Thank you, covid: CBE says no cash dividends from ‘20 earnings

We have plenty of news for you on this fine Wednesday morning, starting with a surprise announcement from the Central Bank of Egypt that the nation’s banks cannot distribute cash dividends for fiscal year 2020, though they may issue dividends in the form of stock. The decision is meant to help banks meet aggressive new capital requirements — and make sure they have a buffer to deal with the impact of covid-19. We have chapter and verse in this morning’s news well, below.

Also big today: We have a new speaker of the House of Representatives as newly sworn-in MPs meet today to sort out committee assignments and elect committee chairs. The process could wrap up as early as tomorrow, Al Shorouk reports.

What legislation will keep those committees busy? Funny you should ask: Tap or click here to read our primer on the business-relevant bills we think are going to come up this session.

Dominating the conversation on Egypt in the international press this morning: We’ve formally reopened air space to flights into and out of Qatar. EgyptAir will run up to two daily flights between Cairo and Doha and four weekly trips from Alexandria’s Borg El Arab Airport starting Monday, 18 January, EgyptAir Holding Company Chairman Roshdy Zakaria said yesterday (watch, runtime: 3:01). Reuters, the Associated Press and Bloomberg all have the story.

PSA– The weather isn’t looking great for the rest of the week, with a sand storm forecast for Cairo and the Delta today and tomorrow. Your best hope: Our favourite weather app shows a chance of a shower sometime today to wash all that dust away, but the [redacted] conditions look likely to continue overnight. Look for a daytime high of 25°C today, falling to 19°C tomorrow.

THE BIG STORY internationally this morning: Republicans are beginning to turn on Trump. The prospect of an unprecedented second impeachment trial against The Donald grew more likely yesterday as Republicans began to break ranks and come out in support of legal action against the president for last week’s White Riot. Though VP Mike Pence still seems to be fighting King Cheeto’s corner, Politico reports that a growing number of House Republicans came out in favor of impeachment — including no.3 House Republican Liz Cheney. And in a further sign that the president has lost his grip on the party, Senate Majority Leader Mitch McConnell and House Minority Leader Kevin McCarthy were also said to be open to punishing the president for seemingly encouraging an insurrection against Congress.

Egypt isn’t the only country trying to make sure Big Tech pays fair freight: Germany is getting ready to work with the incoming Biden administration to push forward with a global corporate tax plan put forward by the OECD last year, according to the Financial Times. Berlin is hoping that a Democrat-run White House will be more amenable to the OECD’s plans, which involve cracking down on international tax avoidance and closing loopholes that could net countries an extra USD 100 bn in tax revenue each year. Here at home: Egypt is looking to make sure that online sales (of goods, services and advertisements) by tech companies are subject to the same type of VAT and stamp tax requirements as their domestic, real-world competitors.

CIRCLE YOUR CALENDAR-

The 2021 Men’s Handball World Championship kicks off today, with hosts Egypt playing Chile at the Cairo Stadium at 7pm. Both the US and the Czech Republic pulled out of the tournament yesterday for covid-related reasons: they will be replaced by Switzerland and North Macedonia respectively.

Remember: The entire tournament is being played behind closed doors, but if you want to catch any of the games on TV, here’s how. You can find the full match schedule here.

Samsung will unveil its latest Galaxy flagship, the S21 on Thursday, coinciding with the virtual-only Consumer Electronics Show, which began yesterday.

For the iSheep: Apple has a “big announcement today,” but it’s not a new device — it’s “bigger and better.”

We’re a little over two weeks away from our next long weekend. The nation is expected to take Thursday, 28 January as a holiday in observance of Police / Revolution Day, which falls on Monday, 25 January.

We then settle in for our long holiday drought: Your next day off will be mid-Ramadan. The Holy Month should start on or about Monday, 13 April.

*** 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: Part two of our rundown on what to expect in key areas of Egypt’s infrastructure in 2021. In part one, last week, we looked at what the year has in store for the water and renewable energy sectors. Today, our focus is on transportation, the natural gas transition, ICT and telecoms, and Iraq’s “reconstruction” mechanism.

Egyptian banks are barred from paying out cash dividends to shareholders on 2020 returns under instructions (pdf) issued yesterday by the Central Bank of Egypt designed to protect bank liquidity as covid-19 continues to affect the economy. Banks will not be allowed to “make [currency] payouts from this year’s profits, or profits carried over eligible for distribution to shareholders,” CBE Governor Tarek Amer said in the statement.

Not affected: Employee bonuses and compensation to board members.

The move aims to help banks comply with new capital requirements introduced under the Banking and Central Bank Act, Pharos Holding’s head of research Radwa El Swaify told us. Banks need to increase their capital reserves tenfold to EGP 5 bn in a little less than three years’ time. Paying out less in dividends will reduce the need for banks to enact capital increases, as well as improve banks’ capital adequacy ratios, helping them comply with updated Basel III requirements on managing operational risks, El Swaify added.

Shareholders will still be kept happy: El Swaify pointed out that banks will still be able to issue stock dividends to make up for the lack of cash payouts.

The CBE may also be positioning the system to be prepare for potential loan defaults as covid-19 affects borrowers’ ability to repay, particularly after the moratorium on loan repayments is now over, Naeem Brokerage’s Allen Sandeep tells Reuters. “The central bank certainly wants banks to shore up on balance sheet liquidity to be on the safe side,” Sandeep said. The central bank had extended the tenor of all bank loans for six months in March for both individuals and businesses to alleviate the financial burden on borrowers.

How have banks fared during the pandemic? Banks have been shoring up loan loss provisions since last year in anticipation of a rise in bad loans after the moratorium expired last September. Analysts have said that most Egyptian banks have healthy amounts of capital in reserve, with low loan-to-deposit ratios and ample liquidity. Industry watchers have suggested that we may have to wait until the middle of 2021 before we begin to see the true effects of the pandemic on loan quality.

EXCLUSIVE- Expect to see revised GDP growth targets for the current fiscal year sometime this month as the Finance Ministry takes stock of economic performance in 1H2020-2021 and amends the full-year expectations accordingly, Finance Minister Mohamed Maait told Enterprise. The ministry will not make legal amendments to the state budget, and will only announce the revised figures and targets to give an indicator of where things are headed, Maait said.

And when the revised figures are laid out, don’t take them as scripture. The changes in conditions are “extremely sharp” and it’s near impossible to accurately predict point figures, Maait said.

The figures laid out in the state budget “are not expected to be met” in the midst of the unpredictability and volatility of global conditions, Maait said. The budget had originally set GDP growth expectations for FY2020-2021 at 6.4% but this figure was revised several times as the pandemic took hold and wouldn’t go away. Maait most recently said the economy is likely to grow between 2.8% and 3.5% this fiscal year. The IMF’s projection earlier this week that we’ll close out FY2020-2021 with a 2.8% growth rate is quite positive if we look at the bigger picture, with tourism still at a standstill and aviation barely seeing any activity, the minister told us.

As for the next fiscal year, the ministry hasn’t decided whether to renew its oil hedging contracts. “We don’t know what oil prices are going to look like. Nobody really knows and the price changes are too volatile right now to even discuss,” Maait said.

Meet your new House speaker: Hanafi Gebali. Judge and former president of the Supreme Constitutional Court Hanafi Gebali was elected as the speaker of the House of Representatives in yesterday’s inaugural session of the new parliament, succeeding Ali Abdel Aal who didn’t stand for reelection, Al Masry Al Youm reported. El Gebali won with an overwhelming majority, netting 508 of 576 votes cast.

What was his competition? Gebali was up against Mohamed Abou Hamila, a prominent member of the Republican People's Party, Mohamed Madina, a member of El Wafd party, and Ahmed Darrag, MP for Samannoud, according to Masrawy.

And who is he, exactly? Gebali was elected as an independent, but ran as part of the National List of Egypt, which is backed by the pro-government Mostaqbal Watan Party. He has served as chief justice and deputy chief justice of the Supreme Constitutional Court. Ahram Gate has a full bio of the new House speaker.

As for Abdel Aal… The now-former speaker will serve as a regular MP throughout the five-year legislative cycle. He was re-elected to the House in November as part of the list.

Reps. Mohamed Aboul Enein and Ahmed Saad El Din, meanwhile, were elected as deputy speakers, succeeding Soliman Wahdan and Elsayed Elsherif. Aboul Enein is a long-serving member of the House and chairman and founder of ceramics giant Cleopatra Group, while Saad El Din was the former House secretary-general.

Yesterday’s session was a first for female political representation: Farida El Shobashy, the House’s oldest member, became the first woman to preside over a parliamentary session in Egypt. El Shobashy told Yahduth Fi Misr’s Sherif Amer last night that this is the first time that 25% of parliament members are women (watch, runtime: 2:45).

The session received a lot of attention on the airwaves last night: Al Hayah Al Youm’s Lobna Assal covered the day’s events (watch, runtime: 2:58 | 0:47), Masaa DMC’s Ramy Radwan phoned MP Ahmed El Seginy (watch, runtime: 4:12), and Mostafa El Feki talked to Yahduth Fi Misr's Sherif Amer (watch, runtime: 2:26).

Egypt held the second-biggest share of venture capital investment in MENA last year, falling behind the UAE, which accounted for a whopping 56% of the total funding amount last year, according to Magnitt’s MENA Venture Investment Report. Egypt’s VC funding inflows jumped 31% y-o-y in 2020, helping it to increase its share of regional funding by two percentage points to 17%. The uptick was driven by the investments in the first half of the year, with investments slowing by 58% in the second half due to the economic impact of covid-19. Saudi Arabia came in third with 15% of regional VC funding, up from 11% in 2019.

Egypt accounted for almost a quarter (24%) of the region’s VC transactions, coming just short of the UAE’s 26% and ahead of third-placed Saudi Arabia at 18%.

Across the region: Funding was up by 13% y-o-y to USD 1 bn, though total transaction count decreased by 13% to 496. The food and beverage industry saw a tripling of funding to USD 122 mn, while health funding also tripled to USD 72 mn, and e-commerce funding increased 24% to USD 162 mn.

Our math says nearly 50% more transactions were closed in Egypt last year and that the average transaction was worth about 2x in 2020 was it was the year before. Tap or click here to read our 2020 Review: The year in startups.

Amer, Qasatli sell EGP 700 mn of asset backed securities: EFG Hermes has closed a EGP 700 mn sale of securitized bonds on behalf of four Amer Group companies and Omar Amer’s mortgage lender Qasatli, the investment bank said yesterday (pdf). The bonds were backed by EGP 911 mn of accounts and notes receivables, and the offering was oversubscribed. The issuance was segmented into three tranches, which were rated AA+, AA, and A by the Middle East Credit Rating and Investors Services (Meris). Amer was reportedly looking to sell EGP 607 mn of securities in the offering.

Yesterday’s offering was the first tranche of a larger EGP 6.5 bn program involving Amer and Qasatli that will be managed and promoted by EFG Hermes.

Advisers: EFG Hermes is acting as the sole arranger and financial advisor for the program. Arab African International Bank, CIB, and Suez Bank acted as underwriters, while CIB was custodian.

Meanwhile, four banks have snapped up Talaat Moustafa Group’s EGP 870 mn securitized bond issuance, Hapi Journal reports, citing sources close to the matter. CIB and Suez Canal bank purchased EGP 350 mn-worth of bonds each, while Banque du Caire signed on for EGP 105 mn and Abu Dhabi Commercial Bank took EGP 65 mn.

Advisors: EFG Hermes acted as financial advisor and managed the issuance, while CIB and Suez Canal Bank acted as guarantors.

What are securitized bonds, you ask? We’ve got the answer to that, here.

The upcoming sale of military-owned Wataniya Petroleum is attracting more attention from GCC oil and gas companies, the local press reports, citing unnamed sources familiar with the negotiations. State-owned Emirates National Oil Company (ENOC) and Saudi Aldrees Petroleum and Transport Services Co. are reportedly interested in vying with Abu Dhabi National Oil Company (ADNOC) and Qalaa Holdings’ TAQA Arabia, the sources say.

When is the sale going down? Wataniya could be selecting its preferred suitor by the end of the month to begin due diligence, paving the way for the sale to be wrapped up by the end of 1H2021.

But it hasn’t worked out how much it wants to sell: Planning Minister Hala El Said and Sovereign Fund of Egypt (SFE) head Ayman Soliman suggested last month that Wataniya and the National Company for Producing and Bottling Water (SafI) — both subsidiaries of the military’s National Service Products Organization (NSPO) — could be fully privatized. But the SFE could still step in and acquire minority stakes of 20-30% in both companies, leaving 70-80% for the private sector, Soliman said.

More military firms could be on the table in the coming months: Wataniya’s sale comes as part of a wider effort to privatize military-affiliated companies in 2021 which will include at least three other — as yet, unnamed — companies alongside Wataniya and Safi. The SFE-led initiative dates back to early last year when the NSPO signed a cooperation agreement with the fund that authorized it to market subsidiaries of military-affiliated companies to private investors with the ultimate goal of listing their shares on the EGX.

IN OTHER INVESTMENT NEWS-

• Unionaire Group is planning to build a new factory in the Sixth of October City at a cost of EGP 1 bn, and earmark the plant’s output for export, CEO Mohamed Osman said, according to Al Mal. The A/C and electronics manufacturer will fully cover the cost to set up the 55k sqm plant, which it expects to inaugurate in 2022, Osman added.
• The announcement came after the company signed an agreement to manufacture TCL products in Egypt, Al Mal separately reported. Unionaire signed an exclusive manufacturing and distribution agreement with the Chinese TV and electronics giant.
• Odin Investments plans to launch four investment funds before the end of 2021, each with EGP 500 mn in AUM, CEO Hashem El Sayed told Amwal Al Ghad.

State grain buyer GASC called off a wheat tender yesterday as top supplier Russia prepares to raise taxes on grain exports, Bloomberg reports. The tender attracted offers from only a handful of traders, the fewest since June, and at a high price, says the business information service.

Russian officials are due to meet this week to discuss the plan — which involves a grain-export ceiling and a EUR 25 (USD 30) tax per tonne on wheat exports in a protectionist bid to boost local supply and stabilize prices, and will likely move forward as markets have already priced in the tighter restrictions. There’s a possibility the tax could be higher than originally planned, at EUR 50 per tonne, Bloomberg cited a report by Interfax as saying.

Russia is Egypt’s most important source of wheat: GASC made record purchases of Russian wheat since the start of the pandemic to ensure its strategic stockpile and curb any possible wheat shortages. Russian wheat constituted 80% of Egypt’s wheat purchases last season, with 2.5 mn tonnes bought as of August and more expected to come.

Egypt rarely cancels international wheat tenders. The last time it did so was at the onset of the pandemic in April 2020, when it made a change to how it pays suppliers.

Prices are rising: Wheat, corn, and soy futures are at six-year highs due to Russia’s plan and adverse weather conditions globally.

Hedging imminent? The tax might prompt the Finance Ministry to take out hedging contracts and guard against rising grain prices, Pharos’ head of research Radwa El Swaify told us last month.

The Central Bank of Egypt approved the appointment of Jean-Pierre Trinelle (Linkedin) as managing director of Crédit Agricole Egypt (CAE), representing Crédit Agricole France on CAE’s board of directors, according to a bourse filing (pdf). Trinelle will be replacing Pierre Francois Serge Finas who was appointed back in 2017.

ALSO- GB Auto said yesterday that Sameh Ali, COO for commercial vehicles and construction equipment, is no longer a member of the company’s executive board. Faisal Islamic Bank said it has restructured its board, but didn’t make clear what had changed.

The first session of the parliament and covid-19 dominated proceedings on the airwaves last night, both of which we recap in full in this morning’s Politics and Covid Watch sections.

Elsewhere, the government’s natgas transition plan was again in focus as Yahduth Fi Misr's Sherif Amer phoned Trade and Industry Minister Nevine Gamea. Some 22k people have applied to convert their cars to run on natural gas while 57k have registered for the scheme on the official website. The government will prioritize people living in the most densely populated governorates of Cairo, Alexandria and Qalyubia, she said (watch, runtime: 14:53).

It’s a fairly quiet morning in the foreign press, Qatari flights aside (see today’s What We’re Tracking Today for more). Reuters reports that an Egyptian court has overturned the sentences of two female TikTok users that were found guilty last year of violating family values and principles and inciting prostitution. Meanwhile, the Guardian looks at the alleged shortages of oxygen in Egyptian hospitals.

EBRD, UN to help Egypt’s tourism industry get back on its feet post-covid: The European Bank for Reconstruction and Development (EBRD) and the UN World Tourism Organization are providing a technical assistance package for Egypt’s tourism industry that has been battered by the pandemic, the International Cooperation Ministry said in a statement (pdf). The program will provide training programs for employees in the sector, improve health and safety regulations, and study ways to increase job creation, the ministry said without disclosing further details.

Other things we’re keeping an eye on this morning:

• E-payments provider Bee will handle public school tuition fees and expenses after signing an agreement with the Education Ministry, Al Mal reports, citing unnamed sources who didn’t disclose when the contract would start.
• Food exports have grown 1% y-o-y, reaching USD 3.2 bn in 2020, according to the Food Export Council. Arab countries accounted for 54% of Egypt’s food exports last year, while food products headed for the EU accounted for 14% of our export market.
• Heliopolis Housing and Development is seeking a partner for its Heliopark real estate project in New Cairo, and has reportedly already received offers of intent from development companies operating in Egypt.

The Health Ministry reported 970 new covid-19 infections yesterday, up from 961 the day before. The ministry also reported 55 new deaths, bringing the country’s total death toll to 8,304. Egypt has now disclosed a total of 151,723 confirmed cases of covid-19.

Cases may have fallen over the past two weeks but that doesn’t mean the second wave is over, Adel Khattab, member of the Higher Education Ministry’s covid-19 committee, told Masaa DMC’s Ramy Radwan, pointing out that the death rate is still high (watch, runtime: 4:39).

The Tahya Misr Fund is calling for donations from members of the public to help fund Egypt’s vaccination program. The fund aims to set aside at least EGP 2 bn to cover the cost of vaccines for healthcare workers, low-income senior citizens, and other vulnerable people.

Business people have so far donated EGP 160 mn to the cause, Tahya Misr spokesperson Mohamed Mukhtar told Yahduth Fi Misr's Sherif Amer last night (watch, runtime: 4:03). Among those who have stepped up: Qalaa Holdings, appliance distributor Union Trade, Ahmed Abou Hashima and Talaat Moustafa Group.

Liverpool’s Mohamed Salah donated an ambulance and oxygen delivery systems to his home village of Nagrig to aid in the treatment of covid-19 patients, according to Reuters.

A step towards EastMed peace? Greece and Turkey are sitting down later this month for the first time since 2016 for talks on Mediterranean maritime borders, Bloomberg reports. The two countries have been locked in a five-year dispute over East Med energy exploration, with tensions consistently ramping up as Ankara regularly sent out seismic exploration vessels into disputed waters.

Also from the EastMed: Cyprus and the UAE have signed their first military cooperation agreement as the island nation and EU member looks to boost ties with neighboring Middle Eastern countries, the Cypriot Defense Ministry said in a statement cited by the Associated Press. Cyprus already has defense agreements and holds regular military drills with Egypt, Israel and Jordan as a counterbalance to Turkey, which has been engaged in controversial oil and gas operations in Cypriot waters.

Turmoil in Kuwait as government resigns just one month into the job: Opposition lawmakers in the Kuwaiti parliament have forced the resignation of the government just a few weeks after December’s parliamentary elections, Bloomberg reports. The collapse of the government comes as the country prepares to take tough decisions to support its economy battered by low oil prices and the pandemic.

Ethiopia has issued a warning to Sudan over its military build-up in the disputed Al Fashqa area, which saw weeks of clashes late last year, according to Reuters. A spokesperson for the country’s foreign ministry raised the prospect of war if Khartoum doesn’t withdraw units from the region.

IN DIPLOMACY: The Foreign Ministry has condemned Israel’s plan to build 800 new settler homes in the occupied West Bank. The announcement from Tel Aviv came on the same day as Egypt, France, Germany, and Jordan met in Cairo to discuss reviving the stalled Israel-Palestine peace process.

Egyptian footballer Mohamed Gedo, who rose to fame in the 2010 Afcon championship, will retire from the sport, he announced on Twitter. The 35-year-old was released by Egyptian Premier League’s El Gouna FC in October 2020, but was expected to join another club.

13-31 January (Wednesday-Sunday): Egypt will host the 2021 Men’s Handball World Championship in four venues in Alexandria, Cairo, Giza and the New Capital.

19-22 January (Tuesday-Friday) Global Energy Forum, Abu Dhabi, UAE. The Atlantic Council-organized event will focus on the post-pandemic energy system.

25 January (Monday): 25 January revolution anniversary / Police Day.

25-29 January (Monday-Friday): The World Economic Forum’s “Davos Dialogues” (virtual)

26-28 January (Tuesday-Thursday): Future Investment Initiative, Riyadh, Saudi Arabia.

28 January (Thursday): National holiday in observance of 25 January revolution anniversary / Police Day.

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

6-18 February (Saturday-Thursday): Mid-year school break (public schools — enjoy the break from bumper-to-bumper traffic)

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

13 April (Monday): First day of Ramadan (TBC).

25 April (Sunday): Sinai Liberation Day.

29 April (Thursday): National holiday in observance of Sinai Liberation Day.

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

1 May (Saturday): Labour Day (national holiday)

3 May (Monday): Sham El Nessim.

6 May (Thursday): National holiday in observance of Sham El Nessim.

13-15 May (Thursday-Saturday): Eid El Fitr (TBC).

18-21 May (Tuesday-Friday): The World Economic Forum’s annual meeting “The Great Reset”

31 May-2 June (Monday-Wednesday): Egypt Petroleum Show, Egypt International Exhibition Center, New Cairo.

30 May-15 June (Wednesday-Thursday): Cairo International Book Fair.

1 June (Tuesday): The IMF will conduct a second review of targets set under the USD 5.2 bn standby loan approved in June 2020 (proposed date).

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

24 June (Thursday): End of the 2020-2021 academic year (public schools).

26-29 June (Saturday-Tuesday): The Big 5 Construct Egypt, Cairo International Convention Center

30 June (Wednesday): June 30 Revolution Day

1 July: (Thursday): National holiday in observance of 30 June Revolution

30 June- 15 July: National Book Fair.

1 July (Thursday): Large taxpayers that have not yet signed on on to the e-invoicing platform will suffer a host of penalties, including removal from large taxpayer classification, losing access to government services and business, and losing subsidies.

19 July (Monday): Arafat Day (national holiday)

20-23 July (Tuesday-Friday): Eid Al Adha (national holiday)

23 July (Friday): Revolution Day (national holiday)

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

9 August (Monday): Islamic New Year

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

1 October (Friday): Expo 2020 Dubai opens

6 October (Wednesday): Armed Forces Day

7 October (Thursday): National holiday in observance of Armed Forces Day

18 October (Monday): Prophet’s Birthday

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

13-17 December: United Nations Convention against Corruption, Sharm El Sheikh, Egypt.

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

Note to readers: Some national holidays may appear twice above. Since 2020, Egypt has observed most mid-week holidays on Thursdays regardless of the day on which they fall and may also move those days to Sundays. We distinguish below between the actual holiday and its observance.