Competition watchdog greenlights Uber-Careem merger

End-of-year news slowdown? What end-of-year news slowdown? We have plenty of news for you this morning: The competition authority’s long-awaited ruling on the Uber-Careem merger is in, and it’s not going to send a chill through the market. Plus: Lots of M&A news, an end-of-year interview with EGX boss Mohamed Farid, and continued signs of borrowing by Egyptian corporations — the later promising signs that the long-predicted pickup in corporate borrowing could indeed be a theme in 2020.

Either way, bankers will get to sleep in on the first day of 2020: Banks will be closed on Wednesday, 1 January, in observance of New Year’s and will be back to work the following day, the CBE said yesterday, according to Masrawy. The EGX will follow suit, and so will Enterprise: We’re taking our annual publication holiday on 1 January and will be back the following Wednesday (8 January).

We’re weeks away from adding electricity to our East Med energy hub ambitions. The Sisi administration has for years now been positioning Egypt as the region’s premier energy hub, but with our focus on the import (and potential onward sale of) Israeli natural gas, it’s easy to lose sight that we’re also going to be exporting electricity. The first of multiple interconnections between our national grid and those of neighboring countries launches on 12 January with a 50 MW link to Sudan. We have more in this morning’s Speed Round, below.

Also coming next month: A health campaign focusing on pregnant women in Egypt. The campaign aims to detect and treat diseases in pregnant mothers prevent their transmission to unborn babies, according to an Ittihadiya statement.

Take a step into our phenomenal world & celebrate 2020 with The Lemon Tree & Co. at Somabay. Family & Friends Reunion IV, Music Festival is happening on the 29th & 30th of December and the celebration extends to NYE, December 31st where GALERIE presents a full night of elegance, admiration & laughter. For reservations: http://nye2020tlt.com/

MUST-READ FOR FINANCE NERDS- 2019 was a bad year for IPOs, leading some to wonder whether public markets are shrinking: The number of new listings fell by a fifth globally to 1,237 or the lowest figure in three years, the Financial Times reports, even as global equity markets have surged. Together, the companies raised nearly USD 190 bn, a 10% drop from last year and also a three-year low. Across the pond, some 211 companies went public in the United States throughout 2019, but only managed to raise USD 62.33 bn — nowhere near optimistic projections that this year’s IPO bounty could outpace 1999’s record of USD 108 bn, according to the Wall Street Journal. Many of those companies are now trading below the valuations they held as private companies.

What’s keeping market watchers awake: “The drop in IPOs comes at a critical juncture for public markets, which have shrunk over the past two decades, while private markets — such as private equity and venture capital — have expanded,” the FT writes. Bonus: The piece quotes market sage and Enterprise favourite Mohamed El-Erian.

Across the pond, Aramco’s debut also fell short: The long-awaited IPO of the Saudi Aramco could not live up to Crown Prince Mohammed bin Salman USD 2 tn valuation despite the efforts of the kingdom. Once public, the Saudi stock has dipped though moving up slowly recently.

Egypt saw only two IPOs in 2019, with fintech player Fawry and pharmaco Rameda listing. Egyptian companies pulled back from raising capital after Sarwa Capital’s IPO went sideways in late 2018. A global slowdown in appetite for emerging market IPOs and fears the repeatedly-postponed Aramco would suck liquidity out of the market also played a role. Meanwhile, Eastern Tobacco’s 4.5% secondary sale in March was the only one of the many sales by state-owned companies to go to market.

MEANWHILE- Some of the best returns in 2019 were in “unexpected corners of the market,” Bloomberg writes in its rundown of what USD 10k allocated to asset classes including Russia, Greece, Beyond Meat and palladium would have fared this year.

*** It’s Blackboard day: Our every Monday look at the business of education in Egypt, from pre-K through the highest reaches of higher ed, focuses this week on how light-touch regulation attracted international branch campuses to Egypt.

Uber-Careem merger gets green light from competition authority with a couple of minor caveats: The Egyptian Competition Authority (ECA) has granted regulatory approval for Uber’s USD 3.1 bn acquisition of Careem, imposing only a handful of conditions designed to “protect the rights of riders, drivers, and investors,” the competition watchdog said in a press release (pdf). The ECA says Uber and Careem have accepted the conditions, which are in effect for the first two years post-transaction. They include:

Customer protection: The ECA capped yearly price increases for UberX and Careem Go services at 10% nationwide, excluding hikes linked to cost-push inflation. The authority also imposed a ceiling on surge pricing at 2.5x the regular fare. No more than 30% of annual trips at either brand can be subject to surge pricing, which hikes the cost of a ride at times of peak demand.

Driver protection: Uber will be obliged to maintain a driver utilization rate in the range of 60-80% across both platforms. Uber has also agreed to cap its cut of UberX rides at 22.5% and of Careem Go rides at 25%.

Market entry, and “industry innovation”: Uber will have to terminate exclusivity agreements with third-party partners and intermediaries (including driver recruitment offices) to help reduce the already high barriers to entry in the ride-hailing market. The company will also need to modify Careem’s logo and marketing materials to explicitly show its link with Uber as a measure to increase transparency and lower “customer confusion.” Uber will also need to provide potential competitors and new market entrants with access to its mapping data and data aggregated from trips, as well as customer and driver data, provided they obtain the owners’ consent.

Third-party monitoring to keep Uber in check: To ensure adherence, a third-party monitoring trustee nominated by Uber and approved by the ECA will be deployed at Uber’s Cairo headquarters. Uber will be required to provide the trustee with random trip data samples to prove it’s upholding the conditions.

Adjacent markets: Neither brand will be permitted to price bus-hailing services below cost or engage in pure bundling, which is when customers are obliged to purchase more than one service or product at once.

Uber’s response: Reuters quoted an Uber spokesman as saying they welcome the decision and will be joining forces to “deliver exceptional outcomes for riders, drivers, and cities across Egypt.” Bloomberg, meanwhile, took note that the decision was taken after studying data on 270 mn trips and looking at similar Egyptian and international cases.

Swvl sees this as a positive move to keep the market competitive: The ECA's decision will help provide high-quality services to customers at competitive prices, the CEO of mass-transit app Swvl was quoted by the local press as saying.

Is this permanent? The regulations will be binding for the first two years following the merger. They can then be renewed for subsequent two-year periods, but for no more than a total of five years. The renewal will depend on the extent of Uber’s compliance (think: the relationship between good behaviour and parole). The authority could consider lifting the regulations if market circumstances change or if one or more new players grab a market share of at least 20% individually or 30% collectively

Why is the ECA doing this? The authority’s reasoning is that high barriers to entry and the length of time it takes ride-hailing companies to reach profitability means the Uber-Careem merger could be anti-competitive, resulting in more price control and declining service quality, among other factors.

Where the merger stands in other countries: Regulators in other countries in which Uber operates have taken stances in line with the ECA’s, with Qatar having recently reported to have blocked the combination of the two businesses altogether. Uber has received the greenlight to proceed in the UAE and Jordan.

Look for more from other jurisdictions as the transaction closes as early as January: The ride-hailing giant stands to lose up to USD 470 mn on the USD 3.1 bn price tag if it doesn’t obtain all the necessary passes. It has, however, previously signalled its readiness to divest from any market that doesn’t play along.

Background: Upon receiving a formal notification of the acquisition agreement, the ECA — a long-time critic of the merger — launched an investigation and went as far as to design an internet poll to assess the merger’s effect on the ground. The authority said at the time that the agreement could be a “significant” impediment to competition. Under the acquisition agreement that was reached in March, Uber and Careem will maintain operational autonomy even as Careem becomes a wholly-owned subsidiary of Uber.

IN RELATED NEWS- The competition authority still wants to expand its powers under the Antitrust Act, ECA Chairman Amir Nabil said at a presser following the announcement of the Uber-Careem agreement, according to Masrawy. The amendments, which have been in the works since the authority was led by Mona El Garf, would give the ECA teeth and scope comparable to global antitrust agencies, an ECA official previously told Enterprise. El Garf had said that the amendments would also require ECA approval for any merger or acquisition worth more than EGP 100 mn. Nabil did not specify a timeline for the amendments, which would requires signoff by the House of Representatives.

Saudi Aramco’s IPO has had no direct impact on the EGX, exchange boss Mohamed Farid said at a symposium organized by Youm7 to discuss raising listings on the bourse. Aramco had only an indirect impact by changing companies’ relative weight in global market indices such as the MSCI Emerging Markets Index. The remarks downplayed the impact of Aramco’s on-again, off-again, on-again IPO in a year that saw the EGX attract just two new listings. Public Enterprise Minister Hisham Tawfik directly pointed to Aramco, which pulled significant liquidity from regional markets in the run-up to its listing, as one reason Egypt was postponing some transactions under its privatization program. A program to sell stakes in already-listed companies has been dormant since March, when Eastern Tobacco sold a 4.5% stake on the EGX. Meanwhile, state-owned Banque du Caire and ENPPI, long expected to IPO, each delayed their offerings this year, with BdC now scheduled to kick off a roadshow in early 2020.

Background: Farid’s comments come as Egyptian equities are struggling to attract interest, as reflected in low trading volumes and a dearth of IPOs, analysts told Reuters’ Arabic service earlier this month.

Why are volumes so low? Shares worth just EGP 268 mn changed hands on the bourse yesterday, 61% below the trailing 90-day average and well off the EGP 1 bn or so that was considered an “acceptable’ figure last year. Meanwhile, the EGX30 is up just 6% for the year. Farid says it has a lot to do with the relatively few names on offer on the EGX, pointing out, too, that the exchange has seen a number of delistings this year as a result of both acquisitions and listing regulations.

The EGX is headhunting new listings: According to Farid, the EGX is actively looking to bring new listings to the bourse by directly contacting 235 companies to look into potentially listing on the EGX. Out of those, 14 companies have begun to study the feasibility of listing on the EGX. However, 67 companies said that they would consider listing but that now isn’t the right time to pull the trigger. Another 81 outright said they were not interested, while the rest were on the fence about listing.

IPO WATCH- Three sports clubs looking to debut on the bourse? The EGX is currently working with three clubs, Misr El Makasa, FC Masr, and Wadi Degla SC, to prepare for potential listings. The EGX is trying to attract sporting clubs to IPO in light of the Sports Act being amended to allow clubs to be put on the stock exchange.

Farid is encouraged by plans to bring military-owned companies to the EGX: President Abdel Fattah El Sisi has twice mentioned the possibility of listing military-owned companies on the bourse, most recently saying last week that the move would ensure the participation of all sectors in the economy. Farid lauded the prospect of having military companies on the EGX, which he said would send a strong message on their willingness to be fully transparent and adhere to global corporate governance laws. The EGX boss was otherwise mum on the plans, but hinted that things are moving along.

M&A WATCH- EFG, GEMS JV acquires majority stake in Egypt’s Option Travel: GEMS Egypt for Education Services, a joint fund between EFG Hermes’ Egypt Education Fund and Gems Education, has completed the acquisition of a majority stake in leading transportation provider Option Travel, EFG said in a press release (pdf). There was no mention of the transaction’s value or the exact size of the stake. The proceeds raised the company’s capital to finance its core activities, and will be used to launch at a later stage a transport service provider specialized in catering to students, primarily those enrolled in the fund’s schools. GEMS Egypt, which was established in 2018, is focused on K-12 education in Egypt. Its investments in Egypt’s education sector are expected to reach USD 300 mn by 2023.

M&A WATCH- FRA grants Pioneers Holding 10-day extension for MTO: The Financial Regulatory Authority (FRA) has extended by 10 business days Pioneers Holding’s deadline to present its mandatory tender offer (MTO) to raise its share in five of its EGX-listed subsidiaries to 90%, the FRA said in a statement (pdf). The extension was granted because Fincorp, is still working on the fair value assessment, the statement added.

Background: Pioneers Holdings’ board of directors had agreed to make non-cash mandatory tender offers in early October. The company hired UHY United as a financial advisor and Baker McKenzie as legal advisor for the potential transaction. The company plans to restructure into three companies: Pne in financial services, the other in real estate, and another in the industrial sector after completing transactions. CEO Walid Zaki had said earlier that the company intends to complete the process by the end of this year.

M&A WATCH- Regional PE firm AfricInvest set to acquire small stake in Masria Cards: Private equity firm AfricInvest is reportedly close to acquiring a minority stake in smart card supplier Masria Cards, Al Mal reports, citing sources close to the matter. The newspaper didn’t specify the size of the stake eyed by the Tunisia-based investment outfit and suggested that EFG Hermes is acting as sell-side financial advisor. According to Al Mal, this will be AfricInvest’s second investment in the country after recently acquiring a stake in Carbon Holdings. Masria Cards, meanwhile, was a Nilex-listed company until it decided to voluntarily delist its shares in 2015. When it last made a bourse filing in that year, it had EGP 10.8 mn in capital and c.EGP 10.5 mn in half-yearly earnings.

DEBT WATCH- Sodic subsidiary signs EGP 1 bn medium term facility with CIB: Sodic subsidiary Soreal for Real Estate Development signed a EGP 1 bn medium term facility with CIB to partially finance Sodic’s first non-residential offering in East Cairo EDNC, the company said in a press release (pdf). EDNC is a commercial and retail complex built on a total area of 90k sqm in New Cairo and has been designed in a way that reduces the carbon footprint. “We are very happy to collaborate with CIB again and especially for financing EDNC. The signing is a testament to the strength of the relationship with CIB and the banks trust in the company and its vision for this unique project,” Sodic’s Managing Director Magued Sherif said.

This comes as Sodic has recently signed an escrow contract for its 500-feddan development in New Zayed with the New Urban Communities Authority (NUCA). The first phase of the project is Vye which saw the company sell EGP 1 bn-worth of homes in the neighborhood two days after the sale was launched.

DEBT WATCH- AIH’s Rawaj closes EGP 295 mn securitized bond sale: Arabia Investments Holding (AIH) auto loan-focused subsidiary Rawaj Finance has closed a EGP 295 mn securitized bond issuance through AIH’s securitization SPV, AIH said in a press release (pdf). The proceeds will be used for onlending. CIB and the Arab African International Bank acted as lead managers, co-underwriters, and financial advisors. Dreny & Partners Law Firm was tapped as legal counsel.

Oil Ministry announces Red Sea bid round results: The Oil Ministry has awarded oil and gas exploration concessions to each of Chevron, Shell, and the UAE’s Mubadala in a bid round for blocks off the Red Sea coast, the ministry said in a statement (pdf). One block went to Chevron, another to Shell, and a third jointly to Mudabala and Shell. The total exploration area is close to 10k sqm, and will require a minimum investment of USD 327 mn that could increase to several bns in the development phase if discoveries are made. Reuters also took note of the story.

Background: The South Valley Egyptian Petroleum Holding Company (Ganope) launched last March a tender for 10 oil and gas exploration blocks off the Red Sea coast. This was the first time oil and gas majors get the chance to tap the area, which earlier seismic scans have revealed has a high probability of seeing natural gas discoveries — particularly since its seafloor resembles the gas-rich terrain of neighboring Saudi Arabia. The tender was expected back in December but was delayed just long enough to take place under new production sharing contracts that took effect earlier this year.

Shell Egypt looking to liquefy Cypriot gas domestically: Shell Egypt is looking into potentially importing natural gas from Cyprus and liquefying it at one of Egypt’s liquefaction facilities, Deputy Chairman Moataz Darwish tells Al Mal. Darwish was otherwise tight-lipped on the details of the plan, including the expected investment value and timeline, but reminded the newspaper that Shell holds 35% of Cyprus’ Aphrodite gas field. Egypt and Cyprus had signed in September last year a USD 1 bn agreement to build a natural gas pipeline that will allow gas from Aphrodite to be transported to Egypt’s liquefaction facilities at Idku and Damietta, and re-exported as liquefied natural gas.

On a related note, it now costs less to use the national gas grid: The Gas Regulatory Authority cut the fees for using the National Gas Network by about USD 0.09 cents, to USD 0.29 per mmbtu, down from USD 0.38, according to Al Shorouk.

Egypt and Sudan will finish linking up their electricity grids on 12 January, sharing an initial 50 MW worth of capacity, Reuters cites state news agency MENA as having said yesterday. The project reportedly cost EGP 509 mn and spans 1,000 km. The grid interconnection project has been in the pipeline for years, but was reportedly delayed by political upheaval in Sudan earlier this year and complications from discussions over the Grand Ethiopian Renaissance Dam (GERD).

It will be the first of many interconnections as Egypt looks to become a power hub: Egypt is finalizing a similar agreement with Saudi Arabia, which is due to be signed in May 2020. The project was initially planned to cost USD 1.6 bn, of which Egypt would pay USD 600 mn, and was originally expected to span 16 km, but plans to extend the grid’s length to 25 km have upped costs by 30%, we reported previously. It is expected to be operational by 2022. Meanwhile, a USD 4 bn EuroAfrica project to connect the electricity grids of Egypt, Cyprus, and Greece is scheduled for completion by December 2022, we reported in February. Whether Electricity Ministry concerns over implementation costs, expressed in late 2018, have delayed the Cyprus project remains to be seen.

The government expects to add 170k Takaful and Karama beneficiaries in the coming period, Nivine Kabbag said at her first press conference as social solidarity minister, according to Masrawy. This will bring the number of beneficiaries of the cash subsidy programs to 3.4 mn families, or approximately 14 mn individuals. The ministry still needs to flush out those ineligible for subsidies (whom we here at Enterprise fondly refer to as ‘Kramers’) for this to move forward, Kabbag added.

As far as we know, purging the Kramers can only happen after passing the Cash Subsidies Act, an in-the-works legislation that Kabbag separately mentioned during the presser. The minister didn’t provide an update on the status of the law, which is essentially an ongoing bid to legislate a new system for all of Egypt’s cash subsidy programs, including adding new conditions to be eligible for social welfare. The bill would require authorities review the subsidy rolls every three years and scratch off those found ineligible. Last we heard, the ministry had finalized drawing it up, but it is yet to receive a nod from cabinet, and subsequently from the House of Representatives. It was first announced last summer.

Several Egyptian political parties took part in a second round of public consultations focused on election laws yesterday, as the countdown to parliamentary elections at the end of 2020 begins, Ahram Online reports. The talks, which follow a first round of talks held in early December, are being spearheaded by the Mostakbal Watan party, which since May 2018 has held the largest number of seats of any party in the House of Representatives. The conversations were expected to focus on laws regulating the parliamentary elections, the performance of the House of Representatives and the Senate, the exercise of political rights and redrawing of electoral districts. The hope is that a consensus on the electoral system will be reached, and then applied in the coming elections, said leader of the Support Egypt majority coalition Abdel Hadi El Qasabi.

What are the sticking points so far? In the first round of conversations, several opposition parties said they wanted to see the adoption of a proportional list system, rather than the closed list system, in electing the House of Representatives and the Senate; that they did not want the security services to take part in supervising the election; and that all political bodies should have fair and equal coverage by national media, Mostakbal Watan party head Ashraf Rashad told Ahram Online. These first discussions saw representation from high-profile political parties, including the Reform and Development party and the Egyptian Democratic Socialist party.

MOVES- Prime Minister Mostafa Madbouly appointed former administrative development minister Hani Mohamed Mahmoud as an advisor to the prime minister on administrative reform, according to Al Shorouk. Mahmoud would assume supervision of government restructuring and digitization in preparation for the move to the new administrative capital. Mahmoud was previously head of Egypt Post and of Cabinet’s Information and Decision Support Center, and was also previously CIT minister.

Making It is on hiatus until January 9, but you can catch up on season one. Previous guests on our show about how to build a great business right here in Egypt have included:

• Jalal Abugazaleh, founder of Gourmet Egypt
• Karim El Sahy and Abeer El Sisi from high-profile AI startup Elves
• Karim Awad, group CEO of EFG Hermes
• Fatma Ghali, Managing Director of Azza Fahmy
• Hazem Moussa, co-founder and CEO of Sarwa Capital

The episodes are available on our website | Apple Podcast | Google Podcast.

Still generating coverage in the foreign press: The two bus crashes that took place on Saturday near Port Said and Ain Sohkna, with plenty of stories out in the local Indian and Malaysian media in particular. A total of 28 people were killed in the two crashes, Deutsche Welle reports, including several Indian and Malaysian tourists.

Expect this to shift the conversation today: French investigators have reportedly found EgyptAir guilty of “maintenance and safety lapses” that led to the 2016 crash of a flight en route from Paris to Cairo, confidential documents show, according to the Wall Street Journal. The plane reportedly had “serious mechanical errors” on the five flights prior to the crash, but these errors were allegedly not addressed by maintenance staff. According to the documents, there was an oxygen leak in the plane’s cockpit and a fire “likely disabled the plane.” The journal notes that Egyptian authorities had said the crash was a result of a terrorist act.

Is global meat consumption set to peak, amid health and environmental concerns and sustainability issues? Meat consumption may have peaked globally, as increased strain on resources — including land and water — and growing health and environmental concerns will increasingly prompt consumers to eat less meat and seek alternative sources of protein, whether through choice or necessity, the Financial Times reports. Both the US and Europe are expected to hit a high point of meat consumption in 2020, which will then plateau over the next decade, OECD data suggests. Meanwhile, a report by consultants AT Kearney predicts a low global growth rate of around 3% per year in the coming decades, with meat from livestock becoming a niche product. This is likely to spur the growth of companies producing meat substitutes, including those made from plant proteins. The USD 1.2 tn livestock meat market is likely to change substantially, with investors increasingly aware of the business risks in the high carbon animal agriculture industry.

The impact on emerging markets, including Egypt, is likely to be felt more slowly than elsewhere, but some may embrace the new trend: Nutrition professor Barry Popkin predicts that it will take time before these changes are felt in EMs, where there is less of a narrative linking meat, health concerns, and climate change than in the US and Europe, and where eating meat is often seen as an indicator of affluence. Egypt’s beef consumption in 2020 is expected to reach 720k tonnes, up by 3.5% from the previous year, according to the US Embassy’s Foreign Agricultural Service (FAS) annual report on livestock and products (pdf). This is being driven by population growth, the continued influx of refugees, and an increase in tourism. However, other EMs seem to be warming up to reduced meat intake, with products from alternative meat producer Beyond Meat now available at several restaurants in Dubai and Abu Dhabi. And while China, which accounts for almost a third of the total meat eaten globally, is still seeing a rising demand for meat, this growth is expected to slow before 2030, due to health concerns (including high obesity levels) and increased awareness of the link between diet and health, a 2018 OECD/FAO report says.