AM — Learn the secrets of our 2021 investment, M&A and ECM trackers

Good morning, wonderful people, and welcome to our final issue of EnterpriseAM for 2021. We hope the year has been kind to you and that you’re looking forward to 2022 as much as we are.

THANK YOU, all of you, for choosing to start and end your days with us. Writing to a group of people as smart and kind as you is the highlight of our professional career. We could literally not ask for a better audience.

Our final issue of the year is packed with our final look-back at 2021: Capital markets, M&A, and investment. We won’t be publishing tomorrow, but you will find a special edition of Your Wealth to keep you company this Friday, 31 December. EnterpriseAM will be back in your inboxes on Sunday morning to welcome the new year.

It’s a great note on which to end the year: Egyptian and foreign here companies are investing more. They’re engaged in tons of M&A. And IPOs staged a solid comeback, thanks in no small part to the state’s resurgent privatization program.

***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.

PSA- The weather forecast for the weekend keeps changing, but it’s still looking like we’ll be welcoming the new year with lots of precipitation in Cairo, Alexandria and beyond. Folks in the capital city can expect as much as 5 mm of rain tomorrow, 3 mm on Friday, 10 mm on Sunday and scattered showers both Saturday and Monday, according to our favourite weather app.

THE BIG STORY ABROAD on this late 2021 day: It was a “blockbuster” year globally as companies raised more than USD 12 tn in combined equity and debt, thanks in no small part to central bank stimulus, according to the lead story in the Financial Times.

Good bad news on omicron: The US just set a record for new daily cases, the New York Times reports, but CNBC notes that infection with the comparatively mild omicron strain could be protective again the delta variant, according to a study out of South Africa.

LOOKING AHEAD- Washington and Moscow are sitting down for security talks scheduled for 10, 12, and 13 January, to discuss military activity and developments in Ukraine as tensions rise between the two countries, reported Reuters. The talks will include NATO, Ukraine, and other former Soviet Union states.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, urban development and social infrastructure such as health and education.

In today’s issue: It’s déjà vu on the infrastructure front in 2021, with supply chain issues slowing everything down from ports, to automotive parts, to maritime shipping and the green economy. How did your industry fare?

Speed-related drama in the headlines: The Financial Regulatory Authority (FRA) has filed two lawsuits against Speed Medical (SPMD) before the Cairo Economic Court, SPMD said in a regulatory filing yesterday (pdf). An FRA official declined to get into the specifics of the lawsuits, saying the agency cannot comment about ongoing legal proceedings. We think the cases could involve the court ruling on whether SPMD violated FRA disclosure rules in announcements on plans to acquire Prime Speed Medical (which were later dropped) and ongoing plans to buy New Al Safwa Specialized Hospital.

Look for the first hearing in the case to be held on 3 January after having been earlier postponed, according to the SPMD disclosure, which said that the company was first notified of the proceedings on Monday. SPMD Chairman Mahmoud Lasheen declined to provide further comment when approached by Enterprise.

Background: SPMD recently decided to offload its 30% stake in Prime Speed amid a feud between the erstwhile partners, reversing plans to take over the entire company by acquiring 70% of Prime Speed in a share-swap. Speed Medical’s subsidiary Speed Hospitals also has ongoing plans to acquire at least 51% of Al Safwa, as well as management rights, but the transaction has been held up by a delay in obtaining health ministry approvals — leading SPMD to pay Al Safwa’s shareholders EGP 4 mn to secure an extension on the transaction’s terms.

GlobalCorp issued the first EGP 985 mn tranche of a EGP 5 bn securitized bond program, the non-bank lender announced in a press release. The program is set to be completed by 2023, according to the statement.

The issuance includes three tranches with ratings of A+, AA and A, respectively, according to the factoring and leasing firm. The bonds are backed by a consortium of six Egyptian banks: Attijariwafa Bank, Arab African International Bank, Ahli United Bank, Suez Canal Bank, CIB and Banque Misr, Al Mal cited sources as saying.

The size of the overall program has increased, even if this tranche is a bit smaller than we’d expected. GlobalCorp was planning to sell EGP 1.1 bn of securities by the end of this year, as part of a EGP 3-3.5 bn issuance set to be completed by 2023, CEO and Managing Director Hatem Samir was quoted as saying in September.

ADVISORS- CIB and Misr Capital were financial advisors for the offering, while Dreny & Partners were counsel.

MEANWHILE-

Tamweel Mortgage Finance also closed the first EGP 460 mn tranche of a EGP 3 bn securitized bond issuance, Al Borsa quotes Managing Director Mohammed El Kahki as saying. The three tranches carry tenors of 12, 36, and 60 months. The issuance was backed by a consortium of seven banks: The National Bank of Egypt, Banque Misr, CIB, AAIB, Suez Canal Bank, Ahli United Bank, and Attijariwafa Bank.

ADVISORS- CIB was lead manager, promotor, and underwriter of the issuance. Dreny & Partners provided counsel. Meris provided the credit rating for the issuance.

BACKGROUND + WHAT’S NEXT-

The securitized bond market is hot, but not as hot as it was before: By our count, 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. But the year isn’t over yet, with CI Capital’s leasing arm Corplease having said that it was looking for a securitized bond issuance worth more than EGP 3 bn in December 2021. GB Lease had also reportedly been mulling a multi-tranche EGP 1.6 bn securitized bond issuance this month.

That said, things do look interesting for 2022: 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.

Orascom Construction (OC) will acquire 100% of an equipment import, distribution and services business that is 100% owned by the Sawiris family. The transaction is worth a total of USD 35 mn and comes after shareholders voted in favor of the move at an extraordinary general meeting on Monday (pdf). OC shareholders also approved a fair value study of the business prepared by ​​HLB for Financial Consultancies on Securities.

The business: The target entity has three subsidiaries active in equipment import, distribution and maintenance — Orascom Trading, Orascom Freezone and National Equipment Company. The company is the sole agent for more than 45 original equipment manufacturers in Egypt, including Grove, John Deere, Volvo Penta, Hitachi, and Mitsubishi Heavy Industries.

Background: OC first announced its plan to go ahead with the acquisition in October. While the business is owned by the Sawiris family, it is legally separate from OC. Shareholders who are members of the Sawiris family were set to abstain from voting, as were two board members.

What’s next? The acquisition is currently pending review by the Financial Regulatory Authority, after which the shares should be transferred, a source from OC told us.

OTHER M&A NEWS- Porto Consultancy purchased a 43.9% stake in Amer Group Holding in a EGP 369.2 mn transaction, according to Hapi Journal. Porto Consultancy bought the stakes from three shareholders.

It wasn’t “The Year of M&A,” but there was plenty of action and drama. After two years of y-o-y growth in the number of M&As announced and concluded, 2021 saw a drop in numbers and values of tie-ups compared to the 2020 and 2019.

A total of 76 tie-ups with Egypt involvement were announced this year, including domestic, inbound and outbound transactions. All numbers in this story are based on our internal Enterprise M&A Tracker, which we maintain throughout the year.

Some 38 transactions closed this year, eight of them tie-ups that had been announced in 2020 and the rest agreements that were announced and closed this year. The completion rate on this year’s planned transactions stands at around 40%, down from 56% in 2020 — and way down from 2019’s c.80% completion rate.

Six M&As were scrapped altogether, out of the 76 tie-ups that were announced throughout the whole year. By our count, there are some 46 transactions that are either still in the works, are pending regulatory approval, or appear to have stalled somewhere along the way.

The Transaction of the Year? It’s a tie-up between Emirati real estate giant Aldar Properties and Abu Dhabi sovereign wealth fund ADQ’s snap-up of 85.5% of SODIC, and EFG Hermes and the Sovereign Fund of Egypt finally closing their acquisition of a combined 76% stake in the Arab Investment Bank.

EFG Hermes officially became a universal bank with its acquisition of the Arab Investment Bank, with its Egyptian operations now including an investment bank, a commercial bank and a fast-growing non-bank financial services platform. And while the transaction is huge for EFG as an institution, it’s also big news for Egypt’s banking sector, as it marked the first privatization in the sector since the 2006 sale of an 80% stake in Bank of Alexandria to Intesa Sanpaolo.

SODIC’s sale to the Aldar / ADQ consortium was the largest-ever M&A and case of foreing direct investment in Egypt’s real estate market, bringing in EGP 6.1 bn in an all-cash transaction. Notably, the acquisition acts as Aldar’s entry point into our real estate market, with the Emirati giant signaling that it’s assessing several other possible ventures in Egypt.

The reworked transaction of the year: Vodafone Group’s sale of Vodafone Egypt. After the London-based mother company’s planned USD 2.4 bn sale of Vodafone Egypt to Saudi Telecom went bust at the tail-end of 2020, Vodafone PLC transferred its 55% stake in Vodafone Egypt to its South Africa unit, Vodacom, in a EUR 2.72 bn transaction last month.

The big bust of 2021: The mega-merger between Cleopatra Hospitals Group and Alameda Healthcare, which had appeared to be in the clear at the end of 2020, but the agreement was terminated in May of this year. Neither side would speak on why the tie-up fell through, saying only that it wasn’t a regulatory issue. The Egyptian Competition Authority had previously warned it wasn’t particularly inclined to approve the merger, but insiders at both companies tell us that ultimately had nothing to do with the tie-up falling through.

NEW TREND of the year: Startups are now acquiring other early-stage companies, as we noted in our What’s Next vertical. The trend holds up both here and abroad: Some 268 venture-backed US companies acquired peers in the first seven months of this year, while local startups are increasingly moving towards consolidation thanks to record levels of financing, overcrowding in some sectors, and newfound IPO prospects.

For a handful of potential M&A, the competition was hotter than an early-August day: Chief among those is the protracted bidding war over Alex Medical, which saw not one, not two, not three, but eight companies and consortiums signaling their interest in acquiring a stake in the healthcare provider. One by one, a handful of Alex Medical’s suitors began pulling (or threatening to pull) their offers to acquire up to 100% of the company. Time of death hasn’t been called on the transaction just yet, with Cleopatra Hospitals Group, the UAE’s Global One Healthcare, Nile Misr, Seha Capital, and the Tawasol Holdings-LimeVest consortium still reportedly in the battle.

The vast majority of M&A was either between local players or inbound acquisitions. 16 announced transactions were inbound, while 10 transactions were outbound. The remaining transactions were all domestic.

By number of transactions, healthcare and banking / financial services were still the prime drivers of announced M&A activity in the year now ending. Taking a wide view of industry classifications:

Top industries for M&A in 2021, by volume: Healthcare is at the top of the game, closing the year with 13 M&As, with Integrated Diagnostics Holdings’ planned acquisition of 50% of Islamabad Diagnostic Center putting it one spot ahead of banking / financial services, which had 12 M&As announced this year. The runners-up: energy (6), transport and logistics (6), and fintech (4).

That’s a shift from 2020, when the number of banking and financial services M&As was almost double those in the healthcare industry. But still, they retain the top two positions.

Top industries for M&A in 2021, by value (EGP): Energy / oil and gas (EGP 12.2 bn), followed by real estate (EGP 6.3 bn) healthcare (5.48 bn) and banking / financial services EGP (3.98 bn).

Top financial advisors in 2021, by volume: CI Capital and EFG Hermes — both of which had solid showings in 2021 — were neck-and-neck this year for the title of top financial advisors. EFG was tapped to quarterback five M&As announced this year, while CI Capital ran four. Notably, the two investment banks were financial advisors on the Aldar / ADQ takeover of SODIC, with CI Capital advising the Emirati consortium and EFG advising the sell-side. EFG is also advising the selling shareholder in IDH’s acquisition of IDC. Arqaam Capital follows, with two of 2021’s M&As in its pipeline.

What was Egypt’s investment story like in 2021? The big picture tells us that investor interest is continuing to pick up, with a larger number and bigger value of investments announced this year compared to 2020. We’re not quite at the same value of investments as we were pre-pandemic, but investors appear to be bullish on Egypt. Notably, we didn’t see any major investment pledges that were later scrapped.

So, how did we do on investment this year?

First, our usual disclaimer: All data points recapped here are based on our internal Enterprise Investment Tracker, through which we track announced and executed investments in Egypt. We count only capital expenditure here — announced plans to grow opex outlay don’t count. There are plenty of investments that didn’t make it onto our radar because they weren’t announced, particularly from smaller and mid-sized companies, and companies that aren’t publicly traded.

In 2021, we reported on 118 announced investments worth a combined EGP 412.7 bn. The actual total value of planned investments is a notch higher — 34 of the 118 commitments we reported on did not specify the expected value.

Still, that’s a healthier investment pipeline than last year, when we reported on 92 investments worth a combined 403 bn. Last year also had a smaller share of announced investment wherein the value being committed wasn’t disclosed.

The top three industries for investment in 2021, by announced value:

• Energy at EGP 176.6 bn, buoyed mostly by the USD 2.5 bn (c.EGP 39 bn) petrochemical complex Anchorage Investments is looking to build in the Suez Canal Economic Zone;
• Real estate at EGP 99.6 bn, with significant investment pledges from Saudi Arabia’s Sharbatly Group and Emaar Misr;
• Infrastructure at EGP 38 bn.

Rounding out the top five: Healthcare (EGP 25.9 bn) and food and beverages (EGP 8.1 bn).

That’s a completely different makeup than last year, when the top five spots went to infrastructure (EGP 168 bn), telecoms and technology (EGP 35 bn), banking and financial services (EGP 31 bn), retail (EGP 12.8 bn) and manufacturing (EGP 7.8 bn).

Healthcare and manufacturing were the top two industries for investment this year, by number of transactions, with 12 transactions apiece. Manufacturing has commanded the largest number of transactions for three consecutive years, according to our trackers.

The biggest pickups in investment this year by value came in real estate (up more than 12x) and healthcare (+60% y-o-y).

The biggest drops: Retail, where investments fell 80% y-o-y, and infrastructure, which saw a 77% y-o-y drop in investments. The caveat: Last year’s infrastructure investment figure was massive thanks solely to the National Egyptian Company for Railroad Industries, in which the government is offering the majority of the equity to private-sector companies. Investments in telecoms and technology were also significantly lower this year compared to 2020, although 2020’s investment figure was inflated as all four telecom companies announced bns in network upgrade plans.

Continuing trend of the year: Development finance institutions are still dishing out plenty of funding for SMEs, as was the case in 2020.

What can we expect in 2022? We said this last year and it didn’t pan out, but businesses are still hoping for an end to the pandemic and the potential of slightly lower interest rates, if the Central Bank of Egypt decides to resume its monetary easing cycle and make capex borrowing more affordable. But with the prospects of high inflation and interest rates (thanks Fed), this doesn’t seem likely.

In keeping with the overall theme of the year, 2021 was the year of a hobbled recovery for Egypt’s IPO pipeline. Although we’re ending the year with fewer IPOs and stake sales having gone to market than had been slated, four equity capital market transactions are more than zero.

The four transactions of 2021?

• Two IPOs (Taaleem and e-Finance)
• One technical listing (Cairo-headquartered IDH)
• One stake sale as part of the state privatization program (Abu Qir Fertilizers).

ALSO- Ghazl El Mahalla Football Club kicked off its institutional subscription last week for its micro-IPO and subscription to the retail portion of the offering is currently ongoing, suggesting it’s unlikely to close until very early in 2022.

Reminder: 2020 was an awful year for public equities. The EGX was among the world’s worst-performing exchanges last year, ending the year down more than 23%, with foreigners selling out of the market and trading throughout the year largely dominated by retail traders.

The EGX is now up 9.9% YTD — an improvement, certainly, but still lagging behind its regional peers, which are all ending the year with double-digit YTD growth. The Tadawul is up 30.2%, the ADX is up 66.3% and the DFM is up 28.4% so far.

It ain’t much, but it’s something: We finally saw our first real IPO on the EGX since Rameda’s 2019 debut when higher education outfit Taaleem debuted on the stock market in April, bringing an end to a long drought of new paper entering the market. LSE-listed Integrated Diagnostics Holding (IDH) followed on Taaleem’s heel with a technical listing the following month, transferring 5% of its existing shares to the EGX.

Critically, 2021 was the year the state privatization program roared back to life. Since being announced in 2018, the program — which includes fresh IPOs and secondary sales of already-listed companies — had only seen one offering go through: Eastern Tobacco’s 4.5% secondary offering in March 2019. Last year, the program was shelved as the pandemic roiled global markets. This year finally breathed new life into the stake-sale program, starting with e-payments firm e-Finance’s blockbuster IPO in October, which saw the company raise some EGP 5.8 bn. Abu Qir Fertilizers came next, completing the sale of 10% of its shares for EGP 2.25 bn earlier this month.

Is Kima being added to that list? Egyptian Chemical Industries (Kima) could sell more shares on the EGX “when profitability grows enough,” Public Enterprises Minister Hisham Tawfik said during yesterday’s inauguration of expansions to Kima’s ammonia and urea industrial complex in Aswan and a textiles plant (watch, runtime: 23:45). The company will move forward with the stake sale, which would be limited to a retail offering, as soon as it sees an “increase” in earnings, Hapi cited Tawfik as saying.

How are the company’s financials looking now? The company ended 2020 deeply in the red, reporting a EGP 631 mn loss after carrying over EGP 1.4 bn in prior losses. It’s hoped that Kima 2, which was completed at the start of the year and has a production capacity of 1.2 tonnes per day of ammonia and 1.5k tonnes of granular urea, will help generate stronger returns.

How are things looking for 2022? In a word, it’s looking mixed. Globally, there’s concern among analysts that the Great IPO Rush of 2021 could peter out next year, as central banks rein in stimulus programs and look to hike interest rates (as the US Federal Reserve announced it will next year). These shifting conditions could dry up the surplus liquidity that had helped companies raise record figures in bourse debuts. Then there’s the fact hat as half of this year’s IPOs in major global centers are trading below their offering price — and increasing regulatory scrutiny for SPACs in the west.

Here at home, the IPO and secondary sale pipeline is a bit less anemic heading into 2022 than it was heading into the year now ending. Chief among those is the hotly anticipated IPO of Banque du Caire, which has been postponed multiple times but could finally materialize if the government continues to capitalize on the momentum created by this year’s stake sales in state companies. Misr Ins. Holding could pull the trigger on its plan to offer a stake in its subsidiary, Misr Life Ins., in 2022, but has also yet to follow through on the EGX debut of Misr Ins., which was pushed from their original 2020 timeline.

Also from the state privatization program: Heliopolis Housing and Development is looking to pull the trigger on a secondary offering by the middle of 2022, in a revival of its plan to tap the EGX, Tawfik said last month. The company had initially intended to offer another 15% of its shares on the EGX last year alongside the sale of a 10% stake to a private investor, but scrapped the plans after seemingly failing to find an interested buyer. The government hasn’t decided whether it will change the size of the stake sale. Mopco is also in the chute to tap the EGX before the end of the current fiscal year, the minister said last month.

Over in the private sector, we have cosmeceuticals giant Macro Pharma, which is planning to offer up to 45.8% in an IPO some time in 1Q2022. The company has a regulatory deadline to pull the trigger before 23 January, but could (like others, the regulator recently suggested) ask for an extension.

Healthy food brand Abu Auf is also marching towards the EGX with an eye to list in 2Q2022, having recently tapped EFG Hermes to quarterback the transaction. Non-bank financial services player Ebtikar is also reportedly on deck to go to market in early 2022.

We haven’t heard a peep in a while from: Agrifood player Galina Holding, which was angling for an early 2021 EGX debut but has since gone quiet. Al Gioshy Steel has also been toying with the idea of an IPO for more than two years, but has delayed the decision until it sees an improvement in the market.

Also a promising development for next year’s IPO pipeline: The entry of SPACs to the Egyptian market in November. Within just one day of the Financial Regulatory Authority (FRA) approving regs for SPACs, news emerged that at least two companies are eyeing setting up the black-check firms and list on the EGX. The availability of SPACs could provide startups — which otherwise have a hard time listing on the bourse — a chance to go public on the EGX, Farid had said.

Then there’s the lineup of military-owned companies in the Sovereign Fund of Egypt-led program to open them up to private ownership, more likely through sale of a stake to a strategic investor than via IPO. Safi, the bottled water brand, was gearing up to sell a minority stake to a strategic investor this year, with plenty of appetite from the market, while Wataniya Petroleum was expected to sell a major stake to a strategic investor in 2H2021, having attracted several GCC and homegrown players looking to buy in. The SFE said last month it’s “nearly done” restructuring the two companies, but didn’t give any indicator on the expected timeline. President Abdel Fattah El Sisi has previously said that Egypt will look to IPO military-owned companies. Planning Minister Hala El Said had said at this time last year that both Safi and Wataniya could potentially offer stakes on the EGX after an initial stake sale to a strategic investor. Our friends at EFG Hermes are quarterbacking the transactions.

The (domestic) wild card: The introduction of the capital gains tax on 1 January. The government confirmed in September that it will move ahead with the introduction of the 10% tax on capital gains made by resident investors. After much fretting from investors, analysts, and MPs alike over the potential negative impact of the tithe on trading volumes, the government rolled out a package of tax breaks and fee cuts to cushion the blow for retail investors, which account for the majority of activity in the market on most days. Market reaction to the measures was largely muted, in large part because they’re going to have a much smaller impact on costs than will the capital gains tax.

The (global) wild card: Duh — Omicron. The recently-emerged variant has already led several countries to impose travel restrictions (and some moved towards full lockdowns) in scenes that were painfully reminiscent of the spring of 2020. The information that has emerged so far on the new covid-19 variant indicates that it is not more lethal than other variants, but it has yet to be seen whether it will eventually trigger significant equity sell-offs.

It was another evening of the airwaves being dominated by coverage of President Abdel Fattah El Sisi’s inauguration of new projects in Upper Egypt. The president also touched yesterday on the overhaul of the country’s railways. Among those taking note: Kelma Akhira’s Lamees El Hadidi (watch, runtime: 1:46) and Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 1:06:08), Al Hayah Al Youm’s Mohamed Sherdy (watch, runtime: 3:03), and Yahduth fi Misr’s Sherif Amer (watch, runtime: 3:16).

Also getting attention on the airwaves last night: New third-class trains on the Cairo-Aswan railway lines will become operational as of next week, with ticket prices rising to EGP 125, Egyptian National Railways head Mostafa Aboul Makarem told Moussa. A one-way ticket on the older third-class trains cost EGP 55, according to Aboul Makarem (watch, runtime: 3:24).

It’s a relatively calm morning for Egypt in the foreign press, with no single story dominating coverage. The New York Times suggests Egypt’s regional cultural dominance faces a real threat in the form of Saudi Arabia, while the Wall Street Journal takes note of CT scans that revealed the face of the mummified Amenhotep I without disturbing his remains. The WaPo’s editorial board is also critical of Egypt’s human rights strategy.

The Health Ministry reported 809 new covid-19 infections yesterday, down from 851 the day before. Egypt has now disclosed a total of 383,003 confirmed cases of covid-19. The ministry also reported 28 new deaths, bringing the country’s total death toll to 21,667.

Daily global covid-19 cases reached an all time high of 1.4 mn on Monday as the omicron variant continues to spread, reports Bloomberg. The seven-day rolling average of worldwide infections also hit a record 841k — a 49% leap from just a month ago before the new variant was discovered in South Africa.

The silver lining: Covid-caused deaths have remained steady, with the seven-day rolling average of fatalities hovering around 7k since mid-October after peaking during the spread of the delta variant.