3 bn, Banque Misr Chairman Mohamed El Etreby told reporters earlier this week, according to Al Mal. The remaining stake in BdC is held by Banque Misr subsidiary Misr Financial Investments Company.

DEBT WATCH- EFG Hermes, NBE conclude largest securitized issuance yet on EGX: EFG Hermes and the National Bank of Egypt have completed a second securitized bond issuance for Al Taamir Securitization. The issuance reportedly includes five tranches backed by a EGP 6 bn receivables portfolio held by the New Urban Communities Authority, making the issuance the largest ever securitized offering in Egypt. The European Bank for Reconstruction and Development took up EGP 1 bn of the issuance, making it the first time an international financial institution has participated in a local offering of this type.

In related news: GB Auto’s consumer finance arm Drive has completed a EGP 425 mn securitized bond issuance, according to a regulatory filing (pdf). The issuance was the first securitized bond offering by a factoring company in Egypt. Proceeds will be used to deleverage the balance sheet and unlock future expansion plans. Capital Securitization Co. was the issuer, while CIB and the Arab African International Bank acted as joint lead managers and joint bookrunners.

M&A WATCH- Travco to sell Deutsche Hospitality group to China’s Huazhu in landmark USD 781 mn all-cash transaction: Hamed El Chiaty’s Travco Group will sell its portfolio company, Steigenberger-owner Deutsche Hospitality, to China’s Huazhu Group in a EUR 719.2 mn cash transaction, the German company announced in a statement on Monday. The agreement was reached earlier this week and is likely to close in early 2020 following regulatory approval. The story is getting international ink in Reuters and from travel industry bible Skift.

El Chiaty to retain ownership in Deutsche Hospitality JV:  The statement said that the current ownership in the company’s Middle East JV Steigenberger Middle East will “remain unchanged.”

Ambitious targets: Huazhu said that it will help the Frankfurt-based company attempt to more than double its hotels to 250 by 2024 from 118 currently, close to a dozen of which are in Egypt. Deutsche Hospitality’s brands include Maxx by Steigenberger, Jaz in the City, IntercityHotels and Zleep. The Chinese buyer’s CEO Jenny Zhang said the acquisition will not entail any job cuts.

Background: Travco acquired Deutsche Hospitality in 2009 at an undisclosed value.

M&A WATCH- Vodafone International has acquired Vodafone Egypt subsidiary Vodafone for International Services (VIS) in a EGP 1 bn transaction to expand its direct investments in outsourcing services in Egypt, according to a cabinet statement. VIS International Services (VIS) is the largest offshoring and outsourcing service provider in the region. CIT Minister Amr Talaat had told us last year that he is keeping an eye on exporting skills by encouraging freelance platforms that hire Egyptians and continuing to incentivize outsourcing.

M&A WATCH- Cairo Capital Securities chairman divests entire majority stake to two investors: Cairo Capital Securities majority shareholder Yasser Rashed has sold his entire 70% stake in the brokerage firm to a consortium of two Egyptian businessmen, sources told Al Mal. Rashed was also the company’s chairman and managing director prior to the transaction. The two businessmen — Ehab Shawky and Ayman Mekkawy — raised the company’s capital through a rights issue to shareholders that brought their total ownership in the company to 80%. Other shareholders in the firm include United Bank, which now holds a 15% stake, and individual investors holding the remaining 5%.

The firm will use the capital increase to finance its venture into new financial instruments, including T+0 trading and margin trading. The firm also recently acquired a license to short sell on the EGX.

EBRD sees strong growth for Egypt despite regional headwinds: The European Bank for Reconstruction and Development (EBRD) expects Egypt’s economy to grow at a 5.9% clip in FY2019-2020, bucking a weak growth trend in the southern and eastern Mediterranean region. The bank says in its latest regional outlook growth will be driven by “a further strengthening of the tourism sector and of exports, as well as large public construction projects.” Egypt’s GDP expanded at a 5.6% clip in 1Q FY2019-2020, Planning Minister Hala El Said noted last month, while the government is targeting GDP growth of 6% across the entire year.

Other positive factors: The Central Bank of Egypt’s monetary easing cycle, has cut rates by 250 bps since August, is expected to encourage more foreign and domestic private sector “re-engagement.” Another growth-supportive aspect is “the continued implementation of business environment reforms.”

Key risks: The “erosion of competitiveness” due to the EGP’s steady year-to-date appreciation and a negative economic outlook in the EU, Egypt’s leading trade partner, are the main risks to the EBRD’s rosy outlook on Egypt. This can be, in part, mitigated by the continued implementation of structural reforms. The bank also describes “a persistent wait-and-see approach” by investors, that could hold back inflows going forward.

Average growth in the region is expected to come at 4.4% in 2019 and 4.8% in 2020. Morocco is forecast to be the second-fastest growing economy at 2.6%.Political and security concerns in Tunisia and Lebanon, a dwindling agricultural sector in Morocco and delayed reforms in Jordan led the bank to revise its expectations downward by 0.2% in 2019 and 0.3% in 2020.

Structural reforms are the key to bring trickle-down effect of economic improvement across Egyptian social classes, says World Bank economist: Egypt’s economic reform program had wide-reaching social and economic ramifications on the middle class that must be remedied through structural reforms to deliver more equitable economic growth, World Bank senior economist Hoda Youssef says in a monthly report (pdf) from the Ahram Center for Political and Strategic Studies. Youssef says that Egyptians are (understandably) looking to sidestep any further repercussions from reforms and to reap the positive effects from the past few years and warns that while the reforms have been tough for many to swallow, the Madboulygovernment needs to avoid falling into a familiar pattern of enacting a limited but effective set of reforms and then failing to follow through because the medicine seems too bitter.

The report also includes a section on the reform of Egypt’s tourism industry, penned by Tourism Minister Rania Al Mashat, as well as sections on administrative reform in Egypt and how social equality fits into the broader picture of economic reforms.

CABINET WATCH- Ministers approve World Bank social housing loan: The Madbouly Cabinet signed off on the USD 500 mn loan Egypt is receiving from the World Bank to finance its social housing projects, according to a statement. Prime Minister Moustafa Madbouly had requested the financing in July of last year as part of a USD 2 bn package for economic reform measures. Also approved during yesterday’s weekly meeting:

  • Receiving an additional USD 13 mn of funding from USAID as part of a broader aid agreement to support basic education;
  • A bundle of decisions and recommendations from cabinet’s investor dispute resolution committee;
  • A bilateral agreement between Egypt and Latvia exempting diplomatic passport holders from entry visa requirements.

STARTUP WATCH- Tripdizer has raised USD 300k in a seed round led by accelerator 500 Startups, reports Menabytes. The round also saw participation from Innoventures and angel investor Jamal El Dabal. It’s not clear if the amount includes the USD 150k the company recently received when it completed 500 Startups series A MENA Dojo program in April, MenaBytes says. Tripdizer can be described as a Cairo-based beta TripAdvisor, which allows travellers to plan and book international trips depending on budget, interests, and trip purpose. The company will use the funds to improve its product and expand its reach in the region.

STARTUP WATCH- Egyptian e-commerce platform Gatjed has secured USD 250k in funding from several unnamed Egyptian and Gulf angel investors, according to Al Mal. The company plans to use the investment to finance its expansion plans in Egypt, according to founder and CEO Ahmed Rasekh. Gatjed, which was established in 2018, has B2B and B2C websites for Egyptian retailers and manufacturers to sell their wares online.

EFG Hermes topped the EGX’s brokerage league table for October with a market share of 18.5%, according to figures released by the EGX (pdf). Arqaam came in second with an 11.5% market share, followed by CI Capital (6.2%), Beltone (5.3%), Pioneers (4.2%), and Pharos (3.9%).

EARNINGS WATCH- MM Group reported a 52.9% y-o-y increase in 9M2019 consolidated net profits to EGP 357 mn, up from EGP 234 mn in the same period last year, the company said in a bourse disclosure (pdf). The company’s consolidated revenues also rose 40.6% during the first nine months of the year to EGP 7.7 bn, from EGP 5.5 bn last year.

Egypt, Ethiopia, Sudan agree to 15 January deadline for technical talks: Egypt, Ethiopia and Sudan yesterday agreed to hold further US and World Bank-sponsored talks during a meeting in Washington D.C. to discuss the Grand Ethiopian Renaissance Dam (GERD) dispute, according to a Foreign Ministry statement. The countries’ water ministers will meet four times before 15 January, where they will attempt to hash out a timetable on when the dam will be filled and operated. The US Treasury said two meetings will be held in Washington on 9 December 2019 and 13 January 2020.

“Positive results”: The Foreign Ministry statement described yesterday’s meeting as producing “positive results that will set the course of the negotiations and set a clear and specific schedule.” It is still not known what role the World Bank is playing in the negotiations.

Crucially, everyone has agreed to mediation if these talks fail: All three countries agreed to trigger article 10 of the 2015 Declaration of Principles if no agreement is reached by 15 January. Under article 10, countries can formally ask other countries to step in and mediate the dispute.

The story is getting play in the foreign press: ReutersAFPVoice of America.

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Egypt in the News

This morning in the foreign press: Egypt’s reliance on the central bank to finance government spending is a rare point of similarity with Lebanon — an economy that, in most other respects, it differs from wildly, writes Justin Keay in Global Finance magazine.

Growing water crisis: Reuters is out a piece on Egypt’s dwindling water resources to coincide with Egypt’s talks with Ethiopia and Sudan in Washington yesterday over the Grand Ethiopian Renaissance Dam. Annual water volumes are expected to drop 500 cubic meters per person by 2025 from 570 currently, and this is without accounting for the effects of the dam which could further reduce the Nile’s flow.

Also getting attention in the foreign press:

  • Mohamed Ali continues media campaign: After the New York Times, BBC and the Guardian, it’s the Associated Press’ turn to sit down with Mohamed Ali.
  • Nour El Sherbini, squash queen: Egypt’s World No.1 talks to Reuters about the recent CIB PSA Women’s World Championship and taking a bigger share of the winnings than men’s champion Karim Abdel Gawad.

Diplomacy + Foreign Trade

WTO to talk export promotion with Egypt: The World Trade Organization (WTO) will hold meetings with the Industry Ministry, the Egyptian Accreditation Council, and the Egyptian Organization for Standards & Quality next Tuesday and Wednesday to discuss infrastructure development and export promotion, according to the local press. The upcoming meeting will focus on imposing quality control, and will not feature discussions on Egypt's trade agreements. The last comprehensive Trade Policy Review was in 2018, meaning the upcoming review should take place in 2024.

Manufacturing

Egypt’s Multi Apex Pharma to set up factory in Saudi Arabia

Egypt-based Multi Apex Pharma is planning to set up a 15k sqm production facility in Saudi Arabia, the company's chairman, Ahmed El Ezaby told the press. El Ezaby didn’t disclose the planned factory’s investment cost, but said that it will be a partnership with Saudi investors in which Egyptians will be the majority shareholders. The facility will house three production lines that would produce three different products of unspecified OSD tablets, liquids and creams.

Health + Education

Egypt Learning mulls investing EGP 1 bn to set up 4 schools

Egypt Learning Group is studying investing EGP 1 bn to set up four new language schools in Shorouk City and Alexandria, founding partner and CEO Ayman Badr told the local press. The company is already building two other international schools in Mountain View Sheikh Zayed and the Fifth Settlement, and has invested a separate EGP 1 bn in these schools, one of which will open its doors to students in September 2020. The Egypt Learning Group was established by a consortium of Saudi and Egyptian investors and had last year hinted at plans to list on the EGX.

Automotive + Transportation

SME Authority to provide EGP 800 mn to convert 10k car engines to natgas

The SME Development Authority is doling out EGP 800 mn to the Natural Gas Vehicles Company (Cargas) and Gastec to finance the conversion of 10k cars to run on natural gas, Al Mal reported. The government is planning to have at least 50k car owners install dual-fuel natgas/gasoline engines, requiring no down payments and offering flexible, simplified payment terms. Some 33k vehicles in Egypt converted to natural gas in 2018.

Other Business News of Note

Egypt to launch fabrics and textiles mall in 1Q2020

The Cairo Chamber of Commerce's readymade garments division plans to establish a EGP 3 bn mall in the 1st Settlement in partnership with the private sector for manufacturers to sell their products, division head Amr Hassan told the local press. Hassan said that the private sector will bear 75% of the cost, while manufacturers will pay for the remaining 25%. Construction on the mall is set to begin in 1Q2020, with further expansions in the pipeline.

Egypt Politics + Economics

MP could be thrown out of parliament after criticizing El Sisi

Opposition MP Ahmed Tantawi is facing the sack after he posted a video online criticizing President Abdel Fattah El Sisi, the Associated Press reports. The parliamentarian is under investigation by the House ethics committee after some 100 MPs called for Tantawi to face discipline on Tuesday. Among them was Speaker Ali Abdel Aal, who said people criticizing the president “have no place in Egypt.”

My Morning Routine

Wael Ziada, founder and managing partner of Zilla Capital: My Morning Routine looks each week at how a successful member of the community starts their day — and then throws in a couple of random business questions just for fun. Speaking to us this week is Wael Ziada, founder and managing partner of Zilla Capital, an Egypt-based activist investing firm.

I’m Wael Ziada, and I’m the founder and managing partner of Zilla Capital, an activist investing firm. I’m 43 and I’ve worked in finance for almost my entire career. Prior to founding Zilla Capital, I worked as the executive chairman of EFG Hermes Finance, the non-banking financial platform of the group and its current engine of growth.

My work is consuming and always full of interesting challenges. As Zilla’s managing partner, I spend my day looking for new investments or finding ways to make existing ones better. This involves digging into the needs of the companies we’re invested in and working to restructure them so they operate more effectively. When my week begins, I might have a general idea of how it will unfold, but that can always change. Every week is different from the last.

My whole morning routine is centered around coffee. It’s what I drink when I wake up, before checking my email. Then I’ll have another cup before getting some exercise. Afterwards I check Enterprise and a few other news websites — and have yet another cup of coffee. Then, before I know it, I’m running late, so getting myself over to the office happens very quickly.

Knowing that my job is not routine is what gets me up in the morning. I’m constantly meeting people, discussing ideas, implementation plans or new investments, and I thrive on all this activity. I do try to set aside some time in the middle of the day to have lunch and catch up with the news.

I love the TV show Friends and can watch it again and again without getting bored. I also recently enjoyed reading Sapiens by Yuval Noah Harari. The book is a vast sweep of human history within the framework of evolutionary biology, looking at how humankind has evolved from the Stone Age right the way up to the 21st century. Harari traces our development and poses huge and complex questions about where we’ve come from and where we’re going.

I founded Zilla because I’ve always had a passion for doing things differently and moving into areas outside my comfort zone. I love looking at new ideas and being part of an organization’s success. Throughout my career, I’ve always had a passion for private equity, but I also used to feel there were ways where it could delve deeper into the structural issues that stop companies from operating as well as they can. A few years ago, I became particularly interested in the Argentine debt crisis and restructuring. I ended up reading a lot about the Elliott Management Group, an investment management firm that’s also one of the world’s largest activist funds. I saw that the best way for me to combine my interests was to start my own investment entity, raising funds to invest selectively in areas where we could add value, to bring about a turnaround in the organizations we invested in. So I phoned up some other executives and told them that moving into activist investment was what we should be doing.

Activist investment is fundamentally different from all other forms of investment. Normally,investors seek out high-performing companies that are able to yield high returns as quickly as possible. We, on the other hand, are actively looking for companies where we as a group can add value through restructuring. Many of the companies we invest in have great brands and considerable potential, but they are trading below where they should be. It might be that they’re providing a really valuable product or service, but their finances need restructuring or they don’t have operational experts.

Even very prominent, successful companies can find themselves in unsustainable situations. You could have a great management team, but without the corporate governance needed for financial sustainability, your company could turn from a prince into a frog.

That’s where we come in. We don’t jump in wanting to change the purpose or ethos of a company. We’re looking for areas where we can improve the company’s profitability, to give it a more financially lean structure so it can operate in a more sustainable way. It’s important to us to go into companies where our roles and input will be welcome — because after all, we’re trying to make the business better and more efficient.

Some companies need to be completely restructured, but with others the changes will be much lighter. The most dramatic restructuring will involve a complete overhaul of the company at the financial and operational levels — including management and staff. This obviously involves significant changes. At the other end of the spectrum, the lightest restructuring could involve creating an investor relations department, if the company is doing everything right but doesn’t know how to address the public or its investors. Or it might involve some restructuring of company debt. Then in between those two extremes, you have everything else.

We have to be very careful about how we allocate our time to these investments. We really work hard with companies to get them on track, but of course this can sometimes take up a vast amount of energy and time. I know now that I would never invest USD 1 bn in a company that was going to take up 50% of my time, no matter how much money I stood to make on the investment.

Expansion is on the horizon. Currently, Zilla has 3-4 mandates, with an investment of roughly EGP 500 mn, and this is keeping the team very busy. We will soon be significantly expanding our operations: I expect us to be handling an investment of EGP 1 bn and working with six new companies in the very near future.

One very common misconception about activist investment is that it’s basically the same as private equity. This is really not the case. While a private equity firm might meet with the boards of the companies it’s managing four times a year, our involvement is really much more hands-on. There are days where I’m literally conducting interviews to hire a purchasing manager or an investor relations manager for a company, and others where I’m going to the bank with the company’s CFO to discuss better debt restructuring terms.

New investment prospects crop up on a regular basis. The more you help the existing companies you’re working with, the more your circle expands and you get introduced to new ones. I hold at least 10-12 meetings every week with new companies. Of course, not every one of these meetings yields an investment prospect, but collectively they might yield one or two.

I believe the activist investment industry will grow as it becomes more widely understood. We want to replicate it, and personally I see space for five or six different firms to be active and present in the market. But the only way for this to happen is to have a strong pool of executives, which is a key challenge for our industry. I try to work with young executives, who can be trained and learn to be very disciplined with the time they allocate to the companies we invest in.

The lower interest rate environment will also be a game-changer for the industry. A year ago, when we tried to bring investors on board, interest rates were a big hurdle. The expected rate of return was 30%, but if they could get an 18% rate of return by putting money in the bank risk-free, why would they take on additional risk for an extra 12%? With interest rates going down, the appetite for risk is increasing.

The Market Yesterday

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EGP / USD CBE market average: Buy 16.07 | Sell 16.20
EGP / USD at CIB:
Buy 16.07 | Sell 16.17
EGP / USD at NBE: Buy 16.09 | Sell 16.19

EGX30 (Wednesday): 14,710 (-0.5%)
Turnover: EGP 702 mn (3% below the 90-day average)
EGX 30 year-to-date: +12.8%

THE MARKET ON WEDNESDAY: The EGX30 ended Wednesday’s session down 0.5%. CIB, the index’s heaviest constituent, ended down 0.1%. EGX30’s top performing constituents were AMOC up 4.4%, Sidi Kerir Petrochemicals up 4.2%, and SODIC up 1.1%. Yesterday’s worst performing stocks were TMG Holding down 3.4%, Ibnsina Pharma down 3.4% and Elsewedy Electric down 2.3%. The market turnover was EGP 702 mn, and regional investors were the sole net buyers.

Foreigners: Net short | EGP -2.7 mn
Regional: Net long | EGP +18.4 mn
Domestic: Net short | EGP -15.7 mn

Retail: 64.1% of total trades | 64.8% of buyers | 63.3% of sellers
Institutions: 35.9% of total trades | 35.2% of buyers | 36.7% of sellers

WTI: USD 56.38 (+0.1%)
Brent: USD 61.74 (-1.9%)

Natural Gas (Nymex, futures prices) USD 2.83 MMBtu, (+0.2%, December 2019 contract)
Gold: USD 1,492.00 / troy ounce (-0.1%)

TASI: 7,749 (-0.4%) (YTD: -1.0%)
ADX: 5,144 (-0.2%) (YTD: +4.7%)
DFM: 2,688 (+0.0%) (YTD: +6.3%)
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Calendar

November: Suez Canal Conference for Investment, organized in cooperation with the European Union

November: The government will host the Egypt Economic Summit with 40 speakers and experts across all economic fields to discuss the country’s vision post the IMF program.

November: British Egyptian Business Association’s Annual door knock mission, United Kingdom.

November: ITIDA to announce the winning bid in a tender to manage three new innovation centers.

3-7 November (Sunday-Thursday): Employment Creation in The Arab Countries, Cairo, Egypt.

7 November (Thursday): AmCham will hold the Prosper Africa Event.

7-9 November (Thursday-Saturday): BiznEx Egypt 2019, Egypt International Exhibition Center, Nasr City, Cairo.

8-9 November (Friday-Saturday): Startups Without Borders Summit, The American University in Cairo Downtown, Tahrir, Egypt.

8-22 November: Egypt will host Under-23 Africa Cup of Nations 2019.

10 November (Sunday): National holiday for Prophet Mohammed’s birthday.

9-11 November (Saturday-Monday): Vested Summit, Sahl Hasheesh, Red Sea.

10-14 November (Sunday-Thursday): GeoMEast International Congress and Exhibition, Marriott, Cairo.

11-13 November (Monday-Wednesday): Africa Investment Forum, Gauteng, South Africa.

12 November (Tuesday): Egypt Economic Summit, venue TBA.

13-15 November (Wednesday-Friday): Africa Early Stage Investor Summit, Cape Town, South Africa.

14 November (Thursday): The CBE’s Monetary Policy Committee will meet to review interest rates.

14-17 November (Thursday-Sunday): Machtech Expo, Egypt International Exhibition Center, Nasr City, Cairo.

14-17 November (Thursday-Sunday): Transpotech Expo, Egypt International Exhibition Center, Nasr City, Cairo.

14-17 November (Thursday-Sunday): Airtech Expo, Egypt International Exhibition Center, Nasr City, Cairo.

17 November (Sunday): The share price for the Aramco IPO will be announced (expected).

18 November (Monday): AmCham’s US-Egypt Proposer Forum in Cairo. US trade delegation visits Cairo to discuss investments in health, energy and information technology as part of the gathering.

20-29 November (Wednesday-Friday): Cairo International Film Festival, Cairo Opera House, Egypt, Cairo, Egypt.

20 November (Wednesday): The Investment Ministry and the Islamic Development Bank will organize the “leaders for change” startup competition as part of the Fekretak Sherketak initiative, location TBD, Cairo, Egypt.

22-23 November (Friday-Saturday): Invest in Africa 2019 conference, New Administrative Capital.

23 November (Saturday): HHD extraordinary general assembly to approve the 10% stake + management request for proposal

24 November (Sunday): Arabia Investments lawsuit against French Peugeot (after being postponed)

25 November (Monday): Global Trade Matters international dialogue on climate neutrality, Marriott, Cairo.

December: A Chinese automotive company delegation will visit Egypt to sign an agreement with El Nasr Automotive Manufacturing Company

December: Indian automotive delegation to visit Egypt

1-4 December (Sunday-Wednesday): E-payment and Innovative Financial Inclusion Expo and Forum (PAFIX), Egypt International Exhibition Center, Nasr City, Cairo.

3 December (Tuesday): Emirates NBD / Markit PMI for Egypt released.

3-6 December (Tuesday-Friday): Cairo WoodShow, Egypt International Exhibition Center, Nasr City, Cairo.

4 December (Wednesday): Subscription to the Aramco IPO will begin (expected).

5-7 December (Thursday-Saturday): RiseUp Summit, American University in Cairo, New Cairo Campus

8 December (Sunday): Pitch by the Pyramids, Giza Pyramids

9-11 December (Monday-Wednesday): Pacprocess Middle East Africa, Egypt International Exhibition Center, Nasr City, Cairo.

9-11 December (Monday-Wednesday): Food Africa 2019 Expo, Egypt International Exhibition Center, Nasr City, Cairo.

10 December (Tuesday): Egypt Automotive summit, Nile Ritz Carlton, Cairo.

10-11 December (Tuesday-Wednesday): US Federal Open Market Committee will hold its two-day policy meeting to review the interest rate.

11 December (Wednesday): First day of trading on the Aramco IPO (expected)

12-14 December (Thursday-Saturday): 16 Egyptian real estate development companies will showcase their products at IPS Riyadh, Riyadh, Saudi Arabia

14-17 December (Saturday-Tuesday): World Youth Forum 2019, Sharm El Sheikh.

17-21 December (Tuesday-Saturday): 2019 Automech Formula car expo, Egypt International Exhibition Center, Cairo.

26 December (Thursday): Central Bank of Egypt’s monetary policy committee will meet to review interest rates.

January 2020: 2019 Confederation of African Football (CAF) Awards, Albatros Citadel Resort, Hurghada, Egypt.

January 2020: UK-Africa Investment summit, London, United Kingdom.

9-12 January 2020 (Tuesday-Sunday): PLASTEX, Egypt International Exhibition Center, Nasr City, Cairo.

25 January 2020 (Saturday): 25 January revolution anniversary / Police Day, national holiday.

25 January 2020 (Saturday): Midterm break for public schools and universities. Also known as: Two weeks of good commute.

February 2020: An Italian business delegation will visit Egypt to discuss investments in the Port Said industrial zone.

8 February 2020 (Saturday): Midterm break ends. Traffic in Cairo stinks once more.

11-13 February 2020 (Tuesday-Thursday): Egypt Petroleum Show, Egypt International Exhibition Center, Nasr City, Cairo.

March 2020: The Middle East and North Africa Financial Action Task Force (MENAFATF) will visit Egypt to assess the progress of actions taken to combat money laundering and terrorist sponsoring activities.

4-5 March 2020 (Wednesday-Thursday): Women Economic Forum, Cairo.

25-26 March 2020 (Wednesday-Thursday): Mega Projects Conference, Egypt International Exhibition Center, Nasr City, Cairo.

23 April 2020 (Thursday): First day of Ramadan (TBC).

23-26 May 2020 (Saturday-Tuesday): Eid El Fitr (TBC).

5-7 May 2020 (Tuesday-Thursday): AFSIC – Investing in Africa, London, United Kingdom.

30 June 2020 (Sunday): June 2013 protests anniversary, national holiday.

November 2020: Egypt will host simultaneously the International Capital Market Association’s emerging market, and Africa and Middle East meetings.

30 July 2020-3 August 2020 (Thursday-Monday): Eid El Adha (TBC), national holiday.

19-20 August 2020 (Wednesday-Thursday): Islamic New Year (TBC), national holiday.

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