AM — What holiday news slowdown?

Good morning, friends, and welcome to another busy news day. The usual end of year news slowdown? Ain’t happening this year, even though we were bombarded by a record number of “out of office” replies Monday and yesterday.

SOUND SMART- You’re not “OOO” you’re “out of the office.” And you really, truly don’t have “limited access” to your mail — it’s on your phone. So copy and paste this: “Thanks for writing. I’m out of office until [xx date] and won’t be checking email during that period. I’ll get back to you when I return to the office, or you can contact [xx foulan] in the meantime if you need urgent assistance.” Don’t offer them your mobile number. You don’t want to hear from them. And if you _do_ want to hear from them (and / or if it’s really, actually, fantastically urgent) odds are good they already have your mobile number saved.

THE BIG STORIES here at home this morning are typical of the stuff that’s kept us all busy in 2021: M&A and investment are at the top of the issue.

THE BIG STORY ABROAD is (what else?) omicron after the US Centers for Disease Control halved to five days its recommended period of isolation for folks who have covid-19. The story leads everything from Reuters and the Financial Times to the Wall Street Journal and New York Times this morning.

PSA- The long-range forecast is still calling for a lot of rain, but our favourite weather app now sees the downpour starting a bit later and is predicting total rainfall will be significantly less than we’d previously thought. There’s a chance of rain on Thursday, and you can now expect showers and periods of heavy rain Friday through Monday, with up to 3 mm on Saturday and 5 mm on Sunday to start the first workweek of 2022. Rain will be heavier in Alexandria and along the North Coats, and the national weather service is warning of the potential for flash floods in Sinai.

HAPPENING TODAY-

The Unified Budget Act is up for discussion at the House of Representatives today, according to parliament’s schedule. The legislation would require the government to be more transparent in how it plans public finances, forcing it to present an annual medium-term budgetary and fiscal strategy to the House and set spending limits for each ministry.

Also at the House: Education Minister Tarek Shawki will be in the building to respond to dozens of MPs’ inquiries about his decision to merge the science and math specializations in Thanaweya Amma into one pathway.

***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 — and will invite eight of you to break bread with us. Another dozen of you who complete the poll will also get special Enterprise mugs to enjoy your morning beverage of choice.

MORNING MUST READ-

CIRCLE YOUR CALENDAR-

Blockchain startups from Egypt and Zimbabwe have until 31 January to apply for the Africa Blockchain Incubation Programme via this link. The four-month program, run by the Africa Blockchain Institute, will include workshops, training, development, mentoring sessions and community events with investors and experts in the field.

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.

In today’s issue: 2021 was the year Egypt saw climate change get real — and, in return, started getting real about tackling climate change. We saw soaring temperatures and what felt like a very delayed start to the winter season, and different factors ended up severely affecting agricultural crops like mangoes and olives.

Apache-Sinopec JV inks new USD 3.5 bn, 20-year production agreement with the Oil Ministry: The Egyptian joint venture between Nasdaq-listed American oil and gas giant APA Corporation (commonly known as Apache) and its Chinese partner in Egypt, Sinopec, has signed what APA is calling a “modernized” production sharing agreement that will make Egypt the “most economic investment opportunity” in the company’s portfolio.

FAST FACT- APA’s JV here is Egypt’s largest oil producer.

What’s in the agreement for Egypt? Apache says it accounted for c. 40% of all oil production in Egypt this year as it deployed more rigs in anticipation of this agreement. APA will bring more rigs into service in 2022 and aim to increase well completions 3x, a move it says will help drive a c. 8-10% CAGR in total production in Egypt. The company projects it will produce 47% of all oil here by 2025, according to an investor deck released yesterday (pdf). APA says its total gas production will remain stable at around 550-600 mmcf/d through 2025. It is also promising to spend USD 235 mn here in 2022 and will pay EGPC a USD 100 mn signing bonus.

What’s in it for APA? Egypt is a lot more profitable — and is much less likely to be a drain on cashflows in the future. The new contract gives APA a 20-year term for existing development leases and five years during which it can explore for new reserves. Critically, it fixes both APA’s profit share and cost recovery percentage from Egypt at the high end of what was previously a range. This should make Egypt more profitable for the JV — and help ensure it’s not going out of pocket funding operations. On that note, APA in Egypt will be allowed over the next five years to recover some USD 900 mn in “unrecovered costs” that the company could not previously claim because it wasn’t generating enough revenue from its Egypt concessions.

A new profitability floor for Egyptian operations? The new contract’s structure and a tweak to how the cost-recovery pool is calculated should mean operations won’t result in “backlogged costs” provided the price of Brent crude stays above c.USD 45 / barrel.

Uh, how does a production sharing agreement work? A PSA (sometimes called a “production sharing contract” or “PSC”) outlines how partners in oil ventures make their money. For Egypt’s new PSA with APA:

• 40% of gross production is claimed by APA to cover its costs in drilling for and producing oil, including 100% of opex quarterly, capex (quarterly over four years) and the company’s backlogged costs;
• 60% of gross production is allocated to a profitshare that is split at a fixed 70% to state-owned EGPC and 30% APA;
• If there’s money left over on the cost recovery side, then it’s split 70-30 by EGPC and APA.

BACKGROUND- You can find the Oil Ministry’s statement here and APA’s announcement here. President Abdel Fattah El Sisi signed off on the agreement yesterday.

The investments come as the two sides look to merge Western Desert concessions: Apache and Sinpec’s JVs with EGPC, Khalda Petroleum and Qarun Petroleum, will merge their concession areas in the Western Desert in a bid to increase efficiency and maximize production, according to the statement. Khalda Petroleum and Qarun Petroleum said in April that they planned to spend USD 1.1 bn on exploration and development at their Western Desert concessions during the current fiscal year.

This is the second major exploration agreement signed in a week: Italian energy firm Eni signed an agreement with EGPC earlier this week, committing Eni to spending a minimum USD 1 bn on exploration and extraction in the Gulf of Suez and Nile Delta regions.

Cosmeceuticals giant Macro Group Pharma is scheduled to IPO before 23 January, Financial Regulatory Authority (FRA) head Mohamed Omran told CNBC Arabia yesterday. The regulator gave Macro Group the greenlight on Sunday to offer up to 45.8% of its shares on the EGX, but its approval for the transaction that could see the company valued at EGP 3.5 bn is only valid for a month, a representative from the FRA confirmed to Enterprise.

What happens if Macro doesn’t list by late January? The company would need to get the FRA’s approval for a deadline extension on the listing, according to Omran. Macro could make its EGX debut sometime in the first quarter of 2022, a source familiar with the matter told Enterprise earlier this week, adding that the exact timeline for the IPO has not yet been set. Market conditions are critical to the timing on any IPO.

More IPO deadlines coming up: Nahr Elkhair Development and Investment also has to abide by the FRA’s time limit and pull the trigger on its IPO of up to 61% of its shares before its deadline expires in late January, the FRA representative confirmed. The company received the greenlight for its circa. EGP 500 mn listing alongside Macro Group earlier in the week.

Could IPO deadlines be extended? All companies whose shares have been admitted to trading, but that have not completed their IPOs, could get a six-month extension on their deadlines to pull the trigger on their transactions under a proposal Omran plans to submit to the FRA’s board next week, he said.

BACKGROUND- Macro Group is set to revive its EGX debut in the new year, having postponed its IPO plans in April despite seeing strong appetite from institutional investors. The delay came as a result of concern for the market’s capacity to absorb a packed offerings schedule on the EGX.

EDITOR’S NOTE: This story was corrected on 12 January, 2021 to reflect that the EGP 3.5 bn figure refers to the potential value of 100% of Macro Group’s shares, not the 45.8% of shares set to be offered in the transaction. 

Jordanian B2B healthcare marketplace Aumet has acquired 100% of Egypt-based digital pharmacy supplier Platform One, according to a press release. The Jordan-founded, US-based company acquired the Egyptian startup through a share swap worth a USD seven-figure sum, Platform One co-founder Abd Elhady Araby told Enterprise.

Next steps: Platform One customers will gain access to all Aumet services, from its B2B marketplace to its Aumet Pay service, Araby said. Platform One’s Cairo-based team will lead Aumet’s operations in Egypt, according to the press release, while any potential rebranding of the Egyptian company or shake-up of its management is yet to be decided, Araby told us.

About Aumet: Founded in 2015, Aumet’s digital platform connects pharma suppliers with pharmacies across the region. Following its acquisition of Platform One, the company now operates in Egypt, Saudi Arabia, the UAE, and Jordan, with more than 5k active pharmacies on its platform.

Platform One was founded in 2018 and now hosts over 150 suppliers and 600 pharmacies on its marketplace, according to the statement.

WHAT’S NEXT- The announcement comes amid a pick-up in M&A in our local startup scene. Platform One is the latest firm to be snapped up by a regional name, after home services company Filkhedma was acquired in a multi-mn share-swap transaction earlier this month. The recent boom in VC funding means startup-to-startup acquisitions are likely to become more common, local players told us last month. Enterprise expects more M&A from Planet Startup as we enter next year, especially in logistics, last-mile delivery, fintech, healthtech and edtech.

A consortium of local investors have acquired Egyptian audiobook startup Iqraaly for EGP 20 mn from angel fund HIMangel, fund director Khaled Ismail told Al Mal. The fund plans to exit its entire portfolio by 2025, Ismail said. HIMangel currently owns investments worth around EGP 120 mn in 16 companies — double the EGP 60 mn that the fund has invested since it was formed in 2011, he added.

The new Ins. Act could be passed by the House of Representatives and become the law of the land by the end of 2Q2022, Al Shorouk reports Financial Regulatory Authority (FRA) boss Mohamed Omran as having said. Last we heard, the legislation was with the House Economic Committee after receiving Cabinet approval in November 2020.

Refresher: The bill, which the FRA began drafting in 2018, would make the FRA the primary regulator for the sector, governing everything from the establishment and licensing of ins. companies, to setting best practices and industry standards, and regulating transactions, contracts, and policies. The legislation is also expected to make ins. compulsory for SMEs and freelancers.

Mohamed El Sewedy has been re-appointed as the head of the Federation of Egyptian Industries (FEI) through 2025, according to an FEI statement (pdf).

Just as the pandemic stuck with us this year, heavy borrowing was another theme that spilled over to 2021 from 2020. The Central Bank of Egypt (CBE) has left rates on hold since November 2020, while globally, it’s been a year of historically-low interest rates. The government continued to borrow from abroad, this time to plug the fiscal deficit left behind by its historic stimulus program from 2020. Corporate borrowing still kept on rolling this year, albeit at a slower pace than last year.

Egypt tapped international debt markets twice this year, looking to capitalize on the low-rate environment globally to take on new debt at a lower cost. The Finance Ministry sold USD 6.75 bn in USD-denominated eurobonds across the two issuances it took to market in February and September, both of which saw strong demand from foreign investors.

More local debt was in the hands of foreign investors than ever before: Foreign holdings of EGP-denominated debt swelled to a record USD 34 bn in September as Egyptian rates continued to attract foreign investors searching for yield. Portfolio flows have stepped in to help fill the gap in the country’s balance of payments left by the collapse in tourism revenues. The downside: Egypt now has high debt servicing costs that could make us more vulnerable to the whims of international capital flows.

We also got a foreign currency boost from a new SDR allocation from the IMF, which came into effect in August. Egypt’s share of a record USD 650 bn allocation of special drawing rights (SDRs) globally was the equivalent of around USD 2.8 bn. SDRs are a kind of international reserve currency or asset designed to act as a supplement to IMF member countries’ reserves.

The ministry also turned to the Gulf for more money: A syndicate of mostly Gulf lenders has topped up a USD 2 bn loan taken out in 2020 to shore up public finances through the covid crisis. Led by First Abu Dhabi Bank and Emirates NBD, the group agreed this year to lend the government another USD 3 bn, just a month or two after it finished paying off last year’s 12-month loan.

Where does this leave our external debt position? The pandemic has not been kind to our debt position, forcing the government to add another USD 16 bn to its external liabilities in 2020 as it sought to shore up the economy and plug revenue shortfalls, in addition to covering the costs of its planned infrastructure projects. 2021 has largely carried on where 2020 left off: The government borrowed USD 8.7 bn during the first half of the calendar year, raising our external debt-to-GDP to 34.2% at the end of 2Q2021, from 32.1% at the end of 1Q2021, according to CBE figures (pdf). Long-term debt accounted for 90% of our total external debt by the end of the second quarter of the year, according to CBE figures. Out of our USD 137.9 bn in external debt, USD 124.1 bn was long-term debt, while USD 13.7 bn was short-term.

It was another year of firsts on the green bond front, as CIB became the first to issue corporate green bonds in the country’s history. The private sector bank sold USD 100 mn of the climate-linked securities to the International Finance Corporation (IFC) in August, the proceeds of which are being earmarked to finance green buildings. This includes the bank’s new headquarters in the new capital, which will obtain a green building certificate.

This is the second year running Egypt has been the trailblazer for green bonds in the region: Egypt became the first country in the Middle East and North Africa region to issue sovereign green bonds last year, selling bonds worth USD 750 mn to foreign investors.

But 2021 was not exactly the year that corporate green bonds “took off.” CIB aside, we’ve heard next to nothing from other companies (private and public sector alike) about plans to issue green debt of their own.

The first steps were taken to introduce a wider range of ethical investments to Egypt’s capital markets: Investors who want their money to produce socially beneficial outcomes will soon have more options after regulators approved amendments that would allow companies to issue debt linked to everything from female empowerment to sustainable development. A wide range of environmental, social and governance (ESG) bonds would allow companies to turn to the debt markets to fund projects that deliver certain social or environmental outcomes (think: higher energy efficiency, greater workplace diversity, more affordable housing). There’s no word yet on when companies will be able to issue these securities, nor have authorities published the criteria for determining what counts as an ESG bond, so this is something to keep our eyes on as we head into 2022.

We moved closer to our first-ever sovereign sukuk sale: The long-awaited Sovereign Sukuk Act was passed by the House, allowing the government to begin working on its maiden sukuk issuance. Finance Minister Mohamed Maait has said that we can expect the sale to go ahead in the first half of 2022, though there’s currently no word on how much the government plans to raise in the process.

But corporate sukuk issuance was weak: Contact Financial was the only company to sell the sharia-compliant securities this year, closing a EGP 2.5 bn issuance in July.

The securitized bond market slowed down from last year, but a lot of 2020’s momentum was carried over into the new year. According to our records, a total of 14 issuances worth a combined EGP 12.63 bn went to market. This is a little over half of the EGP 22.1 bn raised last year and the EGP 22 bn raised in 2019. That being said, the year got off to a roaring start, with CI Capital closing a large EGP 2.7 bn sale, followed by another EGP 2 bn securitized bond sale from GB Lease. Three other issuances went to market in January: EFG Hermes closed a EGP 700 mn sale of securitized bonds on behalf of four Amer Group companies and Omar Amer’s mortgage lender Qasatli; Talaat Moustafa Group closed an EGP 870 mn securitized bond issuance; and Arabia Investments Holding’s consumer finance subsidiary Rawaj sold EGP 308 mn securitized bonds. The momentum petered out over the following months, before picking up again a little over the summer, but January remained the most active month for these issuances. CI Capital’s sale also remained the largest of the year.

2022 could follow a similar pattern of kicking off the year with a boom in securitized bond issuances, as the FRA said earlier this week (pdf) that it will approve before the year is out 11 new sales worth a combined EGP 11.5 bn. The regulator gave no indicator of which companies will be issuing the bonds, or when they could go to market. The National Bank of Egypt’s Al Ahly Leasing is planning to take its first securitized offering to market with a EGP 700 mn securitized bond sale, according to unconfirmed press reports out earlier this week.

Steps were taken towards introducing a new type of securitization to the Egyptian market after cabinet approved proposals to allow companies to securitize off-balance sheet cashflows. This would potentially open up securitization to a wider range of sectors such as utilities, telecoms and healthcare. However, we’re still yet to hear about when authorities plan to make so-called “future flow securitization” legit in Egypt.

On the diplomacy front, 2021 was the year of mending fences — and another year of international stalling on GERD: Egypt’s foreign policy saw some shifts over the year as we looked to end rivalries and bring some foes in from the cold, to varying degrees of success. Meanwhile, we continued to play an active role in pushing Libya’s democratic transition forward, but our real chance to shine was in mediating a ceasefire between Israel and Palestine during Israel’s bombardment of Gaza earlier this year — which allowed us to patch things up with the Biden administration. And all throughout the year, the question of the Grand Ethiopian Renaissance Dam (GERD) negotiations remained largely unanswered.

We started the year with the promise of Egyptian, Sudanese, and Ethiopian talks on GERD in a bid to break through the deadlocked talks on the dam. But any hope for that disappeared into thin air after Sudan refused to attend the negotiations. Then in March Egypt and Sudan teamed up to urge Ethiopia to approve a plan to involve the UN, US, and EU in negotiations over the GERD. The plan involves bringing the three powers on board with the AU to help reach an agreement on the rules of filling and operating the dam. With no intention to change its approach, Ethiopia continued to reject these attempts to bring more foreign mediators to the table.

Even if Ethiopia refuses mediators, we have some backing: We were publicly backed by the Gulf on our position. And while the US hasn’t formally backed either side, Washington expressed the “urgent” need for Egypt and Ethiopia to come to an agreement regarding the filling and operating of the dam, essentially pushing Ethiopia to stop dragging its feet.

Egypt hasn’t been sitting idly by, either: In a rare direct comment on the issue, President Abdel Fattah El Sisi warned Ethiopia ahead of its plans to go ahead with the second filling of the dam that access to the Nile’s water is a “red line” for Egypt. El Sisi said that Ethiopia will not be allowed to take “a single drop” of water from Egypt, and warned that further attempts to disrupt the Nile’s flow will cause “inconceivable instability” in the region. Ethiopia went ahead with its second phase of filling the GERD, which had no impact on Sudan’s water supply.

Where do the talks currently stand? Last we heard, Foreign Minister Sameh Shoukry hinted at a possible resumption of talks between Egypt, Ethiopia and Sudan over the GERD, saying last month there’s an AU “push” to return to the negotiating table. Considering Ethiopia is currently in the middle of a civil war, things are likely to be on hold for a while longer.

We had much more success mending ties with Qatar: The year also started with a rapprochement with Qatar, as Egypt, Saudi Arabia, the UAE and Bahrain agreed to end their four-year blockade and restore diplomatic ties in January this year. Since then, things have been on the up and up: El Sisi met with Qatari Emir Tamim bin Hamad Al Thani for talks in July, Egypt appointed an ambassador in Doha, and discussions about developing economic ties have been held. There’s even a possibility that Qatar’s Al Jazeera could be making its comeback here at home, with billboards cropping up in November advertising the news organization’s new app.

Our successful rapprochement with Qatar gave hope for a new leaf with Turkey: Ankara began working on thawing its relations with the UAE and Saudi Arabia, and turned to Egypt as it looked to cool off regional tensions. We got the first signal in March that a decade-long rift could end when Turkish officials instructed the media to tone down criticism of Egypt, which was followed in May by Turkey declaring a “new era.” The two countries held several rounds of talks since, with some signs of progress, but ultimately these efforts appear to have stalled.

On the trade side, everything is good and well: Egypt has emerged as one of Turkey’s most important LNG suppliers so far in 4Q2021, shipping seven cargoes since the beginning of October. Most of Turkey’s supplies are coming from Algeria, the US, and Qatar but warming ties with its regional rival Egypt appear to be opening the door for greater energy cooperation.

Meanwhile, Egypt cemented its role in regional diplomacy with its work in Palestine and Libya: An 11-day war between Israel and Gaza that left 232 Palestinians dead and thousands more displaced only ended when an Egypt-brokered ceasefire took hold in May. Egypt also pledged USD 500 mn in aid to help rebuild Gaza after the strip sustained significant infrastructural losses from Israel’s airstrikes. Over in Libya, we’ve been very vocal about the need to push foreign fighters out of our neighbor to the west and El Sisi has been following up on the fate of the presidential elections that were supposed to happen last Friday.

Critically, our successful mediation in Palestine put us back in Washington’s good graces: US President Joe Biden entered the White House earlier this year with expectations to take a harder line with Egypt than his predecessor, Donald Trump. But Egypt confirming its position as an influential (and necessary) broker in the region saw the US get chummier with us on strategic relations, with US Secretary of State Antony Blinken lauding Egypt’s work in Palestine and Libya, and signaled that the US would remain involved in encouraging GERD talks.

Topping coverage on the airwaves last night: President Abdel Fattah El Sisi’s inauguration of new electricity projects in Upper Egypt and his visit to the Gharb Soheil Nubian village in Aswan, which the president decided to include in his Hayah Karima (Decent Life) initiative. The story was featured on Kelma Akhira with Lamees El Hadidi (watch, runtime: 5:32), Ala Mas’ouleety with Ahmed Moussa (watch, runtime: 1:06:45), Masaa DMC with Injy Al Qadi (watch, runtime: 7:59), and Al Hayah Al Youm with Mohamed Sherdy (watch, runtime: 8:02).

El Hekaya’s Amr Adib also had a chat with Electricity Minister Mohamed Shaker to discuss the Benban solar power park, which El Sisi visited yesterday, and the changes in Egypt’s electricity landscape over the past several years (watch, runtime: 14:36).

Food Industries Holding Co factories could get a EGP 6 bn PPP overhaul: The Supply Ministry is considering partnering up with the private sector to establish four new industrial complexes for food production with investments of EGP 6 bn over the next three to five years, Hapi Journal quoted Supply Minister Ali El Moselhy as saying. The plan was outlined in a newly completed study by auditing and consultancy firm BDO on restructuring and developing five companies affiliated with the state’s Holding Company for Food Industries: Alexandria Oil and Soap; Tanta Oil and Soap; Nile Company for Oil and Detergents; Abo El Hol Company for Oil and Detergents; and the Egyptian Starch, Yeast, and Detergents Company. Back in 2020, the Supply Ministry announced that it was looking at potentially selling off some of the Holding Company for Food Industries’ factories as part of the government’s plans to develop and restructure state-owned enterprises.

Another Supply Ministry PPP project is also in the works: The government will also team up with private firms to establish four strategic warehouses for the Supply and Internal Trade Ministry at a total cost of about EGP 3.2 bn, according to a Finance Ministry statement.

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

• The National Bank of Egypt (and fintech company OPay have signed a cooperation protocol to provide online payment and collection services for Egyptian SMEs.
• Russian, Egyptian firms form JV for wheat imports: Agro Nile will be established as a joint venture between Russia’s United Grain Company and Egypt’s Astra to supply Russian grain to the Egyptian market starting in 1Q2022.
• Egypt is rolling out its first ins. policy for Egyptian expats starting 1 January, developed by the Immigration Ministry, the Financial Regulatory Authority, and the Ins. Federation of Egypt.

The Health Ministry reported 851 new covid-19 infections yesterday, up from 823 the day before. Egypt has now disclosed a total of 382,194 confirmed cases of covid-19. The ministry also reported 31 new deaths, bringing the country’s total death toll to 21,639.

Merck’s oral covid pill will soon be manufactured locally, after the Egyptian Drug Authority (EDA) granted emergency use authorization to an unnamed pharma manufacturer with a factory in Badr City to produce the Molnupiravir medication, according to a statement (pdf). Molnupiravir has recently been approved for use in the UK and US, though late-stage trial results have shown it to be less effective than initially thought. Merck in October announced that it would allow other manufacturers to produce its anti-covid pill without royalties, in a move meant to provide developing countries with easier access to the antiviral medication.

Japan shipped the first batch of a 700k shipment of covid jabs to Egypt yesterday through the World Health Organization’s Gavi / Covax program, according to a Japanese Foreign Ministry statement, which did not specify the size of the initial batch or the type of the vaccines. Japan previously announced that it would donate 3.7 mn AstraZeneca vaccines to nine developing countries, including Egypt, through the program.