Investors snap up Egypt’s maiden USD 750 mn green bond issuance

Good morning, wonderful people. A quick programming note to get us underway this morning:

We’re delighted to announce that Making It, our podcast on how to build a great business in Egypt, is back for season number three. Episode one debuts on Thursday, 8 October — just in time for the long weekend, with new episodes each week thereafter. Making It is brought to you in association with our friends at CIB and USAID.

As you might figure, covid-19 plays heavily in this season, starting with the fact that most of our guests joined us remotely instead of in our studio. Guests this season do everything from food and fintech to retail, healthcare and professional services — so no matter what business you’re running (or might want to start), we have someone for you.

Tap or click here to listen to this season’s trailer on our website | Apple Podcasts | Google Podcasts.

Want to catch up on episodes you missed from past seasons? They’re all on our website, or you could just start with:

• Jalal Abu Gazaleh, CEO of Gourmet Egypt
• Omar Hagrass, co-founder and CEO of Trella
• Karim Awad, Group CEO of EFG Hermes
• Tarek Assaad and Karim Hussein, Algebra Ventures managing partners
• Mohamed El Kalla, CEO of EGX-listed education company CIRA
• Hani Berzi, CEO of snackfood giant Edita
• Lina Mowafi, co-founder of TAM Gallery

Catch up on past episodes and listen to the next season here: Our Website | Apple Podcasts | Google Podcasts

As of today you are no longer able to send cash and cheques through the mail after the National Post Authority yesterday announced tough new anti-money laundering measures, El Watan reports.

EFG Hermes’ virtual investor conference wraps up tomorrow. You can visit the conference website here.

The election authority is out with a video explaining how Egyptians abroad can vote by mail in the upcoming House elections (watch, runtime: 4:51). Expats have until 10 October to register to vote, with polling taking place in waves from starting 21 October through 6 November. Step one: You’ll need to visit the National Election Authority’s website to register. Check out our calendar at the end of today’s web edition for a rundown on which governorates vote when.

The House of Representatives will reconvene for the sixth and final legislative session on 1 October.

Key news triggers as we enter a new month tomorrow:

• PMI figures for September are due out for Egypt, Saudi Arabia, and the UAE next Monday, 5 October.
• Foreign reserve figures for September should be out next week.
• Inflation data for September will land on Saturday, 10 October (the next central bank meeting isn’t until mid-November).

The Health Ministry reported 124 new covid-19 infections yesterday, up from 115 the day before. Egypt has now disclosed a total of 103,079 confirmed cases of covid-19. The ministry also reported 13 new deaths, bringing the country’s total death toll to 5,914. We now have a total of 96,094 confirmed cases that have fully recovered.

The Education Ministry has published its guidelines for how the new academic year will be structured at all schools it regulates, including how many days each week grades will be required to attend the school, Masrawy reports. Students attending schools that are able to abide by social distancing requirements will be able to attend classes full time. For schools that can’t: Grades from the fourth primary (ibtidaiyah) grade to the third preparatory (eidadiyah) will be required to attend the school a minimum of two days a week, while grades from kindergarten to third primary will be required to attend no less than four days a week. Schools will also operate on a two-shift system if necessary to maintain social distancing that keeps students at least one meter apart in classrooms.

Data-mining firm Palantir Technologies and software company Asana will make their market debuts today via direct listings, the Wall Street Journal reports. The NYSE has set reference prices at USD 7.25 a share for Palantir (valued at almost USD 22 bn) and USD 21 a share for Asana (valued at around USD 5 bn).

SOUND SMART- What’s a direct listing? Direct listings circumvent investment-banking underwriters, giving existing shareholders including employees and early investors the chance to sell shares on the first day of trading. No new equity is offered in a direct listing.

US stocks stumbled in trading yesterday as the S&P 500 slumped 0.5% after little progress was reached in high-stakes stimulus talks in Washington and investors fretted over the pandemic, Bloomberg says. The Dow also finished 0.4% and the Nasdaq slipped 0.3%.

Banks and bond traders are sending conflicting signals on the health of the US economy: Investors are continuing to pile into bonds at the same time as banks put aside USD bns in loan loss provisions, breaking with a long-term trend that has seen both banks and bond traders make similar assessments on credit risk, the Financial Times reports. Market watchers say that the Federal Reserve’s support for the corporate bond market and ultra-low interest rates have “scrambled the signals transmitted by yields on corporate debt.”

The world’s largest oil traders are investing USD bns in renewable energy projects over the next five years in anticipation of a fundamental shift in the world’s energy mix, the Financial Times report. Swiss commodity trader Mercuria is planning to sink USD 1.5 bn into projects in North America, while Geneva-based Gunvor is planning to redirect 10% of the company’s equity —USD mns — over the next two years. The investments underscore how trading houses heavily engaged in the oil market now want to play a bigger role in solar, wind and hydrogen over the next decade.

30% Google tax? Google will strictly enforce its policy of taking a 30% cut of payments made within apps offered by the Google Play store, CNBC reports. Some developers like Netflix and Spotify have been circumventing the requirement by prompting users for a credit card to pay them directly, which Google says it will no longer allow. The fee is much like the 30% commission Apple charges vendors on its platform, which some developers have recently claimed violates antitrust rules.

The Emir of Kuwait Sheikh Sabah Al-Ahmed Al-Jaber Al-Sabah has passed away at the age of 91, the royal court announced yesterday. Al Sabah died in the US where he had been in hospital since July after having surgery in Kuwait. He will be succeeded by Sheikh Nawaf Al-Ahmad Al-Jaber Al-Sabah, CNN Arabic reports, carrying a profile of the 83-year-old crown prince.

President Abdel Fattah El Sisi expressed his condolences on his official Facebook page, saying the Arab and Muslim world had lost “one of its most precious men.” El Sisi announced three days of mourning starting Tuesday 29 September to mark the occasion, an Ittihadiya statement said.

US ELECTION WATCH- For anyone wanting policy substance, US presidential debates are the wrong places to look. Joe Biden called Donald Trump a “clown” and “the worst president America has ever had.” Trump ramped up the superlative-laden rants and interrupted Biden at any given opportunity. Fox News moderator Chris Wallace pleaded for order as both candidates shouted over each other. “That was the worst debate I’ve ever seen,” George Stephanopoulos said when the circus wrapped. We’re giving this one to Biden, purely on the basis he was able to form a cogent sentence.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, urban development and as well as social infrastructure such as health and education.

In today’s issue: After we looked last week at why Egypt loses so much of its water, we turn this week to what the government needs to do to fix the problem.

The death of the Emir of Kuwait, Sheikh Sabah Al Ahmad Al Jaber Al Sabah, at the age of 91 dominated the airwaves last night. Talk shows highlighted President Abdel Fattah El Sisi’s social media post mourning the death of Al Sabah, and the declaration of three days of mourning. Al Hayah Al Youm’s Mohamed Sherdy (watch, runtime: 1:04), Masaa DMC’s Ramy Radwan (watch, runtime: 0:36), and Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 2:31) all had coverage. Yahduth Fi Misr’s Sherif Amer spoke to Kuwait’s ambassador in Cairo, Muhammad Saleh Al Thuwaikh, to offer his condolences (watch, runtime: 3:53).

The parliamentary elections are definitely not cancelled: Radwan covered the statement from Lasheen Ibrahim, the head of the National Election Authority, who denied claims circulating on social media that the Administrative Court had suspended next month’s parliamentary elections (watch, runtime: 4:35).

Looking ahead to the new academic year: Radwan spoke with Hossam Abd El Ghafar, the spokesperson for the Higher Education Ministry, who said that new national universities will reopen admissions from 1-3 October for students who weren’t able to pay tuition fees online due to technical problems. El Ghafar noted that a second round of electronic admission tests will be held on 4-5 October (watch, runtime: 8:16).

Red Sea tourism rebounds, if modestly: Moussa spoke by phone with the Red Sea Governor Amr Hanafi, who said that the number of tourists from Europe constituted about 20% of all tourists, and were mostly from Croatia, Serbia and the Netherlands. He said that the figure was reasonable given the circumstances of the pandemic, and said he looked forward to the return of German and Russian tourists. He stressed that the governorate has not seen any new covid-19 cases recently, and had become adept at administering PCR tests. Hanafi also touched on the latest reconciliations of building code violations in the governorate, saying some 25% of applicants had paid the settlement fees (watch, runtime: 21:09).

The electronic invoice: Osama Kamal interviewed Mahmoud Saqr the head of the Central Administration for Tax Authority Office Affairs, and Said Fouad, advisor to the head of the Tax Authority, about the new electronic invoicing system currently being trialled by the authority. Saqr said that six companies have been piloting the system since June, and will on-board 134 companies in mid-November. The companies are currently only issuing invoices business-to-business but the authority plans to expand the system to include business-to-consumer at a later stage (watch, runtime: 44:06).

New cities prepare water infrastructure for the winter: Radwan phoned Gamal Talaat, assistant to the deputy head of the New Urban Communities Authority, who said that the authority is clearing drainage networks, increasing the water collection points, and testing sanitation pumps ahead of the winter season. Talaat added that they increased the diameters of the sewage pipes, and strengthened and duplicated the existing lines. Radwan also called Sherif El Sherbiny, head of the Sixth of October City Authority, who said that they ran regular maintenance checks on the sewage networks to make sure they’re in proper condition (watch, runtime: 19:39).

Egypt sold USD 750 mn in green bonds yesterday in what was the region’s first sovereign offering of the climate-friendly securities, Bloomberg reports. The issuance was almost 5x oversubscribed, attracting some USD 3.7 bn worth of orders for the bonds, pointing to growing appetites for climate-friendly securities worldwide. The government had been expected to sell USD 500 mn of the bonds.

About the offering: The sale consists five-year notes, which were initially taken to market at a yield of 5.75% but were sold 50 bps lower at 5.25%, Reuters suggests. The bonds will finance the development of Egypt’s USD 1.9 bn portfolio of green projects, including clean transportation, renewable energy and sustainable water management, the report noted.

The offering attracted new investors, with a virtual roadshow “attended by many who are speaking to Egypt for the first time,” Reuters reports, citing an unnamed source familiar with the transaction. Sustainability analysts and global investors were among those interested in the sale., said that while the bonds offer value “when compared to the existing secondary Egyptian curve … I think they might tighten,” Zeina Rizk, Arqaam Capital’s executive fixed income director, said as the bonds were being marketed. Recent market weakness over fears of a second covid-19 wave and “market indigestion” from the large number of new issuance could make investors more selective, she said.

Advisors: Credit Agricole, HSBC, Citibank, and Deutsche Bank were tapped earlier this year to manage and market the offering.

Background: Egypt’s first sovereign green bond sale comes as part of the government’s debt diversification strategy, which entails a shift towards longer-term debt, which the government hopes will constitute some 52% of borrowing by June 2022. CIB is expected to follow suit and issue Egypt’s first corporate green bond next month.

DEBT WATCH- Two corporate sukuk offerings worth a combined EGP 4.5 bn are expected to go to market this year, including Sarwa Capital’s planned EGP 2.5 bn issuance and another EGP 2 bn sale from an unnamed company in the services industry, head of the Financial Regulatory Authority’s Central Administration for Finance Sayed Abdel Fadil told Al Mal. Sarwa’s single-tranche issuance — which will be the second corporate issuance of the sharia-compliant bonds to hit the Egyptian market since the FRA published regulations for the bonds last year — is expected to go to market by the end of October, said Abdel Fadil. He did not clarify a timeline for the unnamed company’s planned issuance, but said it is still in its early stages.

About Sarwa’s issuance: The sukuk, which were originally to hit the market mid-September, carry a seven-year tenor, maturing in 2027, and will be the second sukuk issuance to hit the Egyptian market after Talaat Moustafa Group’s (TMG) offering earlier this year. Sarwa tapped ALC Alieldean Weshahi & Partners as legal counsel and KPMG Hazem Hassan as financial auditor for the issuance. Middle East Ratings and Investor Services (MERIS) will issue a rating on the offering.

Who else is offering sukuk? Another EGP 2 bn issuance by Amer Group is also in the works (though its timing has yet to be announced) while a planned USD 50 mn issuance by aviation leasing company CIAF was pushed indefinitely because of covid-19, but could see the light in 1Q2021. The Egyptian Petrochemicals Holding Company was also reportedly planning an EGP 1 bn sukuk issuance — the first by a state-owned company — though this has not materialized as of yet. TMG was the first to issue EGP 2 bn in sukuk in April 2020, in an offering that was 2.5x oversubscribed. The sukuk were listed on the EGX earlier this month as part of TMG’s three-year EGP 4.5-5 bn sukuk program intended to finance the real estate company’s leasing projects.

DEBT WATCH- More EBRD funds in the pipeline for Abu Qir metro conversion project? The European Bank for Reconstruction and Development (EBRD) has received a formal loan request from the government for EUR 250 mn to partially fund a project to convert Alexandria’s Abu Qir railway into an underground metro, Deputy Regional Director Khaled Hamza tells Al Mal. The bank is expected to look into the request sometime next year, he said, without providing further information. The European Investment Bank has already agreed to provide EUR 750 mn to help finance the project, which is expected to cost EUR 1.5 bn in total.

EBRD has invested EUR 1.36 bn in Egypt so far in 2020, Hamza told the newspaper. The investments include EUR 657 mn that were channeled to different industries and EUR 350 mn for trade finance, Hamza said, without giving details on the remaining amount. Overall, the bank supported 13 projects through direct funding, credit lines for on-lending, or trade finance activities by five local banks — CIB, Banque Misr, the National Bank of Egypt, QNB, and NBK Egypt, he added. Those five banks received at least USD 100 mn each, with the EBRD in talks with two unnamed banks for an additional USD 100-200 mn for on-lending to SMEs before the end of the year. According to Hamza, the amount channeled through banks came as part of the EBRD’s covid-19 global solidarity package, which we laid out in our recent sit-down with EBRD managing director for the SEMED Heike Harmgart.

Social spending programs in the Middle East and Central Asia are still lagging behind the EM average, despite making “notable progress in recent decades,” which is undermining the region’s human development outcomes, according to an IMF report (pdf). While emerging markets spend an average of 14% of GDP on social support programs, Middle Eastern and Central Asian governments earmark only 10.4% of GDP for the same purpose. This disparity is more concerning when looking at the outcomes from these spending initiatives; it appears that emerging markets are not only spending more, but that their spending has greater efficiency. “Increasing the efficiency of spending in the region to the global frontier could — without any increase in outlays — eliminate one-third of the [human development index] gap,” the report says.

Egypt is among the countries that got props for shoring up its social safety net before the pandemic broke out. While the report does not dive into the details of Egypt’s social spending outlays (and specifically excludes subsidies from its calculations) the Sisi administration has been prioritizing social spending and rolling out programs, such as the Takaful and Karama cash subsidy program — which was introduced in 2015. The report also gives Egypt, Pakistan, and Mauritania brownie points for introducing financial support targeting vulnerable women, saying that continued support for vulnerable groups must be a key priority for governments’ covid-19 response packages.

Egypt’s FY2020-2021 budget shows state spending rising 9% y-o-y, with increases of up to 70% on essential services like education and low income housing. The constitution already requires the country’s budget to have 7% of GDP allocated on education and 3% on healthcare so maybe “boosting the efficiency of spending,” as the report suggests, could help bolster the efficacy of their outcomes.

Palm Hills Developments (PHD) and CI Capital’s Taaleem have set up a joint venture to develop their planned EGP 1.6-1.9 bn life sciences university in PHD’s Badya compound, according to a press release (pdf). The two companies signed yesterday a shareholder agreement for the JV, of which Taaleem will own 60% and PHD holding the remaining 40%. The two companies signed an MoU in June for the university, which will span 100k sqm and accommodate up to 9k students. It will be established in partnership with Medical University of Vienna International and is expected to open its doors in 2022.

Background: CI Capital is a minority shareholder with a 16.4% stake in Taaleem, which owns the Nahda University in Beni Suef, the largest private university in Upper Egypt. The Badya compound is a 3k-feddan West Cairo project under development by PHD in partnership with the New Urban Communities Authority.

M&A WATCH- HeidelbergCement looks to acquire 100% of subsidiary Suez Cement: Suez Cement’s German parent company HeidelbergCement has submitted a mandatory tender offer to the Financial Regulatory Authority (FRA) for the remaining 33% stake it doesn’t already own in the company, according to a regulatory filing. The MTO is for nearly 59.8 mn shares at EGP 7.50 apiece, giving the transaction an initial value of more than EGP 448 mn.

Suez Cement, in turn, is looking to snap up a 28% stake in subsidiary Tourah Portland Cement Company (Tourah Cement). The company launched a separate MTO for more than 20 mn shares at EGP 7.18 apiece, valuing the stake at more than EGP 144 mn, the company said in a disclosure. Suez Cement currently holds a 66.2% stake in Tourah Cement. There were no details on the reason for Heidelberg’s MTO for Suez. Suez said in a filing to the EGX (pdf) that Heidelberg was advised by local representatives to have Suez lodge a separate MTO for Tourah in a bid to protect shareholders, and avoid any regulatory hangups caused by the first MTO. HeidelbergCement subsidiary Ciments Francais holds direct and indirect stakes in Tourah of up to 55%.

The cement industry in Egypt has been suffering for years from a drawn out supply glut that has seen producers lose bns. Lafarge Egypt's CEO Solomon Baumgartner Aviles said last month that as many as six players could be forced to exit the market by 2021. Tourah Cement is one candidate: the company has already suspended operations, and is currently struggling to turn a profit. Suez Cement’s losses have also been widening in recent quarters, with sales struggling to pick up.

Security authorities in Alexandria are imposing fees on transporting hazardous materials out of the city’s main port, according to a letter from the security directorate to shippers picked up by Al Mal. Shipments containing explosive substances or chemicals classified as dangerous will incur “transportation safety” fees of EGP 100-110 for each km traveled. Alexandria International Container Terminals earlier this month doubled fees it charges for handling containers carrying hazardous goods inside the port. The new safety guidelines come after August’s Beirut port blast which has seemingly prompted authorities to take additional preventative measures.

STARTUP WATCH- Ride-hailing app Swvl is looking to expand to the Gulf in the coming months, General Manager Omar Selim told Al Mal, without specifying which countries the company is targeting. According to Selim, the company prefers to operate in emerging markets with market demographics that are similar to Egypt’s, including population size and traffic congestion. Swvl said last year it plans to launch in the Philippines, Indonesia, and Bangladesh by the end of 2020. The company already operates in Kenya, Nigeria, and Pakistan.

EARNINGS WATCH- Cleopatra Hospitals Group (CHG) is on track to record 15% y-o-y revenue growth in 3Q2020, with an expected q-o-q increase of 50%, according to a trading update (pdf) citing unaudited figures. The group expects to see its revenue grow 7% y-o-y in 9M2020. The anticipated uptick in CHG’s topline is supported by recovering patient volumes across the group’s different services caused by the lifting of coronavirus restrictions, the transformation of El Katib and Queens hospitals into covid-19 treatment facilities, and the introduction of a number of digital and at-home medical services for those unable to visit CHG’s hospitals.

The company has taken several steps in 3Q2020 to grow its business operations, “signing multiple new agreements to expand its service offering and penetrate into new, fast-growing segments of the healthcare industry.” These include the creation of a joint venture with Bedaya for Medical Services fertility center (60% owned by CHG), the creation of the Egyptian Healthcare Facilities Services joint venture (49% owned by CHG), and the renovation of Nile Badrawi Hospital’s 10th and 11th floors.

MOVES- Sherif Elbehery (Linkedin) has been tapped as managing director of Misr Digital Innovation Company, Banque Misr’s digital banking arm, the bank’s deputy chairman Akef El Maghraby told Hapi Journal. Elbehery was previously the bank’s head of SMEs, microfinance and Islamic banking — a position that will now be filled by Mohamed Antably (Linkedin). Antably was most recently Attijariwafa Bank Egypt’s director of SMEs and business banking. El Maghraby will be chairman of the digital banking arm.

It’s a ghost town in the foreign press this morning.

On the diplomatic front this morning: President Abdel Fattah El Sisi discussed efforts to resolve the conflict in Libya with UK Prime Minister Boris Johnson, an Ittihadiya statement said yesterday. Johnson expressed support for Egypt’s efforts to bring about a ceasefire and committed to work in tandem with the Egyptian government going forward. They also discussed the latest developments on the Palestinian issue and the talks on the Grand Ethiopian Renaissance Dam.

Efforts to alleviate the debt burden of developing countries in light of the pandemic received an endorsement from Prime Minister Madbouly during a UN meeting this week, the local press reports. The international community should work together to ease credit terms from international lenders and ensure funds are provided to the hardest-hit countries, Madbouly said. He also came out in support of efforts to reduce the cost of transferring remittances from workers abroad.