AM — Saudi retailer eXtra is coming to Egypt + CI Capital just got the green light to acquire a chunk of Cleopatra Hospitals

Good morning, wonderful people, and welcome to another chilly morning. It’s a reasonably quiet news morning at home (by 2020 / 2021 standards) and the omicron strain of the bug that causes covid-19 still tops front pages globally.

PSA- School’s out (again) in seven governorates, including Cairo, Giza, Damietta, Alexandria, Matrouh, Beheira and Kafr El Sheikh. All have shuttered classes for the day as the national weather service expects rainfall, wind, and exceptionally cold temperatures across most of the country today, Youm7 reports. Expect a daytime high of just 15°C in the capital city, according to our favourite weather app.

*** Tell us what you expect for the year ahead — and get a chance to have breakfast with us in 2022: Every year, we ask our readers to weigh in on what you expect for the year ahead in our Enterprise Reader Poll. Take a few minutes to tell us your take on the outlook for your business and industry, whether you’re planning fresh investments and new hires, and how your business fared in the year past. We’ll share the results with the entire community in early January to help you shape your view of the year.

We’ll be inviting eight readers who take the poll to breakfast in 2022 and another dozen of you will get your own Enterprise mug to enjoy your morning beverage of choice.

THE BIG STORY ABROAD on this reasonably chilly morning: Omicron, omicron and still more omicron. We’re not going to see March 2020-style lockdowns again, but:

• Canadian provinces and European countries are reimposing restrictions including quarantines and limits on travel. They’re also ordering stores, bars and gyms to close and postponing sports matches;
• Officials are warning omicron will strain hospitals in the United States and Canada;
• Prominent CEOs and US senators are coming down with the bug;
• The virus is both starting to hit businesses in the west and stoke fears among central banks that it could sustain inflation;
• And there are signs that at least some elite universities in the US will be going back to remote learning for a period after the Christmas break.

In second place this morning: A so-called “moderate” Democrat appears to have single-handedly torpedoed US President Joe Biden’s USD 1.75 tn Build Back Better spending initiative in a story that is everywhere in the US press and getting lots of ink in Europe and on the wires.

The nutter in Ankara just can’t help himself: Erdogan has sent the TRY into another spiral after promising still more rate cuts. Markets sage Mohamed El Erian has been left to simply shake his head, warning the country risks going from a currency crisis to a full-blown economic meltdown.

MORNING MUST READS from the dumpster fire that is our social media:

• Spider-Man has restored box office hopes with a massive opening weekend for Spider-Man: No Way Home in what is the third-best opening haul in the history of cinema. Ticket lines in Egypt match those globally.
• What does 2022 have in store for EM, US and European equities? Have a look through the FT’s crystal ball.
• A headline presented without comment: Property values in the metaverse are surging. A landlord who owns land in Decentraland and The Sandbox explains how to pick a location, and shares the top 7 metaverses to consider for the best appreciation value.

ALSO- He bombed the Nazis, outwitted the Soviets and modernized Christmas — meet the remarkable Jewish-American dude who invented the artificial tree.

CIRCLE YOUR CALENDAR-

PSA- EgyptAir resumes direct service to Toronto from Cairo tomorrow after briefling shelving the flight when Canada included us in a (heavily criticized) ban on entry for folks from 10 African countries, including Omm El Donia.

Swvl and Magalix are holding a virtual fireside chat titled Stories of Women in the Tech Field tomorrow, 21 December, at 7pm. Connect to the event here.

PSA- Property owners have until Friday, 31 December to pay the second installment of their annual real estate taxes without incurring a late fee, Tax Authority boss Anwar Fawzy said in a statement yesterday. The first installment was due between 1 January and 30 June. Homeowners whose primary residence is valued at less than EGP 2 mn are exempt from paying the tax, Fawzy noted.

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: Egypt shifted towards more edtech and innovation in 2021: After spending large swathes of 2020 and early 2021 either learning online, or using a blended model, Egypt’s K-12 and university students returned to in-person classroom learning in 2H 2021. But interest in edtech didn’t wane — in fact, covid seemed to accelerate the demand for particular kinds of tech-based learning, like learning to code. Consequently, pre-covid education goals — like fostering innovation and teaching STEM skills — are, once again, high priorities for institutions and education leaders.

Saudi electronics retailer Extra plans to spend EGP 1 bn to launch in Egypt, marking the company’s first expansion outside the GCC region, Extra said in a Saudi regulatory filing. The Tadawul-listed company — formally known as United Electronics Company and one of the largest consumer electronics companies in the region — will establish a subsidiary in Egypt under plans approved by the board last week, as it looks to tap the biggest consumer market in the Middle East.

Extra is targeting a 10% market share in Egypt over the next decade, CEO Muhammad Jalal told CNBC Arabia, adding that the local Egyptian market is worth around SAR 25 bn (c.USD 6.7 bn).

The company will finance the expansion with a mixture of equity and debt: Extra (which writes its name as eXtra) will fund the initial investment through a mixture of self-financing and borrowing, according to the disclosure, which said to expect further announcements on the details as they develop. CNBC Arabia yesterday reported Jalal as having said the Egyptian subsidiary would be wholly self-financed with company equity, while adding that additional financing could be made available if necessary. He said the company generally targets a 1:1 debt-to-equity ratio in its investments.

eXtra’s footprint: The company currently has 42 stores across Saudi, a store in Bahrain, and another in Oman, and will also be adding four stores in Saudi Arabia and Oman. It’s also investing in a new distribution center for its e-commerce business.

The decision to invest in Egypt comes on the back of solid earnings in 2021, with the company reporting (pdf) a 52% y-o-y increase in net income during the first nine months of the year.

CHG gives the nod to CI Capital’s acquisition bid: Cleopatra Hospital Group’s (CHG) board of directors has approved a bid from CI Capital to acquire up to 26.2% of the company, according to an EGX filing. MCI Capital Healthcare Partners, the CI Capital subsidiary that’s executing the acquisition, last week got the greenlight from the FRA on its voluntary tender offer to purchase up to 419.3 mn shares at EGP 5 apiece, valuing the company at EGP 8 bn.

The rationale: CI Capital’s offer is 14% higher than CHG’s average share price over the past six months, which stood at EGP 4.40, and 12% above the company’s average share price during the three months prior to the offer, roughly EGP 4.46, the board noted. The fair value of the company has not been assessed by an independent financial advisor, a source familiar with the matter previously told Enterprise.

CHG’s shares dipped 0.8% yesterday, closing at EGP 4.86 per share, but have generally traded higher since surging 4.7% to close at EGP 4.70 on 8 December, the day the acquisition was announced.

What’s next for shareholders? CHG shareholders have until Sunday, 26 December to subscribe to MCI Capital’s VTO, according to the timeline set by the EGX last week. Shares will change hands within five working days of the end of the tender offer, by Sunday 2 January.

Shareholders already on board: Creed Healthcare, which owns 37.9% of CHG through its subsidiary Care Healthcare, has agreed to sell an 8-12% stake in the company from its holdings (126 mn-192 mn shares) at the offer price. Emerging markets private equity giant Actis manages Neoma Private Equity IV, which is the single largest shareholder in Creed. Mid-market investment firm RMBV’s Ahmed Badreldin helped create Cleo and is now chairman of the board, sitting as a representative of Creed.

The CHG transaction caps a strong year for CI Capital, which most recently advised Aldar and ADQ on their acquisition of an 85.5% stake in upmarket real estate developer SODIC. CI has now closed six transactions in Egypt worth a combined USD 1.6 bn in 2021, the firm said yesterday in a statement (pdf). On the IPO front, CI was the sole global coordinator and bookrunner for the USD 131 mn listing of Taaleem and was joint global coordinator and bookrunner on the IPO of e-Finance, Egypt’s biggest listing in the past decade.

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

EDITOR’S NOTE- Corrected on 26 December, 2021.

A previous version of this story stated that MCI Capital would purchase up to 339.3 mn shares in Cleopatra Hospital Group. The correct figure is 419.3 mn shares. 

Three major tobacco companies have reportedly chosen not to bid for a license to manufacture cigarettes: International tobacco producers JTI-Nakhla Tobacco, British American Tobacco Egypt and Al Mansour International Distribution Company will not be taking part in the renewed tender from the Industrial Development Authority (IDA), Akhbar El Youm reports. In a letter to the Federation of Egyptian Industries’ (FEI) cigarettes division, a copy of which Akhbar El Youm said it has obtained, the companies said they were “surprised” by the IDA’s decision to re-launch the tender this month and would decline to participate, citing continued concerns over the tender’s allegedly unfair conditions.

“New” terms fail to assuage monopoly concerns: The trio of tobacco-makers said that the latest set of conditions for the tender, issued by the IDA in December, would “create a situation resembling a monopoly in Egypt’s cigarette market,” adding that the authority had not taken into account changes proposed by the companies over the summer to address their concerns.

The three companies didn’t take part in the last bidding round in August either. Tobacco giant Philip Morris was the only company to take part in an August bidding round for the new license, while the three other tobacco companies filed grievance letters to the Madbouly cabinet and requested a deadline extension until 1 December.

Companies should not be expected to take a “supporting role” for another company that owns a large portion of the local cigarette industry, FEI cigarettes division head Ibrahim Embaby told Akhbar El Youm in a veiled reference to Philip Morris, whose market share exceeds 24%.

Why are the companies displeased? The new booklet maintains the stipulation that the new market entrant will have to take EGX-listed, state-owned tobacco giant Eastern Company on board as a 24% shareholder. The new license will also still authorize the distribution of e-cigarettes and “heated tobacco” products, which companies previously argued would create a monopoly and put other cigarette companies at a disadvantage.

Reminder: The new entrant would be required to approach Eastern to reach a commercial agreement to make a product for domestic distribution in the “low-tax” cigarette segment on a toll-manufacturing or joint-venture basis at Eastern’s facilities, a senior executive at the state-owned player told Enterprise previously.

Background: Earlier this month, the IDA relaunched its tender to allow a second company to enter the tobacco market as a manufacturer and seller of traditional and electronic cigarettes. The new conditions booklet for the license is largely unchanged from those back in March of this year, which earned backlash from tobacco players, who argued that the terms of the license would give preferential treatment to Eastern. The terms have now been redrafted three times.

The Transport Ministry is in negotiations with five international financial institutions to help fund the construction of the planned Aswan-Toshka railway line, Al Mal reports, citing unnamed sources. The European Bank for Reconstruction and Development, European Investment Bank, World Bank, Asian Infrastructure Investment Bank, and Islamic Development Bank are all reportedly in talks to fund the 280 km line, which is expected to take between 24 and 36 months to be constructed. Enterprise was unable to reach a ministry representative to confirm the report.

The project has already lined up some financing: An unspecified part of the EUR 3.6 bn financing package agreed with the French government earlier this year will be allocated to the project.

The Aswan-Toshka line is the first phase in a larger project that will establish a rail link between Egypt and Sudan, with a second phase planned to connect Toshka to the Sudanese border town of Wadi Halfa.

The Health Ministry reported 919 new covid-19 infections yesterday, up from 902 the day before. Egypt has now disclosed a total of 375,330 confirmed cases of covid-19. The ministry also reported 46 new deaths, bringing the country’s total death toll to 21,361.

Top brass from the government and Central Bank of Egypt (CBE) will sit on a joint committee to align monetary and fiscal policy, under a presidential directive published in the Official Gazette (pdf). Headed by Prime Minister Moustafa Madbouly, the council will include CBE Governor Tarek Amer, deputy governors Gamal Negm and Rami Aboulnaga, Planning Minister Hala El Said, Finance Minister Mohamed Maait, and Vice Minister of Finance Ahmed Kouchouk. Several economic experts will also be on the committee, including former planning minister Ashraf El Arabi, head of the Federation of Egyptian Banks Mohamed El-Etreby, and former deputy PM Hossam Eissa.

BACKGROUND- The committee is provided for by the 2020 Central Bank and Banking Act, which mandated the setup of a joint government-CBE committee to help ensure “financial stability,” particularly during times of economic crisis.

Valeo Egypt has appointed Tamer Aly (LinkedIn) as general manager of its software development center specializing in research and development for automotive software, according to a press release. Aly was previously the global software research and development director at Valeo, and has been with the company for some 16 years.

The airwaves were awash with coverage of … weather — even as Kelma Akhira’s Lamees El Hadidi noted that Giza and Cairo are facing what can only be described as typical winter weather. Alexandria is a bit of a different story, because of high waves that displace sand and affect the corniche, Governor Mohamed El Sherif said (watch, runtime: 11:58). Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 3:59), Masaa DMC’s Injy Al Qadi (watch, runtime: 6:08), and Al Hayah Al Youm’s Lobna Assal (watch, runtime: 3:09) also talked about the weather conditions.

The Finance Ministry doesn’t have any further tax increases in store for the current fiscal year, Minister Mohamed Maait told Ahmed Moussa. Maait spent the better part of an hour explaining the latest round of amendments to the VAT Act, which introduced the tax on some services and products, including ads, while reducing or scrapping altogether the value-added tax on others.

Maait was forced to deliver a lesson in basic economics, explaining to Moussa why taxes are a key source of revenue for the state and how taxes are used to finance state expenses and investments, such as wages and new infrastructure projects. Moussa in turn suggested it would be better for the government to borrow more, rather than enact tax hikes, to finance state spending (watch, runtime: 47:27). There are literally no words.

Egypt’s EV push is leading the conversation on Egypt in the global business press, with Bloomberg picking up the story of El Nasr Auto’s search for a Chinese partner with whom to assemble electric vehicles here in Egypt.

Human rights is getting attention again this morning, with Human Rights Watch criticizing the use of emergency trials in a statement issued one day before a state security court issues a verdict in the case of Alaa Abdel Fattah, lawyer Mohamed Al Baqer, and blogger Mohamed “Oxygen” Ibrahim. Expect a verdict today.

Brace yourself for pricier wheat as Russia mulls raising export tariffs on the grain: Russia, the world’s largest wheat exporter, is considering imposing higher export tariffs if wheat prices reach USD 375 / ton, with a bigger hike proposed if prices reach USD 400 / ton, according to a government proposal that would see Moscow revise the formula used to determine the tariff. Prices are still trading at lower than the threshold above which the tariff would be raised, with wheat from Black Sea ports trading at USD 335 / ton as of last week, according to Bloomberg. Egypt, the world’s biggest wheat importer and previously Russia’s biggest buyer, has been forced to diversify its wheat purchases as it faced steeper import bills this season with wheat prices surging to their highest in years.

Anchorage Investments has appointed New York-based Duff & Phelps as financial advisor on their USD 2.5 bn petrochemical complex in the Suez Canal Economic Zone, according to a press release (pdf).

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

• Egyptian e-commerce website builder zVendo has launched zVendo Food, a new service tailored to the F&B sector that allows vendors to create web stores and mobile apps, according to a press release (pdf).
• Elsewedy Electric subsidiary Rowad Modern Engineering was awarded (pdf) a EGP 996 mn contract to construct the Mivida Office Park for Emaar Misr, and another 602 mn contract to construct the New Giza Hospital for New Giza (pdf).

At least one dead in mass protests in Sudan: One demonstrator was shot dead by security forces and 200 were injured during mass protests in Sudan’s capital Khartoum yesterday. Hundreds of thousands took to the streets on the anniversary of the 2019 uprising that dethroned President Omar Al-Bashir, protesting the coup led by military chief Abdel Fattah Al Burhan led in October. Burhan’s reinstating of Prime Minister Abdalla Hamdok after a month under house arrest, and his promise to hold democratic elections in 2023, did little to quell protests, with pro-democracy demonstrators demanding full return to civilian rule. Burhan currently still has political authority and oversight over the civilian leadership. The demonstrations received substantial ink, from BBC and Voice of America to Sky News and The Guardian.

ALSO- Lebanon could reach an initial agreement for an IMF program in January or February, after the financially battered country’s financial sector posted a USD 69 bn loss, the deputy prime minister said, according to Reuters.