AM — EGX boss says 4-5 companies could offer shares this year

Good morning, wonderful people, and welcome to our first EnterpriseAM of 2022. We hope you had a fantastic New Year’s weekend and are looking forward to the new year as much as we are.

PSA #1- We’re waiting for word from on high about whether or not this Thursday, 6 January, will be a national holiday in celebration of Coptic Christmas, which falls on Friday. We expect it will be and hopefully we’ll soon see notes from cabinet / the central bank / the stock market in our inboxes.

PSA #2- Schools will be closed in the Red Sea cities of Sharm El Sheikh, Hurghada and Safaga today as well as in Assiut, Al Masry Al Youm reports. The torrential rain, thunderstorms, strong winds, hail and even snow seen in some parts of the country over the weekend are expected to ease today, with conditions stabilizing nationwide by Monday, according to the Egyptian Meteorological Authority (pdf). School was out in five governorates yesterday, including Alexandria. Three people were killed and 13 injured in weather-related accidents on Friday, Ahram Gate reported, citing a Health Ministry’s spokesperson.

There’s a chance of a few sprinkles this afternoon in Cairo with a daytime high of 19°C, falling to 11°C overnight. Expect typical winter weather for the rest of the week, with highs in the 18-19°C band through next Sunday and the lows falling to single digits overnight.

PSA #3- You only have a few days left to take our annual reader poll — and join us for breakfast. 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 next week to help 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 #4- Did you get jabbed with Sinopharm or Sinovac? Mabrouk — Canada now recognizes you as fully vaccinated if you have had two jabs at least 14 days before travel. The Great White North joins the UK and US in recognizing the vaccines.

WHAT’S HAPPENING TODAY-

Employees at private sector companies will now be paid a minimum wage of EGP 2.4k a month after a new rule came into effect on 1 January.

Well, some of them will: Thousands of companies have been given a six-week grace period from paying the minimum wage after requesting exemption on the basis that they cannot afford to up salary expenditure. Firms that have applied for exemption will not have to comply with the new wage requirements until at least mid-February, while the government takes a decision on whether to exempt them.

SMART POLICY- No company is getting a permanent exemption from paying the new minimum wage, Magdi El Badawy, member of the National Council for Wages (NCW), said yesterday (watch, runtime: 8:00). Temporary exemptions lasting three months will be given to firms that cannot afford to meet the requirements, which will be reviewed by the NCW at the end of the period, he said.

Also now in effect: the EGX capital gains tax. As of today’s trading session, resident investors will face a 10% capital gains tax on EGX transactions. The tax will be imposed on net portfolio earnings at the end of the tax year after deducting brokerage fees. Foreign investors are not subject to the tax.

The EGX30 closed up 10.2% YTD as of the final trading day of the year. The EGX lagged our regional competitors in 20201: The Nasdaq Dubai was up 21.4% at the end of the year; the ADX closed up 26.1%; and Saudi’s Tadawul climbed 29.8%.

THE BIG STORY ABROAD (other than the fact that it’s now 2022) is a tie between two record-breakers: The omicron variant, which led Australia and New York on Saturday to set fresh records for new daily covid cases. The silver lining: Research out of South Africa suggests the variant is significantly less deadly than was the delta version of the virus.

ALSO- Stock markets had a bumper year in 2021.

CIRCLE YOUR CALENDAR-

It’s the start of a new month. The key news triggers to keep your eye on:

• PMI: Purchasing managers’ index figures for December for Egypt, Saudi Arabia, and Qatar will be released on Tuesday, 4 January. Figures for the UAE will be released on Wednesday, 5 January.
• Foreign reserves: December’s foreign reserves figures will be announced before the week is out.
• Inflation: Inflation figures for December will be released on Monday, 10 January.
• Interest rates: The Central Bank of Egypt (CBE) will hold its first policy meeting of 2022 later this month. The CBE hasn’t yet published its meeting schedule for the year so we’re still waiting on an exact date.

PSA #5- The Taxman would very much like it if you were to soon file your 2021 tax returns: The deadline for submission for individuals is 31 March, while the deadline for companies with January-December fiscal years is 30 April.

OPEC+ is meeting this Tuesday, 4 January. The cartel agreed in December to continue ramping up oil production despite concerns that the spread of the omicron variant could hit energy demand. Pundits see it sticking to its planned monthly production increases at this week’s meeting.

Expect progress in El Nasr Auto’s EV talks this month: That was the message delivered to Al Borsa by CEO Hani El Khouly over the weekend. The newspaper quotes him as saying the company will make an announcement at the end of the month on its talks with foreign auto firms to begin assembling electric vehicles in Egypt. El Nasr is now talking to seven international companies, El Khouly said. The talks come after negotiations with Chinese auto firm Dongfeng collapsed in November.

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

IN CASE YOU MISSED IT- Check out our look back at 2021. We published last week our annual roundups of the top business, finance and policy stories of the year. Finance nerds, VC types and folks building businesses and Planet Startup will want to pay close attention. Also- This morning’s What’s Next vertical covers fundraising by startups in 2021.

• A solid year for M&A
• Investments are picking up, albeit gingerly
• IPOs in 2021: Four is more than zero
• Covid-era debt trends didn’t quite keep up in 2021
• The vaccine rollout
• The macro picture of our 2021 recovery
• A rebound in Egypt’s tourism sector
• The year of patching up friendships

*** It’s What’s Next day: We have our weekly deep-dive into what makes and shapes pre-listed companies and startups in Egypt, the UAE and KSA, touching on investment trends, future sector insights and growth journeys.

In today’s issue: We take a look at what our internal trackers tell us about Egypt’s 2021 startup investment rounds in terms of size, types of investors, and sectors. What we can say up front is that fintech and e-commerce are tying for the top position in terms of number of transactions, and international investors are more interested in Egypt than ever before.

Four or five companies could offer shares on the EGX in 2022, Hapi Journal reported EGX boss Mohamed Farid as saying last week. Ten companies have contacted the bourse regarding listing shares on the exchange, he said, without providing further details.

In the running to become the first of 2022: Nahr Elkhair Development and Investment, which last week received the greenlight to IPO from the EGX listing committee, according to a bourse statement. The agricultural company’s 2 bn shares will today be admitted to trading on the exchange at a par value of EGP 0.10 apiece ahead of the sale, which could see as much as 61% of the company offered to investors.

Look for the IPO to be worth up to EGP 500 mn, the FRA statement implies. The company, which operates in land reclamation and livestock, among other sectors, will see its shares trade under the ticker KRDI.CA. Nahr Elkhair was originally looking to offer a 25-40% stake to investors.

ADVISORS- Baker McKenzie is providing legal advice to Nahr Elkhair. We’re not clear on which investment bank(s) are leading the transaction.

Also lined up for EGX debuts this year: Cosmeceuticals giant Macro Group is set to offer up to 45.8% of its shares in a transaction that could value the company at around EGP 3.5 bn before its FRA approval expires on 23 January, though an official timeline has not yet been set. Healthy food brand Abu Auf also has its eye on a 2Q2022 listing, having recently tapped EFG Hermes to quarterback the transaction, while non-bank financial services player Ebtikar could go to market in early 2022. Ghazl El Mahalla Football Club is also offering shares in a micro-IPO (see story below).

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. 

Ghazl El Mahalla FC shares are set to begin trading on the EGX in February, the Public Enterprises Ministry said in a statement (pdf). The EGP 37 mn institutional component of the football club’s offering wrapped last Tuesday, according to the statement. The EGP 98 mn public offering to individual retail investors is still pending sign-off from the club’s general assembly, which is set to meet “soon,” the statement says.

Refresher: Ghazl El Mahalla is offering a 67.5% stake in its IPO, which is expected to raise EGP 135 mn. The transaction will mark the first time a football club is publicly traded in the Arab world, and could pave the way for more IPOs of this sort — football giant Al Ahly has also expressed interest in offering as much as 49% of the club.

Advisors: Prime Holding is acting as bookrunner on the offering.

ALSO ON THE PRIVATIZATION FRONT- Could we soon see concrete steps towards the sale of stakes in the Siemens power plants + military companies? High-level talks on the Sovereign Fund of Egypt’s (SFE) plans to sell stakes in the three Siemens-built power plants and a handful of military-affiliated companies took place last week. Prime Minister Moustafa Madbouly, Electricity Minister Mohamed Shaker, Planning Minister Hala El Said, SFE CEO Ayman Soliman, National Service Projects Authority (NSPO) Deputy Director Major Gen. Khaled Farouk, and other officials took part in the discussions last week, cabinet said in a statement, without providing further information.

BACKGROUND: The SFE in 2019 said it could acquire a 30% stake in the three combined-cycle power plants, while the remaining 70% would be sold to one or more private sector investors. The fund could in the future offer a stake in the plants on the EGX or an international bourse, as a way to stimulate FDI inflows, Soliman said at the time.

On the military-owned companies front: The SFE is also looking at 10 firms owned by the NSPO with a view to bringing in strategic investors ahead of potential IPOs at a later date. Bottled water brand Safi was gearing up to sell a minority stake to a strategic investor last year, while Wataniya Petroleum was expected to sell a major stake to an investor in 2H2021. Both companies had earned plenty of investor interest.

Companies raised a combined total of nearly EGP 1.75 bn in three securitizations last week as the securitized bond market saw a flurry of activity to close out the year.

By our count, this brings the total number of securitized bond issuances that went to market last year to 19, with a combined value of EGP 15.8 bn. We expect a few more issuances to close soon, as the Financial Regulatory Authority said late last month (pdf) it would approve 11 sales worth a combined EGP 11.5 bn before the end of 2021.

EFG Hermes Corp Solutions closed its first EGP 790 mn securitized bond issuance last week, part of a wider EGP 3 bn program, EFG Hermes said in a statement (pdf) on Thursday. The issuance is backed by a EGP 815.1 mn receivables portfolio covering 47 lease contracts. EFG Hermes was the sole financial advisor, sole transaction manager and book runner, underwriter, and sole arranger on the issuance.

Pioneers Properties closes EGP 627.5 mn securitized bond issuance: EFG Hermes was also the sole financial advisor, sole transaction manager and book runner, underwriter, and sole arranger on a EGP 627.5 mn securitized bond issuance on behalf of Pioneers Properties for Urban Development on Thursday, according to a statement (pdf). The issuance, which was the first tranche of Pioneers’ EGP 3 bn bond program, is backed by a EGP 798.3 mn receivables portfolio, the statement notes.

Rawaj Consumer Finance also closed a EGP 305.5 mn securitized bond issuance, according to a press release (pdf) on Thursday. The issuance is backed by account receivables from Tawriq for Securitization. Misr Capital was sole financial advisor, bookrunner, arranger, and general coordinator for the transaction. Misr Capital, Banque Misr, National Bank of Egypt, and Arab African International Bank acted as underwriters for the issuance. Dreny & Partners acted as legal advisors and Ernst & Young as auditor.

Suez Canal rival nixed by Israeli gov’t: A proposed oil transport corridor between the UAE and Israel that could have undermined the Suez Canal’s role as a major trade artery appears to have been spiked. Israeli environment minister Tamar Zandberg said last week that the agreement to use Israel as a transit country for Emirati oil heading to Europe has been blocked by the justice ministry, according to the Associated Press.

The accord could have allowed one of the region’s biggest oil producers to skirt the Suez Canal and dent its revenues: A secret agreement between Israel and the UAE last year would have seen Emirati oil delivered via tankers to Israel’s Red Sea port of Eilat before being sent to the Mediterranean via the existing Eilat-Ashkelon pipeline and onwards to Europe. The plan was positioned by Israel’s state-owned Europe Asia Pipeline Co (EAPC) and its new partner Med-Red — a consortium of Emirati and Israeli companies — as offering a quicker, less costly alternative to the Suez Canal.

EdVentures, ASRT go big on edtech: Three edtech startups received unspecified equity investments from education focused VC EdVentures and the Academy of Scientific Research and Technology (ASRT) — a nonprofit organization affiliated to the Higher Education Ministry, according to a press release (pdf). The startups, OBM Education, Super Fny, and Crafty Workshop, will also receive in-kind support, including training and mentorship, as part of the transaction.

About the companies: OBM Education offers content to pre-university students through online and in-person training programs and events. Meanwhile, Super Fny provides technical, vocational, safety, soft skills, and entrepreneurship training for professionals, and connects employers with jobseekers. Finally, Crafty Workshop offers business-oriented courses for craftspeople on product development, photography, pricing, marketing, branding, and finance.

Farmers could soon be getting cash subsidies for fertilizers instead of in-kind subsidies, after President Abdel Fattah El Sisi called for the switch last week at the inauguration of expansions to the Kima 2 ammonia and urea industrial complex in Aswan (watch, runtime: 21:20). The move away from in-kind subsidies could end the parallel market trade in fertilizers, while providing farmers with the direct liquidity to buy their fertilizers would help factories better assess local market needs before earmarking for exports, El Sisi said. The president also urged farmers to adopt modern irrigation systems, which slash fertilizer consumption needs by 40-50%.

This comes as fertilizer prices surge on the back of global commodity costs. The government gave producers the green light in December to hike prices at which they sell subsidized urea fertilizers to farmers by 50% to EGP 4.5k per ton. The increase comes shortly after the government raised natural gas prices for industry, hiking rates by up to 28% for businesses including fertilizers, iron and steel, petrochemical, and cement makers.

Analysts give the move a thumbs up: The president’s directives will “put an end to the black market and ensure that the subsidy reaches those in need,” CI Capital said in a report on 29 December. The move could also cut down on the overuse of nitrogen fertilizer, “which in Egypt is >4x the global average,” the investment bank said.

The move is consistent with the Sisi administration’s general policy direction for subsidies: Back in 2017, the Supply Ministry ended subsidies on flour used to produce subsidized bread to put an end to fraud that saw the flour traded on the black market. The ministry instead subsidizes only the price of the final loaves. The government also drafted a new Cash Subsidies Act in mid-2019 to govern a new system of direct money transfers instead of the current setup of in-kind subsidies using ration cards. The new system is designed to be more efficient and streamlined, while cutting down on subsidy fraud. The Takafol and Karam social welfare programs, launched in 2015, pioneered the idea in Egypt by providing cash subsidies directly to qualified beneficiaries.

El Sisi ordered a rework of the subsidy system several times last year, including calling for the introduction of a modernized, digitized ration card program, which he said would help end the large-scale misallocation of welfare subsidies.

Also rising: Sugar prices. The government has hiked prices at which it sells sugar by almost 25% in response to rising international prices. A kilo of sugar will now be sold at EGP 10.50, up from EGP 8.50, Al Masry Al Youm quoted Supply Minister Ali El Moselhy as telling reporters last week. International prices of raw sugar have surged some 57% since 1H2020, Prime Research wrote in a note last week.

The move will have a noticeable impact on inflation, according to analysts at CI Capital in a note last week. They expect the rising prices of sugar to add another 0.15 percentage points onto the headline rate.

SMART POLICY- Could we see higher piped water prices soon? The government has wrapped a feasibility study on reworking piped water consumption tiers for both residential and non-residential use, which Prime Minister Moustafa Madbouly reviewed last week, according to a cabinet statement. The statement doesn’t provide further details on what the restructuring would look like, or how much we can expect prices to increase. Piped water prices were last raised in 2018, when the government hiked prices across all consumption tiers by up to 46.5%.

Egypt is now part of the BRICS-led New Development Bank (NDB) after the bank admitted us as a member thanks to our position as “one of the world’s fastest growing countries,” according to a statement. Egypt is the fourth new member admitted into NDB, after Bangladesh, the UAE, and Uruguay joined in September. Our membership in the bank will give us access to support for infrastructure and sustainable development investment through public or private projects.

What is the NDB? The USD 100 bn Shanghai-headquartered bank was launched in 2015 by the BRICS group of major emerging economies: Brazil, Russia, India, China and South Africa. The international organization mobilizes resources for infrastructure and sustainable development projects in BRICS and other developing nations.

MEANWHILE- Egyptian SMEs to receive EGP 300 mn in Saudi finance: The Saudi Arabia Grant Management Committee will provide EGP 300 mn in grants to Egyptian SMEs after inking agreements with the Industrial Development Bank, Banque du Caire and Enmaa Finance, the International Cooperation Ministry said Friday. The committee has provided some EGP 1.5 bn to around 2.6k Egyptian SMEs to date, according to the statement.

EFG Hermes topped the EGX’s brokerage league table for the year with a market share of 18.9%, according to figures from the EGX (pdf). Rounding out the top five were CI Capital with 10.1%, followed by Al Ahly Pharos with 6%, Beltone with 5.9% and Pioneers Securities with 5.4%.

Subsidies were the topic of the night on the talkshows as Supply Minister Ali El Moselhy phoned into Ala Mas’ouleety to discuss the government’s plans to increase the price of subsidized bread (watch, runtime: 8:14 | 7:39 | 3:52). The ministry is considering several scenarios — which include targeted subsidy cuts that ringfence the most vulnerable people and replacing bread subsidies with cash payments — and will take a final decision by the end of March, he said.

Price rises were signposted last summer by President Abdel Fattah El Sisi, who suggested that the government would make a “modest” reduction to bread subsidies for the first time in a generation. Bread is currently sold for EGP 0.05 per loaf but costs EGP 0.6-0.65 to produce.

Mahmoud Mohieldin on Min Masr: To secure a high economic growth rate, Egypt needs to secure public, private, and foreign direct investment equivalent to 25% of its GDP, IMF Executive Director Mahmoud Mohieldin told Min Masr’s Amr Khalil. Over the past decade, that figure has averaged 15-18%, meaning we need to work to attract more investments. The government’s megaprojects are a key contributor to the country’s overall investment levels, Mohieldin said, but private sector investments and FDI need to be tripled from their current figures to spur job creation and sustainable growth. This growth, especially when it is underpinned by a strong base of local industry and exports, will help keep inflation from biting citizens’ pockets too hard, Mohieldin said, noting that the current national inflation rate is “reasonable” (watch, runtime: 26:24).

You can read more on the proposed changes to the subsidy system in today’s newswell, above.

Citroën Egypt has pulled an advertisement that triggered an uproar on social media over [redacted] harassment, writes BBC. The ad had featured singer Amr Diab riding a Citroën vehicle and taking a photo of a woman crossing the street without her consent using a built-in camera feature in the car. The story is getting ink everywhere, including: BBC | AFP | Associated Press | Washington Post | Independent | National | Al Monitor.

Also making headlines:

• Our smoking habits make it to the foreign press: The government’s decision to ban shisha to contain the spread of the coronavirus has stripped away one of the nation’s most beloved pastimes. (Washington Post)
• Mo Salah has been voted Premier League player of the year in a BBC poll, claiming 60% of the votes ahead of West Ham midfielder Declan Rice, who came second with 7%. (BBC)

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

• The Prosecutor General referred to trial four individuals on charges of graft and abuse of power relating to an alleged EGP 5 mn bribe to reverse a Health Ministry decision to shut down an unlicensed private hospital, according to a statement.
• Dana Gas collections from Egypt shot up 130% y-o-y to USD 184 mn in 2021 (pdf), reducing our arrears to their lowest level since the company started operating here in 2007.
• Lebanon could begin receiving gas from Egypt by the end of February via a repaired pipeline crossing Jordan and Syria, according to a Lebanese presidency statement.

Tightening restrictions in the Gulf as omicron spreads: Masking and social distancing mandates came into effect again in Saudi Arabia last week, according to the Saudi Press Agency, while the UAE will introduce a travel ban for all unvaccinated citizens starting 10 January, according to Emirati state-run news agency WAM.

The Health Ministry reported 783 new covid-19 infections yesterday, down from 847 the day before. Egypt has now disclosed a total of 386,358 confirmed cases of covid-19. The ministry also reported 16 new deaths, bringing the country’s total death toll to 21,768.

We received 347k AstraZeneca jabs last week, the Health Ministry announced. The ministry did not disclose where we received the jabs from.

Sinovac shot + Pfizer booster less effective against omicron: The two-dose Sinovac shot followed by a single Pfizer booster produces a lower immune response against the omicron variant than previous forms of the virus, according to a new study. The combination of vaccines produced 6.3x less antibodies against omicron compared to the original strain of the virus, researchers from Yale University and the Dominican Republic Health Ministry found.