The GCC scramble for Egypt: Bank ABC in for Blom Egypt as Emirates NBD eyes Bank Audi

Good morning ladies and gents: We never like to kick off the issue with a grovelling apology, but when we mistakenly dispatch an issue marked ‘Test’ — thereby throwing most of our readership into confusion — it is only right that we preface this morning’s edition with a mea culpa. We are sorry for yesterday’s mix-up.

And sticking with that theme — the 72-hour PCR test rule is still in effect as of today: Yesterday we picked up a statement from the US embassy that claimed that from 1 September all inbound travellers would need to take a PCR test no earlier than 48 hours before arrival, rather than 72 hours as has been the standard. We have learned that this information was incorrect and have updated the story on our website accordingly.

Tomorrow, Egyptian nationals will join foreigners in needing to present a negative PCR test upon arrival.

Details on the establishment of the EGP 100 mn commodity exchange (Egycomex) will be announced on Thursday, Supply Minister Ali El Moselhy said in a statement. There are a number of lingering questions on the exchange that we’re hoping will be addressed on Thursday:

• When trading will begin: It is unclear yet whether trading in the exchange will start in September as sources revealed to the local press back in January.
• Ownership of the exchange: 49% of the exchange will be held by a combination of private, state and quasi-state entities, according to past statements by Moselhy. The EGX has staked its claim on 30% of the exchange, according to EGX Chairman Mohamed Farid.
• What commodities will be traded: The exchange was expected to initially trade in six commodities: wheat, rice, corn, potatoes, onions, and oranges.

We’re expecting that UAE-led USD 2 bn covid-19 loan to come in at some point this week: The USD 2 bn Emirates NBD and First Abu Dhabi Bank (FAB)-arranged loan requested last week to plug government financing gaps is reportedly going to be disbursed to the Central Bank of Egypt (CBE) at some point this week, Al Mal reports, citing an unnamed source at the Finance Ministry. The FinMin has reportedly met all conditions required of the lenders to receive the loan, and the funds will be paid as soon as parliament gives the go-ahead. The two UAE banks are leading a consortium of 12 financial institutions that include Mashreq, HSBC, Citibank, Sumitomo Mitsui Banking Corporation and ABC Bahrain.

Other key news triggers coming up in the next two weeks:

• PMI figures for August will land on Thursday, 3 September;
• Foreign reserves figures should be out early next week;
• Runoff elections for Senate seats are scheduled for 8-9 September. Look for final results on the 16th;
• Inflation data for August should be out on or around Thursday, 10 September.

The Health Ministry reported 230 new covid-19 infections yesterday, up from 212 the day before. Egypt has now disclosed a total of 98,727 confirmed cases of covid-19. The ministry also reported 23 new deaths, bringing the country’s total death toll to 5,399. We now have a total of 72,120 confirmed cases that have fully recovered.

Travellers arriving to Hurghada, Sharm El Sheikh, Marsa Alam and Taba airports will be able to get a PCR test for USD 30 starting from tomorrow, the Civil Aviation Authority announced yesterday.

Israel’s Health Ministry has given the OK to reopen the Taba border crossing, provided those entering the Jewish state from Sinai quarantine for 14 days, the Times of Israel reports. The border has been closed since April because of the covid-19 pandemic.

The EGX is looking to be the third best performer in MENA in August, with many of the region’s major indices heading for their best monthly gains since April, reports Bloomberg. The EGX is so far up 7.9% in August, trailing only behind Dubai and Kuwait. Dubai’s DFM General Index is leading the region, surging 10.3% so far this month. The rebound in stock prices comes as investor optimism for a covid-19 vaccine grows and oil prices continue to rise from their historic lows in April.

The benchmark gauges of Saudi Arabia and Qatar also clocked in gains. Saudi’s benchmark Tadawul index is up 7% since the start of the month while the Qatari exchange is up 5.9%. The Israeli exchange has been the region’s worst performer, up just 2.1% since the start of the month.

Gains are likely to continue: “Equity markets are likely to continue their upward trend, encouraged by liquidity packages being rolled out by central banks and hopes of potential vaccines to treat covid-19,” said Iyad Abu Hweij, managing partner at Allied Investment Partners PJSC in Dubai.

Also from MENA: Bahrain plans to tap the USD debt market to tackle its growing budget deficit, Bloomberg reports, citing people familiar with the matter. The GCC country could sell a mix of conventional bonds and Islamic sukuk in a “benchmark-size” issue that would typically be worth at least USD 500 mn. The sources didn’t provide a timeline for the plan, it would follow a USD 5 bn three-part offering completed by Abu Dhabi last week.

Dubai is also considering the sale of Islamic bonds in USD, Bloomberg reports, citing unnamed sources familiar with the matter. The Gulf emirate is in talks with banks and has sent a request for proposals for a benchmark sukuk, but has not made a final decision on whether to go ahead with the offering.

Saudi, Abu Dhabi set the precedent: Issuance by Bahrain and Dubai would follow other Gulf states that have sought to capitalize on the strong appetite for USD bonds in order to plug gaps in their finances. Abu Dhabi marketed a triple-tranche USD bond offering that is expected to reel in USD 5 bn, while Riyadh raised USD 7 bn in a three-tranche issuance in April.

Global cases of covid-19 have breached the 25 mn mark with the US, Brazil and India far outpacing all other countries in the total number of recorded cases of covid-19 to date. India reported on Sunday the highest single-day increase since the outbreak of the pandemic with 78,761 new cases reported, Reuters reports. India has been driving much of the growth in new infections since 7 August, but Latin America remains the region with the largest case count and the US the single biggest contributor to global cases, with nearly 6 mn infections to date.

FDA head is open to bypassing regular approvals for a US-made vaccine: Head of the US Food and Drug Administration (FDA), Stephen Hahn, is reportedly looking to speed up development of a covid-19 vaccine suggesting that drug manufacturers who apply for FDA authorization before the conclusion of Phase Three trials may be found “appropriate” by the administration in the interest of a public health emergency, he said in an interview with the FT yesterday. Phase Three trials are typically the most stringent round of tests on a new vaccine, and have in recent months been shirked by Russia and China, much to the chagrin of healthcare experts who voiced concerns over safety. Hahn also denied that the FDA’s decision was politically motivated to benefit the Trump administration in the run-up to the November presidential election.

Israel-UAE normalization signing ceremony in mid-Sept: Israel is planning to hold a signing ceremony for its normalization agreement with UAE in Washington by mid-September, according to Reuters. The final date could be decided later today when Israeli and US officials meet in Abu Dhabi for talks.

Walmart links up with Microsoft for joint TikTok bid: Microsoft has teamed up with Walmart to offer a joint bid to acquire the US operations of Chinese video-sharing app TikTok, according to Bloomberg, citing people familiar with the matter. The two firms are competing against Oracle — and perhaps Twitter — for an agreement that could be signed within the week.

China is trying its best to scupper the sale: China updated it’s export controls over the weekend to ensure that TikTok owner ByteDance must be granted government approval before an agreement is signed, a move that can potentially jeopardize the sale, according to The Wall Street Journal. ByteDance also filed a lawsuit against the US government last Monday that challenged President Donald Trump’s executive order to ban the app.

NMC administrators say company needs to exit Saudi: Administrators to embattled Emirati healthcare provider NMC are looking to sell the company’s Saudi Arabian ventures, which it launched last year, reports Arab News. The Saudi arm has been judged as “non-core,” administrators Alvarez & Marsal told creditors in a recent presentation. NMC was forced into administration by a UK court earlier this year amid allegations that it had cooked its books. NMC’s assets in Saudi include a 53% stake in Saudi Medical Care Group, which in turn holds 49% in the Tadawul-listed CARE.

Former Bank of England governor Mark Carney will join Brookfield Asset Management to head its impact investing team, the Financial Post reports. Carney joins the investment firm, which currently has USD 500 bn AUM, as it tries to scale up its investments in environmental and social investing to rival its real estate, private equity and infrastructure businesses.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: What happens when an exam algorithm goes rogue? We look at the recent IGCSE controversy that saw thousands of students awarded exceptionally low grades for their summer exams thanks to an algorithmic malfunction.

Presenter and commentator Amr Adib has wrapped up his summer break and will be back on air on Friday with his weekday talk show El Hekaya on MBC. Until then, Ahmed Moussa still had the airwaves mostly to himself:

Building violations on agricultural land: Ala Mas’ouleety’s Ahmed Moussa spoke with Sayed Khalifa, the head of the Agricultural Syndicate, who discussed the work the Agriculture and Land Reclamation Ministry is doing to confront those illegally building on agricultural land. He said that President Abdel Fattah El-Sisi is the first president to address the problem of encroachment on these lands. Khalifa said that every feddan of agricultural land used for construction uses three times the amount of water it previously consumed as farmland. Every day Egypt loses 82 feddans of land, affecting the livelihood of 2k people, he said, noting that more than 1.2 mn feddans have been registered as encroached upon agricultural land (watch, runtime: 23:23).

State’s water treatment and desalination efforts: Moussa spoke with Vice Housing Minister Sayed Ismail, who spoke on Housing Minister Assem El Gazzar’s announcement that the government plans to invest EGP 134.2 bn in seawater desalination plants by the middle of the century (watch, runtime: 6:32), (watch, runtime: 6:25), (watch, runtime: 3:30). We have more coverage of the state’s investments in desalination plants in today’s Speed Round below.

State of the Suez Canal economic zone: Al Hayah Al Youm’s Lobna Assal spoke with Mohamed Yahya Zaki, the head of the Suez Canal Economic Zone, who said that he had discussed with President Abdel Fattah El Sisi the current challenges to drawing new investments in light of covid. They reviewed the performance of the zone’s six ports, and talked about possible incentives and regulatory amendments to help improve the current business climate (watch, runtime: 6:26).

Pros and cons of a brain chip: Al Hayah Al Youm’s Lobna Assal spoke with security expert Mohamed El Gendy to discuss the security implications of Elon Musk’s Neuralink brain chip. They discussed the potential for breakthroughs in treating physical conditions such as dementia, Parkinson’s and spinal cord injuries (watch, runtime: 8:20).

M&A WATCH- The GCC scramble for Lebanese banks continues as Bank ABC enters race for Blom Bank’s Egypt assets: Bahrain’s Arab Banking Corporation (Bank ABC) is reportedly competing with Emirates NBD to acquire Blom Bank’s Egypt assets, Hapi Journal reports, citing sources close to the talks. Bank ABC is interested in growing its presence here by adding the Lebanese bank’s assets to its Bank ABC Egypt operations, the sources said. Blom confirmed earlier this month it is looking to sell its Egypt assets as its home country suffers its worst economic crisis in decades. The Central Bank of Egypt greenlit its request to kick off a due diligence process on a transaction that could be valued at USD 250-300 mn. Emirates NBD was the first name to emerge as an interested party, but Blom had approached several potential suitors alongside the Dubai-based financial institution.

Emirates NBD is also reportedly interested in purchasing the Egypt assets of Bank Audi, another financially stressed Lebansese bank, the local press reported yesterday, citing sources in the know. Again, NBD’s interest comes from a desire to expand its footprint in Egypt by adding Audi’s assets to its own Egypt branch, the sources said, adding that the acquisition could close as early as October. Bank Audi recently denied that it’s engaged in any acquisition talks after negotiations with First Abu Dhabi Bank (FAB) broke down in May due to the pandemic.

Gulf-based banks have been particularly interested in Egypt over the past few years. Egypt’s favorable interest rate climate, the relatively small market capitalization of some of the country’s largest banks compared to emerging market peers, and a largely unbanked population are all draws for international investors, we noted back in January. GCC countries, by contrast, have smaller populations, with the region tending to be “overbanked.”

GCC bankers first saw an opening when a handful of European banks exited Egypt and other emerging markets following tougher regulations under the 2009 Basel III accords, which limited many established banks’ ability to take risks using depositor money coming from their home countries. And as acquisitions are the only way into Egypt’s banking sector, prominent GCC names including Qatar’s QNB AlAhli (previously National Societe General Bank) and Al Ahli Bank of Kuwait (previously Piraeus), as well as other large banks from Arab and neighboring countries, were able to take advantage of this and buy out the existing European banks.

Egypt had a good year in 2019 for natgas exports and renewables, according to BP: Egypt’s natural gas exports more than doubled to 4.5 bn cbm in 2019, up from 2 bn cbm in 2018, BP said in its annual Statistical Review of World Energy (pdf). The report said that 1.7 bn cbm were exported to Europe, while Asia and South Pacific countries received 2.7 bn cbm, led by Pakistan which imported 900 mn cbm. Overall gas production increased slightly during the year to 64.9 bn cbm, up from 58.6 bn cbm in 2018, its highest level in more than a decade.

Renewable power generation almost doubled in 2019, leaping by 82.7% compared to a year earlier to reach 6.5 terawatt hours (TWh) – a considerable spike above the average increase of 14.3% over the past decade. A surge in solar generation was primarily responsible for the increase, rising almost 145% to 3.7 TWh in 2019 from just 1.5 TWh in 2018. Meanwhile, wind generation grew by more than a third to 2.8 TWH, from 2.0 TWh in the previous year.

Consumption of hydrocarbons dips: Oil consumption fell 1.8% to 743k bbl/d as production slid 1.9% to 686k bbl/d. Gas consumption also dipped 1.1% to 58.9 bn cbm despite production rising almost 11% to 64.9 bn cbm.

The increasing role of renewables in Egypt’s energy mix is reflected in the declining carbon emissions, which fell 1.7% to 217.4 mn tonnes in 2019. This is a marked reversal of a trend spanning the last decade (2008-2018), which saw emissions creep up by an average 2.6% each year.

Electricity generation capacity glut forces companies to think smaller on solar: Qalaa Holding’s TAQA Arabia will be focusing on small-scale solar projects to the tune of 2-10 MW in Egypt for the next two years, as the government slows down reliance on renewables amid a production glut, the company’s project director Mohamed Osama said at a webinar hosted by EQ Magazine and the Middle East Solar Association, Zawya reports. “The growth will be in rooftop projects for industries, commercial buildings, hotels, small domestic projects and for off-grid agricultural projects in the 5-15 MW range," he said.

A glut in generation capacity caused the change in direction: Under current conditions, TAQA aims to install just 50-60 MW of capacity each year, a quantity which still might not be achievable given that Egypt has rapidly shifted from an electricity shortage to a 15-GW surplus, Osama says. “Egypt has 50 GW of generation capacity and the consumption is only around 35 GW. The government has limited the solar net metering capacity to 500 MW. For the next two years even reaching 50-80 MW is very optimistic for us," he said. This supply glut has already pushed Egypt to scrap at least a couple of renewable energy projects and impose a 50 MW cap on other projects it currently has in the pipeline, the Electricity Ministry’s spokesman Ayman Hamza told us in June.

And TAQA isn’t the only one: You can expect investment in renewables to slow down substantially for the next 18-24 months, the CEO of a prominent renewable energy company told us on condition that they remain anonymous. “This mainly hits solar companies looking to invest in large-scale projects,” they said. The limitations and fees mean new stations are going to be small in the interim — effectively capped at 20-60 MW.

In other Qalaa news, the company continues its divesting plan, disposing 3 mn shares it held in ASEC Mining: Qalaa Holding sold 3.1 mn shares it held in ASEC Mining for EGP 25.26 mn, bringing its stake in the company down to 54.05% from 61.323%, according to a regulatory filing (pdf) Qalaa had embarked on a divestment plan back in 2015 to dispose of non-core assets across its footprint to focus on core business units including the Egyptian Refining Company and TAQA. Pharos Holding was the sell-side advisor for the ASEC transaction.

Egypt is investing some EGP 134.2 bn through 2050 to build seawater desalination plants that would give us 6.4 mn cbm/d of potable water, Housing Minister Assem El Gazzar said in a statement. The plan spans over six five-year phases, the first of which will see the government investing EGP 45 bn to build 47 desalination plants by 2025, he said, noting that 19 desalination plants that would output 550k cbm/d are already under construction in several governorates, including Sinai, Port Said, and Dakahlia. The new facilities would join 65 existing plants that produce 800k cbm/day. The ministry is also investing EGP 20 bn in two water treatment plants to re-use agricultural wastewater that could provide 6.6 mn cbm/day, which would be sufficient to water 460k feddans.

DEBT WATCH- Naguib Sawiris’ Ora Developers is looking to issue bonds and take out more loans to finance its real estate projects, the b’naire told Hapi Journal, without specifying how much the company wants to raise or the type of debt securities it will use. Ora already acquired a EGP 1 bn loan from Banque Misr earlier this year to finance the construction of the first phase of its ZED Sheikh Zayed project. Other future plans include an investment of up to EGP 30 bn in a 1k-feddan project on the North Coast that Ora is waiting to acquire land for, Sawiris said.

Real estate sector still experiencing lagging slump in demand: House prices are unlikely to rise in the coming months as the sector continues to feel the effects of the covid-19 pandemic, Sawiris said. Despite seeing recent improvements in the sector, he said that sales volumes remain below their pre-covid levels.

M&A WATCH- Is IMEX International’s acquisition of Nile Cotton Ginning stumbling? Energy trading company IMEX International’s offer to acquire 50% of Nile Cotton Ginning has been plunged into uncertainty after majority shareholder Samir Afifiy and associates who collectively own 13% of the company refused IMEX’s offer price, unnamed sources told Al Mal. IMEX told the Financial Regulatory Authority last week that it would submit a mandatory tender offer for the company at EGP 50/share, a move which Afifiy described as “hostile,” and pledged not to accept any offer below EGP 70. Meanwhile, the workers’ union, which holds 7.06% of the company believes that the bid is suitable, given that the latest offer they received priced the shares at EGP 49 apiece, the sources said.

Advisors: The company has appointed EgyTrend as its financial advisor on the transaction.

Background: The company has been mired in a decade-long dispute that arose after a court ruling in 2011 to reverse the company’s Mubarak-era sale to private investors. The ruling nullified the privatization claiming that the company had been undervalued. An appeal was turned down in 2013 by the Administrative Court. The government’s investment dispute resolution committee reached a settlement agreement with the company that will see Nile Cotton pay EGP 231.1 mn to the Holding Company for Construction and Development. The agreement came as Nile Cotton’s shareholders were looking to reach a settlement in the hope of resuming trading the company’s shares on the EGX after an eight-year hiatus.

Corrected on 31 August 2020

Updated the homepage link for EgyTrend.

STARTUP WATCH- On-demand food booking startup Ordera has raised a six-figure USD investment from Alex Angels, Saudi venture capital fund VC Daal and AUC Angels, Menabytes reports. The company’s mobile app provides users with a food delivery platform where they can pre-order and prepay for meals from food vendors. Ordera has so far inked agreements with some 150 food outlets and has its sights set on expanding its retail partners and users to Alexandria in September with the new funds, according to co-founder and CEO Karim Abdel Kader.

EARNINGS WATCH- Abu Qir Fertilizers saw net profits decline 0.1% y-o-y in 4Q FY2019-2020 to EGP 560 mn, down from EGP 561 mn last year, according to a company earnings release (pdf). Revenues fell 1% y-o-y during the period to EGP 2.74 bn from EGP 2.9 bn last year.

MOVES- Sherif Seif El-Din Hussein appointed advisor to Madbouly on corruption : Former Administrative Control Authority (ACA) head Sharif Seif El-Din Hussein was yesterday selected to advise Prime Minister Moustafa Madbouly on corruption, according to a cabinet statement.

Topping coverage of Egypt in the foreign press: Wire pickups of the arrest of a second suspect allegedly involved in the 2014 Fairmont Hotel [redacted] case and the detention of three others being held in Lebanon are leading the conversation this morning (Reuters | AP).

It turns out that pre-Nasr Egypt seriously backed the idea of a dam on the Blue Nile. The Egyptian government proposed in 1946 a joint project with Ethiopia to construct a dam near the source of the Blue Nile, only for Addis Ababa to roundly reject the idea. That’s according to documents declassified by the British government seen by BBC Arabic.

The “Kings of the Sun” exhibition of ancient Egyptian artifacts is getting coverage in Al Monitor ahead of its opening in Prague today.

Foreign Minister Sameh Shoukry met with deputy head of the United Nations Support Mission in Libya Stephanie Williams to discuss efforts to reach a political solution to the conflict in Libya, a Foreign Ministry statement said on Sunday. Shoukry stressed the importance of Libya’s warring parties abiding by a ceasefire to safeguard the country's resources according to the roadmap laid out in the Cairo Declaration.

This came a day after the UN voiced concerns about a “dramatic turn of events” in Libya that saw an internal power struggle between senior figures in the Tripoli-based government brought out into the open, the Associated Press reports. The UN Support Mission called for a “return to a full and inclusive political process” after Prime Minister Fayez Al Serraj suspended and ordered an investigation into his interior minister following anti-corruption protests.

Egypt should review its trade agreements and scrap those that don’t provide benefits, the head of the House industry committee and Faragalla Group, Mohamed Farag Amer, told the local press. He said that Egypt has not witnessed any significant increase in its exports — hovering around the USD 20-25 bn mark — over the past 10 years, and has exposed local industry to unfair competition with foreign firms. He did not provide details on which agreements he believed were detrimental and should be subject to review.