AM — Lots of M&A: Ezz bidding for Egyptian Steel stake, CI kicks off bid for a chunk of Cleo

Good morning, wonderful people, and welcome to a Monday that’s best described as “brisk” on the news front: There’s lots happening, but nothing terribly challenging to get your head around.

If you read nothing else this morning: Make it Last Night’s Talk Shows, wherein Transport Minister Kamel El Wazir suggests that our collective commute in the capital city is perhaps a month and a half or two months away from being a heck of a lot easier as work on key arteries wraps up.

HAPPENING TODAY-

Subscription begins for CI Capital’s CHG acquisition: Cleopatra Hospitals Group (CHG) shareholders have 10 working days, starting today, to weigh in on the voluntary tender offer from CI Capital to acquire 26% of the healthcare company. We have the full details on the next steps in the acquisition bid in this morning’s news well, below.

The UN Convention Against Corruption kicks off this morning in Sharm El Sheikh and wraps this coming Friday, 17 December.

ALSO-

• The Food Africa expo runs through tomorrow at the Egypt International Exhibition Center, after getting underway yesterday.
• It’s also the second and final day of a conference of the AU’s Committee of Intelligence and Security Services of Africa. Egypt took over the committee’s rotating presidency during yesterday’s session.
• The Arab Conference on the Peaceful Uses of Atomic Energy also kicked off yesterday in Aswan and runs until Thursday.

FOR TOMORROW- The Egyptian Economic Summit takes place at the St. Regis Hotel. The one-day event will feature a range of panelists from institutions including CIB, EFG Hermes, the Sovereign Fund of Egypt, Eastern Company, Oriental Weavers, Microsoft and Danone, among others. The full agenda is here (pdf).

THE BIG STORY ABROAD- No single news story is driving the global business conversation this morning, but still: It’s all about inflation, one way or another as some 20 central banks worldwide make interest rate decisions this week. See Market Watch, just a couple of scrolls below in this section for the rundown.

SIGN OF THE TIMES- Worldwide ETF inflows crossed the USD 1 tn mark for the first time ever YTD in November, surpassing last year’s total of USD 735.7 bn, the WSJ reports. The record surge has pushed global ETF assets to nearly USD 9.5 tn, which is more than double where the industry stood just three years ago.

REJOICE- Season six of Bns is back at the end of next month, and the first Axe-less season looks really good if this trailer posted by USD Bill actor Kelly AuCoin is anything to go by.

Are econ nerds the most selfish people? That’s our (admittedly oversimplified) conclusion based on this nugget from the dumpster fire that is our social media. It quotes Donut Economics (scroll down to the donut illustration) author Kate Raworth, whose book is now in our TBR pile, even if it does seem to “simply” boil down to “look after your fellow humans and the planet we all inhabit.” (Our words, not Raworth’s.)

MARKET WATCH-

Doves and hawks are set to clash on how to tackle inflation this week as around 20 central banks worldwide hold their final policy meetings of the year, Bloomberg reports. Economic policymakers face a choice between tightening policy to reign in high prices, or biding their time to protect post-covid recoveries. And with some of the world’s biggest economies tipped to come down on different sides of that fence, their announcements could mark an end to the era of more or less synchronized policy efforts to tackle the covid-induced recession. “We are set for increasing monetary policy divergence,” investment bank Natixis’ chief economist for Asia Pacific told the media outlet.

What can we expect from the big-hitters? The US Fed has taken a hawkish turn: Expect confirmation that the stimulus taper will come ahead of schedule, and perhaps even hints of an early rate rise at some point in 2022. Allianz chief economist Mohamed El Erian warns of the risks should the US stick to its characterization of inflation as temporary, a claim which he tells CBS’s Face the Nation was the Federal Reserve’s “worst inflation call” in its history (watch, runtime: 07:12). If the Fed fails to own up to its misjudgment, El Erian says, it would have to “hit the brakes hard” in a few months, which would “risk sending the economy into recession.” The Fed’s Open Market Committee meets tomorrow and Wednesday.

Elsewhere: European Central Bank President Christine Lagarde, meanwhile, is expected to stick to the “inflation-is-temporary” line, while the Bank of Japan and the Bank of England are also likely to lean dove-ish. China is easing policy in the face of a spreading slowdown, while Brazil and Russia are on an aggressive tightening cycle to curb inflation.

The Central Bank of Egypt will likely leave interest rates on hold when it meets this Thursday as the bank looks to protect the economic recovery and maintain attractive real rates for the carry trade, according to our regular poll.

PSA #1- Attention iSheep: Your next iOS update is coming — and it promises to be an interesting one: The release of iOS 15.2 should take pace any day now, and based on Apple’s release notes, it will include some highly-anticipated features, including a new privacy report showing which apps accessed your microphone, camera or location, a “hide my email” option that allows users to send emails from random addresses, and a “digital legacy” feature allowing users to designate a contact to whom all their data can be transferred after their death.

There are also some (potentially controversial) new controls coming for the kiddos: A new feature in the Messages app will detect nude photos in incoming and outgoing messages on children’s phones, blurring them and attaching a warning before showing them, Bloomberg reports. The setting is an opt-in feature that parents can enable on family-sharing accounts, and would allow children to contact a parent through the app if the situation requires it. Privacy advocates called out the feature over concerns it would be used for surveillance when it was first announced earlier this year, which led to its delay.

And for Mac users: Apple is adding SharePlay in macOS Monterey 12.1, which will allow users to easily share their screens and host virtual watch parties.

PSA #2- Winter is coming, with daytime highs in the 18-19°C range forecast for the week starting Wednesday. Look for single-digit overnight lows from Wednesday onward and a chance of a shower on Friday, our favourite weather app suggests.

CIRCLE YOUR CALENDAR-

EgyptAir will resume weekly flights between Cairo and Johannesburg on Thursday, 16 December, the airline said Thursday. Flights were suspended from South Africa and six other countries at the end of November to prevent the Omicron covid-19 variant from entering Egypt. Current precautionary measures for travelers entering Egypt from South Africa will remain in place.

Check out our full calendar on the web for a comprehensive listing of upcoming news events, national holidays and news triggers.

*** 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: We look back at a truly extraordinary year for private sector education in Egypt in Part 1 of our Blackboard Year-in-Review. In it we reflect on how the private sector and the government got on the same page, together building what may be the most successful education PPP model we’ve seen to date. We also look at how this, combined with education’s defensive strength, has culminated in new investments and our first IPO of 2021.

Ezz Steel is moving forward with its bid to acquire Ahmed Abou Hashima’s 18% stake in Egyptian Steel, announcing yesterday in an EGX filing (pdf) that it has offered to purchase the shares in a transaction that would value the company at almost EGP 14 bn. The steel giant’s board of directors has approved the purchase of the stake through its subsidiary Al Ezz Dekheila Steel, which will pay EGP 2.5 bn for the shares in an all-cash transaction. Abou Hashima, who founded the company and currently acts as its CEO and chairman, will accept the offer and step down from the company, Sarie Eldin & Partners, which is providing counsel to Egyptian Steel, told Enterprise.

An ex-steel magnate: The move will see Ahmed Abou Hashima sell down his remaining shares in the company he founded back in 2010. The entrepreneur had invested USD 1 bn into the company and gained a sizable share of the local steel market, but in late 2017 sold an 82% stake to the military's National Service Projects Organization. Enterprise was not able to reach an Egyptian Steel representative for comment on the offer.

The valuation: A fair value study (pdf) carried out by financial advisors Eagle Advisors valued Egyptian Steel shares at EGP 1,193 apiece, which was approved by Ezz Steel’s board. Ezz released the study yesterday as part of its regulatory filing.

What might we expect from Ezz Steel post-acquisition? The transaction would allow Ezz to influence Egyptian Steel’s product mix to focus more specifically on fulfilling unmet market demand, former Holding Company for Metallurgical Industries chairman Medhat Nafie told Kelma Akhira’s Lamees El Hadidi. Nafie expects Ezz Steel to double down on manufacturing pellets and steel bars, and sees potential for the company to increase its output of downstream products, which have a greater value added. The acquisition could also help Ezz widen its distribution network through the integration of Ezz Steel’s infrastructure — and potentially help the company cut freight costs to get its products to areas including Upper Egypt, Nafie said (watch, runtime: 11:57).

The acquisition bid comes as Ezz Steel — MENA’s largest steel company — is on an earnings streak in 2021, after being in the red for most of the previous decade. The company posted (pdf) a net income of EGP 3.76 bn during the first nine months of the year, flipping from a net loss of EGP 4.1 bn last year. The company’s single largest shareholder is founder Ahmed Ezz, who owns a 65.7% controlling stake in Ezz Steel, after recently purchasing a 33.4% stake in the company from El Ezz Group Holding for Industry and Investment. The company holds a market share of around 42%, according to recent figures cited by late night talkshow queen Lamees El Hadidi (watch, runtime: 2:15) last night.

What’s next: The transaction is in its final stages and will be finalized in the coming days, said Amira Sherif, senior partner at Sarie Eldin & Partners and head of the firm’s banking and finance unit.

ADVISORS: Sarie Eldin & Partners are sell-side legal advisors, with Rizkana & Partners acting as buy-side counsel. Eagle Advisors conducted the fair value study, while Moore Egypt served as the auditor.

Subscription for CI Capital’s bid for a chunk of Cleopatra Hospitals kicks off today: Cleopatra Hospital Group shareholders have until Sunday, 26 December to subscribe to CI Capital’s voluntary tender offer (VTO), which it launched last week to acquire 26.2% of the company, according to the timeline set by the EGX yesterday. Shares will change hands within five working days of the end of the tender offer, by Sunday 2 January.

Regulatory approval: MCI Capital Healthcare Partners, a CI Capital subsidiary, got the green light from the FRA last week on its offer to purchase up to 339.3 mn shares in Cleopatra at EGP 5 apiece, valuing the company at EGP 8 bn. CLHO is Egypt’s second-largest healthcare company by market capitalization.

Already on board: Cleopatra’s biggest shareholder, Creed Healthcare’s subsidiary Care Healthcare, agreed to sell an 8-12% stake in the company from its holdings (126-192 mn shares) at the offer price. This would reduce its stake in CHG to 26-30%, but maintain its position as its largest shareholder, netting as much as EGP 960 mn. Creed Healthcare — backed by several international DFIs and private equity firms — owns 37.9% of CHG through its subsidiary Care Healthcare, after divesting a 31.5% stake in 2019. Mid-market investment firm RMBV’s Ahmed Badreldin helped create Cleo and is now chairman of the board, sitting as a representative of Creed. RMBV is a double-bottom-line firm with holdings in Egypt, Tunisia, Libya, Algeria, Morocco, Senegal and Ivory Coast, including EGX-listed higher ed outfit Taaleem in Egypt.

ADVISORS: Zulficar & Partners is acting as legal advisor to MCI Capital.

Healthcare group Alameda is planning to invest EGP 1 bn to operate and manage a 300-bed hospital in the new administrative capital, under an MoU it signed with the Housing Ministry yesterday, according to a press release (pdf). Alameda will operate the facility under a renewable 49-year contract. The hospital, which is set to be the administrative capital’s “first and largest” hospital, will take three years to build.

What does Alameda have planned? Alameda will invest in medical equipment and technology, establish centers of excellence in a range of specialties, and set up a training center within the hospital to train nurses and physicians.

The investment comes as part of Alameda’s wider expansion plan in Egypt, which will see it invest EGP 5 bn over the next three to five years to bring its total investments in the country to EGP 10 bn.

Also involved: Chinese construction company China State Construction Engineering and Al Hazeq Construction will construct the facility, while architecture firm HKS will consult on the project’s construction and management.

More public-private healthcare partnerships could come soon: The House of Representatives recently gave its final nod to amendments made to the PPP Act designed to encourage more public-private projects. The changes allow public entities to partner with private companies on transport, energy, communications and healthcare projects by introducing new mechanisms to simplify the process.

Egypt is set to join JPMorgan’s Emerging Markets Bond Index (EMBI) by the end of January with an estimated weight of 1.8%, Finance Minister Mohamed Maait announced yesterday, according to a cabinet statement. Some 14 government bonds, with a total value of USD 26 bn, are expected to enter the benchmark index, which tracks the performance of a basket of EM government bonds .

Green bonds galore: Egypt will also join JPMorgan’s Environment and Governance Index by the end of January 2022 with a weighting of 1.2%, according to the statement, after the government made its first-ever sovereign green bond issuance in 2020, raising USD 750 mn from investors to channel into green projects.

What this means for portfolio flows: Investors tracking the index could pour some USD 1 bn into the local bond market by virtue of Egypt’s inclusion, Maait said. The move could unlock up to USD 4.8 bn in new inflows from passive funds that track the index, potentially leading to a 5% appreciation for the EGP against the USD, Rand Merchant Bank economist Neville Mandimika told Reuters back in March.

A decade in the (re)making: It took almost three years of discussions to get Egypt back on the EMBI, according to Maait. Egypt was removed from the index in June 2011 for not meeting requirements, in the wake of the economic turmoil that followed the 25 January revolution.

Why now? Around 90% of surveyed investors supported Egypt’s inclusion, according to the cabinet statement, thanks to increased liquidity, improved access to the onshore government bond markets for foreign investors, and improved access to the local bond market. Egypt now has a combined nominal USD 28.2 bn in longer-term bonds maturing in more than 2.5 years, which is the minimum maturity for inclusion in the index.

Index inclusion could coincide with Egyptian bonds finally becoming Euroclearable: The government has also been working to satisfy requirements to make Egyptian debt “Euroclearable,” making it easier for foreign funds to get into and out of Egyptian debt. Technical discussions have dragged on for longer than anticipated as the ministry continues working to meet the European clearinghouse’s conditions, which policymakers hope to achieve early in 2022.

The European Bank for Reconstruction and Development (EBRD) has approved a USD 15 mn equity commitment to Algebra Ventures’ second tech fund, according to the bank’s website. The respected Egyptian venture capital firm is targeting a USD 60 mn first close for its latest fund, which was initially targeted for 3Q2021.

Who else is on board? The International Finance Corporation could contribute up to USD 15 mn to the fund, which according to its website is awaiting board approval. Algebra is raising funds from a who’s who of limited partners thanks to the success of its first fund.

Ventures II: Announced in April, Algebra Ventures said the new fund would eventually be worth USD 90 mn and make equity venture capital investments in early-stage tech companies. Earlier this year, Algebra partner Omar Khashaba told us that the VC’s second fund will focus on Egypt with some allocations for sub-Saharan Africa.

The Gulf banking syndicate that agreed last month to lend USD 3 bn to the Egyptian government has disbursed the funding, Al Shorouk reports, citing unnamed sources. The three-year loan is being arranged by First Abu Dhabi Bank and Emirates NBD, and is split 50-50, with USD 1.5 bn allocated to ESG projects and USD 1.5 bn going to Sharia-compliant investments.

Who’s lending: Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Mashreq Bank, Bank ABC, National Bank of Kuwait, Ahli United Bank of Kuwait, Al Ahli Bank of Kuwait and Italy’s Intesa Sanpaolo Bank, in addition to the lead arrangers.

This is the second loan the government has taken out from Gulf financial institutions since 2020: Egypt took out a USD 2 bn 12-month loan arranged by FAB and Emirates NBD in 2020, which it finished repaying earlier this year. The loan — divided into a USD 1.5 bn conventional tranche and a USD 500 mn Islamic tranche — was taken out to plug budget shortfalls and support the economy through the covid crisis.

OTHER DEBT NEWS-

A USD 250 mn railway development loan from Korea: South Korea government has given its initial approval to a USD 250 mn soft loan to fund signaling upgrades for the 224-km Luxor-Aswan railway, Al Mal reports, citing unnamed sources. Korea had stipulated that the Egyptian government only use state-owned Korean companies to implement the upgrades, from the consultant to the companies implementing the work. Korean entities will now begin submitting their technical and financial offers.

The General Authority for the Suez Canal Economic Zone has received a EGP 1.5 bn loan from the National Bank of Egypt and Banque Misr to tide it over until its EGP 10 bn loan agreed with a syndicate of banks earlier this year has been disbursed, sources told Al Shorouk. In April, the SCZone signed an agreement for the 10-year loan with a group of banks including CIB, Banque du Caire, the Arab African International Bank and Suez Canal Bank to fund infrastructure projects. The NBE and Banque Misr are managing the facility.

The latest on our transport infrastructure overhaul: Transport Minister Kamel El Wazir phoned in to El Hekaya last night to give Amr Adib the latest updates on a host of transport overhaul projects.

Your Ring Road commute will stop being hellish soon: The Ring Road expansion to widen the freeway and add a bus rapid transit (BRT) lane is nearly complete, with the expansion of the so-called middle Ring Road that runs from the Autostrad through New Cairo, Suez Road, Belbeis, and El Marg to the Shobra-Banha road now 100% complete, El Wazir said (watch, runtime: 6:16). The expansion of the stretch of the freeway running from El Assar corridor to the Alexandria agricultural road will be done by the end of the month, according to the minister. Once these expansions are complete, the ministry will finalize outfitting the freeway with new intelligent transport system (ITS) cables and upgrading the electricity network, with an eye to complete all of this by February, El Wazir said.

LRT trials are now underway: The planned Al Salam City-new capital-Tenth of Ramadan City light rail train (LRT) is about 95% complete and the ministry is currently working on trial operations for the electric line, El Wazir said. The trials are set to wrap by the end of March, with an eye to launch the line in April, according to the minister (watch, runtime: 3:25).

Abu Qir metro upgrade on track: Construction work on the Abu Qir-Alexandria metro conversion project will begin in January or February, El Wazir said (watch, runtime: 02:22). El Wazir added that the current rail line will continue operating until all design plans are complete, without disclosing when that will be. The new electrified metro will be 22 km long in its first phase, connecting Abu Qir to Alexandria’s Mahatet Masr, and will connect to Borg El Arab in later stages.

Elsewhere: Explaining Egypt’s new “political consultation mechanism” with the GCC: Egypt kicked off a new consultation mechanism with the members of the Gulf Cooperation Council (GCC) yesterday, which is designed to tighten ties between Egypt and the Gulf on regional and international issues of mutual interest, Foreign Minister Sameh Shoukry explained to El Hekaya’s Amr Adib. In the first meeting under the new mechanism, which Shoukry attended in Riyadh yesterday, Egypt and the GCC members discussed the current situations in Libya, Sudan, and Afghanistan. The GCC ministers also backed Egypt on its position in its negotiations with Sudan and Ethiopia on the Grand Ethiopian Renaissance Dam, Shoukry told Adib (watch, runtime: 7:46)

It’s a quiet morning for Egypt in the foreign press, with the only story worth noting is this analysis piece from the Times of Israel suggesting that Israeli Alternate Prime Minister Yair Lapid’s visit to Egypt last week signals an emerging political, security and energy alliance between the two countries.

A couple of things we’re keeping an eye on this morning:

• Digital payments firm PaySky partnered with Egypt Post and Visa to launch payments super-app Yalla on Thursday.
• Egypt signed a contract with the Czech Republic’s UJV Rez to provide technical assistance and consult on the Dabaa nuclear power plant’s operations.

The Health Ministry reported 863 new covid-19 infections yesterday, down from 879 the day before. Egypt has now disclosed a total of 369,198 confirmed cases of covid-19. The ministry also reported 45 new deaths, bringing the country’s total death toll to 21,060.

A two-dose Pfizer course is only 22.5% effective in preventing symptomatic infection from Omicron, according to additional data from an early South Africa study that had last week revealed the variant’s effect on the vaccine, according to Bloomberg. The study found that the vaccine still offered “sufficient protection” against severe diseases resulting from infection.

But booster shots can increase vaccine effectiveness against Omicron to 70-75%, another UK study showed, according to Bloomberg. The analysis, which looked at people jabbed with two doses of either Pfizer or AstraZeneca and who were infected with Omicron, also confirmed that two doses were much less effective against Omicron than the delta variant.

G7 delegates square up to Russia on Ukraine: The foreign ministers of the Group of Seven forum have warned Russia of “massive consequences and severe cost” if it were to attack Ukraine, in a joint statement released after the officials met in Liverpool on Saturday and Sunday. American intelligence assessments reportedly suggest that Russia, which has been amassing troops on its border with Ukraine, could be planning to invade the country as early as next year. The US has been doing its own outreach on the issue in recent weeks, with President Joe Biden deploying both carrots and sticks in attempts to dissuade Russian President Vladimir Putin from making the move.

Health costs pushed more than half a bn people into or further into extreme poverty in 2021, according to two reports released by the World Health Organization (WHO) and the World Bank yesterday to mark Universal Health Coverage Day. Healthcare provision for poorer families globally was already dire before the pandemic, according to the two reports, and may get yet worse next year as governments deal with tighter budgets and incomes fall.

In other bad health news: Immunization rates fell for the first time in ten years last year, while deaths from malaria and TB increased, according to the reports.