AM — IDH moves into Pakistan with acquisition

Good morning, friends, and happy hump day. It’s still crisp out there — 8°C in the capital city as we hit “send” on this morning’s edition. Our favourite weather app is calling for a high today of 18°C, so bundle up, grab yourself a cup of coffee or hot chocolate, and let’s get this show on the road:

Your spell of easy commutes are over: Expect traffic to be as congested as usual this morning as schools are back in session in Cairo and Alexandria after having been closed yesterday due to bad weather conditions. El Beheira appears to be the only governorate where classes will remain suspended today to wait out the rest of the storm.

The stormy weather prompted authorities to close eight ports — Ain Sokhna, Port Said West, Port Said East, Al Arish, Port Tawfiq, Al Zayteyat, Sharm El Sheikh, and Adabiya — until conditions improve, Reuters reports.

A solution for Alexandria’s drainage issues is in the works: Plans to split Alexandria’s rain drainage system from the city’s main sewage network, which would help increase capacity for containing rainwater in events of heavy rainfall on the city, will soon be drawn up, cabinet said in a statement. The order from Prime Minister Moustafa Madbouly came following a meeting yesterday to discuss solutions for infrastructure issues facing the coastal city, including the rapid flooding of streets during storms and following heavy rainfall, which has led to several days of school closures.

***

WANT TO HAVE BREAKFAST WITH US? 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 give 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 very own Enterprise mug in which to enjoy your morning beverage of choice.
***

WHAT’S HAPPENING TODAY-

WATCH THIS SPACE- Electric vehicle production could be in line for some “incentives” from the government, Finance Minister Mohamed Maait said at a business event yesterday, Al Shorouk reports. Maait signaled that the incentives could be part of a wider package of measures for the automotive industry, which Prime Minister Moustafa Madbouly signaled earlier this month could finally see the light before the year is out. These incentives, known as the automotive strategy, could include customs reductions on a sliding scale based on the percentage of domestic components used.

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

???? Is there anything better than a warm sandwich and a hot cup of coffee on a cold winter day? We think not — which is why we’re chuffed that Sahel staple Sando has opened in the capital city. Nada Amin, a top-ranked research analyst at EFG Hermes in another life, created the brand with her brother and now serves Japanese-inspired sandwiches from their new location on the Walk of Cairo (gate two), with delivery to Zayed and Smart Village. Check them out at Sando.Haus on IG.

Our favourites: Tiger’s treat and the samurai sando. Throw in a “kawaii” for good measure — Sando’s take on a classic PB&J.

THE BIG STORY ABROAD is news that the omicron variant now accounts for nearly 75% of all new cases in the United States, underscoring how fast this particular bug spreads. The story leads the front pages of the global business press, from the FT to the WSJ and Axios.

Nato is ready to talk things out with Russia: Nato allies are “resigned” to the need to open dialogue with Russia despite the “impossibility” of many of Moscow’s demands in hopes of defusing tensions over Moscow’s military build-up on its border with Ukraine, the Financial Times reports.

SIGN OF THE TIMES- Investors poured USD 30 bn into crypto this year, Fortune reports, saying that’s more than all the previous years combined. Bloomberg has more.

MARKET WATCH-

It was a rare good day for the TRY yesterday, which posted the strongest one-day gain since 1983 after Turkish President Recep Tayyip Erdogan announced measures to shore up the currency that has taken a beating from Erdogan’s insistence on cutting interest rates, Bloomberg reports. After falling to a fresh record low of 18.36 against the greenback earlier in the day, the TRY soared 47% from its intraday low. The announced measures include a vow that the government will compensate TRY deposit holders for their losses from TRY volatility if the currency’s “declines against hard currencies exceed interest rates promised by banks.”

Except … not so much? The TRY is down so far today in early trading in Asia, Bloomberg reports.

Not having a good day: Oil, which plunged on its worst day this month, with WTI futures for January closing down 3.7%, trading at around USD 68 / bbl on the back of growing concerns over the Omicron variant’s spread, ramped up covid-19 restrictions and the derailment of US President Joe Biden’s Build Back Better spending initiative, according to Bloomberg.

CIRCLE YOUR CALENDAR-

PSA- Property owners have until Friday, 31 December to pay the second installment of their annual real estate taxes without incurring a late fee. 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.

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

*** It’s Going Green day — your weekly briefing of all things green in Egypt: Enterprise’s green economy vertical focuses each Tuesday on the business of renewable energy and sustainable practices in Egypt, everything from solar and wind energy through to water, waste management, sustainable building practices and how you can make your business greener, whatever the sector.

The green economy in 2021: Part I. 2021 saw Egypt demonstrating its commitment to using greener forms of energy generation, announcing several big renewables projects, kickstarting the process of converting thousands of vehicles to run on natural gas, and moving forward with plans to locally produce electric vehicles. Progress was somewhat stunted by the global economic backdrop, which was characterized by supply chain snarls and soaring commodities prices.

Consumer healthcare giant Integrated Diagnostics Holdings (IDH) will acquire a major stake in one of Pakistan’s largest diagnostics providers, marking the company’s entrance into South Asia and giving it access to one of the biggest markets in the region. The LSE-and EGX-listed company announced yesterday in a regulatory filing (pdf) that it has signed an agreement to purchase a 50% stake in the owner of Islamabad Diagnostic Centre (IDC), which operates more than 80 labs across the country.

The transaction: IDH will acquire a 50% stake in Base Consultancy, a special purpose vehicle that owns 100% of IDC, at a cost of USD 72.35 mn. The selling shareholder is UAE-based Evercare Group, a healthcare platform managed by global private equity firm TPG and backed by its Rise Fund.

How big is IDC? The company’s revenues grew 208% year-on-year to USD 46 mn in the fiscal year ending 30 June 2021, with a very healthy EBITDA margin of about 48% and net income of nearly USD 14 mn (good for a margin of nearly 30% on the bottom line). The company plans to hit 100 branches by 2023 and is looking to push into 8-10 new cities in the next two years, adding to its 30-country footprint. IDC served nearly 2 mn patients and performed around 3 mn tests in the 12 months ending 30 June.

IDH’s LSE-listed shares rose 2.3% on the news, closing the session at USD 1.34 per share. On the EGX, IDH’s stock price was unchanged, trading at EGP 19.50 per share.

Crunching the numbers: IDH will fund the transaction with a mixture of debt and cash on hand, including a USD 45 mn eight-year facility it lined up in May from the International Finance Corporation (IFC) and a USD 15 mn IFC syndicated facility from Mashreq Bank.

Pakistan is a huge market: The transaction will see IDH adding a fifth country to its portfolio, along with Egypt, Jordan, Sudan, and Nigeria, giving it access to the world’s fifth-most-populous country. Pakistan’s population exceeds 200 mn, 63% of whom are under the age of 30. Out-of-pocket payments make up around 56% of the country’s healthcare-related expenses.

IDC ticks all the boxes: “[The acquisition] is fully aligned with our regional expansion strategy that targets high-growth and underpenetrated markets where our platform is well-suited to deliver exceptional quality of care to a broad and growing patient-base,” said IDH CEO Hend El Sherbini. “Pakistan’s young population and lagging investment in healthcare provide for significant future potential.”

The geographical expansion comes on the back of solid earnings for IDH, which saw revenues more than double in 3Q2021 and net income jump 138% y-o-y to EGP 479.7 mn.

Family business success story: IDH is a leading provider of diagnostic services, best known in Egypt for its Al Borg and Al Mokhtabar brands, the two largest players in the market. You can read more about how the family-run business managed to successfully transform into a publicly-traded institution in our interview with IDH CEO Hend El Sherbini here.

What’s next: The transaction is expected to close in 1H2022 as it is still subject to the satisfaction of a few key conditions, including the approval of the Pakistani regulator, which is expected to be received within three to six months. As part of the transaction, Evercare’s representatives on IDC’s board will step down and be replaced by new directors from IDH, which will hold four of the seven seats. IDC founder Rizwan Uppal will continue to serve as chairman and CEO following the acquisition, while his brothers — Rehan and Imran — will remain on the company’s board.

ADVISORS- Renaissance Capital is sole financial advisor to IDH for the transaction and financing, while White & Case acting as international counsel, Chima & Ibrahim Advocates / Corporate Counsel as local counsel. Ernst & Young Global is advising on financial and tax due diligence. EFG Hermes (pdf) is exclusive financial advisor to TPG, with Debevoise & Plimpton LLP acting as counsel and RIAA Barker Gillette as counsel to IDC.

Nestlé Egypt is investing EGP 700 mn in new production lines at its Sixth of October factory between 2021 and 2025, CEO Moataz El Hout said during Prime Minister Moustafa Madbouly’s visit to the facility yesterday, according to a cabinet statement. The company has already invested EGP 100 mn of the allotted amount in a new production line that Madbouly inaugurated yesterday.

IN OTHER INVESTMENT NEWS-

Indian plastic packaging manufacturer Uflex is planning a new USD 30 mn chemicals plant in Egypt, according to a cabinet statement. The announcement came during Madbouly’s inauguration of a new plastic films production line yesterday at the company’s USD 100 mn Sixth of October factory, which the cabinet says is the first of its kind in the MENA region.

The factory is operated by Uflex’s global film manufacturing arm Flex Films, which has so far invested USD 200 mn in its Egypt operations, the statement says. The company produces 125 tons of plastics per year from its Sixth of October factory, and exports 60% of its production to 60 countries, bringing in USD 190 mn per year.

Misr Life Ins. Company and the National Bank of Egypt have launched (pdf) an EGP 50 mn equity fund to be managed by the bank’s investment arm Al Ahly Financial Investment Management. Subscription to the Al Ahly Life fund started on Sunday through NBE branches nationwide and will run for two months.

UAE’s Al Nowais is looking to invest in desalination and green hydrogen projects in Egypt, Chairman Hussain Al Nowais tells Bloomberg Asharq. Al Nowais did not provide details on the capacity of the projects, the expected investment values, or the anticipated timeline for these ventures.

Where do things stand at present? The firm is waiting on the Egyptian government to launch tenders for desalination plants and has “signaled its interest” in investing in these projects, Al Nowais said. On the green hydrogen front, Nowais is putting together a consortium with Japanese, Italian, and German firms to invest in green ammonia production, which can be used as a carbon-neutral fuel for aircraft.

Desalination + a green hydrogen debut are both big on Egypt’s agenda, especially ahead of next year’s COP27 summit in Sharm El Sheikh, with the government seeking private sector funding for a host of new green projects. The Sovereign Fund of Egypt is looking to build and run 17 new desalination plants at an aggregate cost of about USD 2.5 bn, as part of its larger plans to tackle water security. Our very first green hydrogen plant in Ain Sokhna is also set for construction next year, with plans to showcase it at the summit.

The company is a new anchor investor in Egypt’s renewables industry: Al Nowais is currently constructing a 500 MW solar plant in Kom Ombo and a 500 MW wind project in Ras Ghareb, with plans to complete the two projects within 2-3 years at a cost of USD 1 bn.

But the solar project has run into problems: This comes a couple of months after the company asked to delay the solar plant project, extending its fundraising period to June 2022, as a result of inflationary pressures. Earlier reports claimed that the firm could even sell the plant. The company had also planned to build a USD 4 bn “clean coal” power station in Oyoun Moussa, but the project was scrapped due to its high cost, our electricity surplus, and the government’s shift towards renewables.

AUB is getting USD 82 mn to on-lend to SMEs + green projects: Ahli United Bank Egypt (AUB) will receive an USD 82 mn financing package for on-lending to SMEs from the European Bank for Reconstruction and Development (EBRD), the EU and Green Climate Fund (GCF), according to an EBRD press release. The funding will be divvied up between SMEs working on green projects and others “that remain underserved despite their crucial role to the Egyptian economy,” the statement reads.

What’s in the package? The financing package consists of a USD 10 mn value chain loan under the EU-funded Trade and Competitiveness Programme and a USD 12 mn green value chain loan supported by the GCF and the EU, both of which were first announced by the lender back in August. The package also includes a USD 30 mn credit line for on-lending to SMEs, and a USD 30 mn trade facility under the EBRD Trade Facilitation Programme (TFP).

The package is aimed at boosting access to finance for small businesses and encouraging green projects, with the two value chain loans earmarked for SMEs in agribusiness, manufacturing, logistics and IT with projects related to “climate change mitigation and adaptation technologies and services.” The credit line will see AUB lend to underserved SMEs, including located in areas other than Greater Cairo and Alexandria, while the trade facility will be used to support AUB’s trade-financed instruments to “fund trade-related loans for pre-export and post-import financing and local distribution of imported goods.”

The EBRD has been very active in SME lending, especially for green projects, in Egypt: Its green economy financing facility (GEFF), which has been up and running in Egypt since 2017 has channeled some EUR 140 mn to green investments by private companies through local banks. An EUR 150 mn extension, financing business in agriculture, construction and manufacturing, was announced in November 2020. The EBRD greenlit a USD 25 mn loan to the National Bank of Kuwait Egypt in April, a USD 50 mn loan to QNB AlAhli in June, and two loans to Intro Sustainable Resources (IRS) and Banque Misr announced in November.

Startup Bekia is looking to raise USD 1 mn to help it expand to the UAE and Saudi Arabia in 1Q2022, CEO Alaa Afifi told Al Mal. The company hopes to close an initial USD 1 mn round in the first quarter of next year and will deploy the funds for its expansion, as well as to develop its existing services and attract new customers, Afifi said.

Bekia rewards you for your trash: The online platform allows users to exchange solid waste such as old electronics, plastic, paper and tin for goods and services such as groceries, mobile credit and metro tickets. The waste is then sold to recycling factories and SMEs.

The company hopes to grow its business by 25% in 2022. The firm, which currently operates in Cairo, Giza and Alexandria with a fleet of 20 trucks, is also planning an expansion into other governorates, he added. The company raised a USD six-figure investment from Oman-based OTF Wadi in 2019.

Sakneen launches new algorithmic pricing tool: You can now see estimated market value, cost-to-finish and rental potential of homes in major residential compounds on a map through real estate portal Sakneen’s new algorithmic pricing tool, according to a press release (pdf). The tool uses data points such as land cost, location, and previous sale values to estimate home prices and help home buyers make smarter decisions, said CEO and co-founder Ramy Khorshed (Morning Routine).

Next steps: The tool is launching with projects in 6 of October City, including Palm Hills, New Giza and Pyramid Heights, and is set to expand to East Cairo, Downtown and the North Coast.

About Sakneen: Launched in 2020, Sakneen is a real estate marketplace aiming to connect real estate developers and agents directly with prospective homebuyers, mainly through a search engine that allows users to search for homes through filters like down payment, monthly payment, NPV and travel times. The startup raised USD 1.1 mn in an oversubscribed seed round led by Algebra Ventures earlier this year, following a USD 150k pre-seed round from Y Combinator last year.

Snowfall in Alexandria yesterday meant the talking heads were once again mostly preoccupied with weather conditions. The story got coverage (and comparisons to “European winters”) from Kelma Akhira’s Lamees El Hadidi (watch, runtime: 4:22), Al Hayah’s Lobna Assal (watch, runtime: 11:39), and El Hekaya’s Amr Adib (watch, runtime: 6:17).

Mohieldin on what global inflation means for the 2022 outlook: Global inflation is on the rise — with the exception of many Asian markets — but it’s unclear as of yet whether it is transitory or if movements by central banks will be able to rapidly contain it, IMF Executive Director Mahmoud Mohieldin told Lamees (watch, runtime: 23:03). Although China is among the Asian markets not facing immediately pressing inflation figures, its central bank enacted a very minor rate cut (as we note in Planet Finance, below) to signal to investors that it’s moving towards prioritizing economic growth. Meanwhile, the US Federal Reserve is moving to address domestic inflation by tapering its asset purchase program and signaling successive rate hikes next year, which will likely take portfolio investors away from emerging markets as the carry trade becomes less attractive.

The best way to override the effects of inflation? Besides taking the necessary monetary and fiscal policy actions, the key for governments — particularly in emerging markets, including Egypt — is to focus on investments that spur growth and therefore avoid stagflation, Mohieldin said, pointing to Asian markets as a success story to follow. This will also be particularly important to counteract dropping portfolio investments and hot money, he noted. With the emergence of Omicron and ensuing lockdowns, the overall outlook for global economic growth is expected to be revised downwards, Mohieldin said. While national megaprojects and other major state-led investments are positive for the economy and create jobs, growing local industry and shoring up exports would have an even stronger positive effect on the economy, he said.

Yesterday’s sentencing of prominent activist Alaa Abdel Fattah to five years in prison is getting wall-to-wall coverage in the international press. Abdel Fattah was tried on charges of spreading fake news, along with blogger Mohamed “Oxygen” Ibrahim and lawyer Mohamed El-Baqer, who were each sentenced to four years. The story is everywhere from Europe to the United States: Financial Times | New York Times | Wall Street Journal | BBC | Reuters | DW | France 24 | Washington Post.

Also making headlines:

• A court has upheld a life sentence for acting leader of the Muslim Brotherhood Mahmoud Ezzat on terrorism charges, after he appealed the sentence first handed down in April. (The National)
• Building a new port city east of Alexandria is raising environmental concerns, as the city will involve reclaiming parts of the coast, potentially destroying marine life in the area. (Al Monitor)

CIB signs on to UN financial inclusion initiative: Our friends at CIB are among the founding signatories of a UN-led commitment with 27 other global banks promising to take the lead on financial inclusion, the bank announced in a press release (pdf). Under the Commitment to Financial Health and Inclusion, CIB will set targets “that make a substantial contribution to the financial health and inclusion of societies,” reporting back on its progress within 18 months. Launched at the start of December, the commitment comes under the Principles for Responsible Banking, a framework launched by the United Nations Environment Programme Finance Initiative, where member banks make pledges to take climate action. Egypt’s largest private bank is so far the only institution in MENA to sign on to the pledge.

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

• Regulations for installing EV charging stations — developed in partnership with the EU — will be published in January.
• Spain returned 36 ancient Egyptian artefacts, which include figurines of ancient gods and goddesses Egyptian officials. A Spanish court ordered their return on Monday.

The Health Ministry reported 903 new covid-19 infections yesterday, down from 919 the day before. Egypt has now disclosed a total of 376,233 confirmed cases of covid-19. The ministry also reported 49 new deaths, bringing the country’s total death toll to 21,410.

Israel is pulling up the drawbridge: Israel has banned flights with 10 countries including the US, Germany and Canada in response to the spread of the variant. Other countries on the list include Belgium, Hungary, Italy, Morocco, Portugal, Switzerland and Turkey. (AP)

No New Year’s Eve parties for Morocco: The kingdom has canceled official New Year’s Eve celebrations and imposed a curfew on 31 December due to concerns over the rapid spread of the Omicron variant, state news agency MAP reported.