AM — With IPOs, SPACs and a fintech-based MMF, it’s a big day for capital markets nerds

It’s a crazy morning for capital markets nerds — in the best possible way. We have two IPOs inching toward the finish line, the EGX looks about to get its first SPAC, and the folks at Fawry and Misr Capital are doing a fintech-based money market fund. Coming on the heels of Fawry’s announcement about a capital increase and possible US share listing? We can’t remember a January this exciting in years.

Wait, what’s a fintech-based MMF? Think of it as Fawry doing distribution (retail investors can buy in at any of the company’s PoSes or branches) while Misr Capital handles management. We have chapter and verse on all of that in this morning’s news well.

PSA- It’s a four-day workweek for banks: The Central Bank of Egypt confirmed yesterday that the nation’s banks will be closed on Thursday in observance of Police / Revolution Day, which falls on this Tuesday, 25 January. Prime Minister Moustafa Madbouly confirmed over the weekend that public sector workers will take the day off. Expect the EGX to follow suit shortly with its own announcement — if banks are closed, the stock market cannot trade.

THE BIG STORY ABROAD- The information war between the US / UK and Russia over Ukraine is continuing this morning, as the two sides continue to trade accusations of coup-plotting and disinformation while Washington mulls pouring more military hardware into eastern Europe. The story dominates the world’s front pages this morning. In brief:

• Washington considers deploying military to Europe: The Biden administration is considering sending thousands of troops, naval ships and aircraft to Eastern Europe (New York Times)
• US evacuates families of diplomatic staff: The US has ominously ordered the families of diplomats serving in Ukraine to evacuate the country. (Associated Press)
• UK coup accusations branded “stupid”: The Ukrainian ex-MP accused by the UK yesterday of being groomed by Putin to head a puppet government in Kiev called the allegations “stupid” and is considering legal action. (Reuters)
• Still, the UK is threatening sanctions: Russia will face “serious consequences” if it installs a “puppet regime” in Ukraine, deputy PM Dominic Raab said yesterday. (Reuters)

Meanwhile, a senior French embassy official reached out yesterday to say that it is “incorrect” that France is “somehow advocating for a separate dialogue on Russia.” The official pointed to an NPR interview of Emmanuel Bonne, the top diplomatic advisor to French President Emmanuel Macron. Bonne was recently in Washington for talks with his US counterpart, Jake Sullivan, on the crisis in Ukraine.

ALSO- Coming off of a week-to-forget, where next for financial markets? Down, if Asian markets this morning are of any indication. Shares in China, Hong Kong and South Korea are in the red in trading today, though the Nikkei and Australia’s ASX are the outliers and have seen early gains.

European shares look set to follow suit later today: Stock futures are down across the board this morning. US futures are currently pointing to early gains but if volatility continues in Europe, you can expect that to change.

On everybody's minds: The US Federal Reserve will have its first policy meeting of 2022 on Tuesday and Wednesday, where it is widely expected to confirm that March will see the first in a series of 0.25-percentage-point interest rate hikes in a bid to curb rising inflation, the Financial Times reports. The Fed has penciled in three rate hikes in 2022 and an end to its asset purchase program in March, but some have suggested that the central bank could lay the groundwork to hike rates more aggressively and end asset-buying immediately at this week’s meeting.

WHAT’S HAPPENING TODAY-

Algerian President and Defense Minister Abdelmadjid Tebboune is in Egypt for a two-day visit starting today, the Algerian presidency said last night. The statement didn’t provide any information about the president’s schedule.

Lebanon will begin virtual talks today with the IMF over a potential USD 69 bn financial rescue package, official sources told Reuters, as the country seeks to secure funding sometime in January or February to help claw its way out of a deep economic crisis that has been compounded by political instability and corruption scandals.

FOR TOMORROW-

Nahr Elkhair Development and Investment’s shares will reportedly start trading on the EGX tomorrow. The company will directly list its shares on the bourse, without offering shares to investors via subscription, according to Al Shorouk.

MORNING MUST READ-

So you’re an ESG investor, huh? You’re still helping to pollute the planet, James Mackintosh tells us in a piece in the Wall Street Journal that highlights the tension between shareholder value and the normative economics of ESG investing.

This isn’t a signpost to go all-in cynical on ESG: Mackintosh makes a point of telling us straight up that ESG isn’t a complete waste of time. The trouble, he says, is that ESG investors want to have their cake and eat it: they want to stop environmental degradation, improve working conditions and treat suppliers fairly — as long as it doesn’t hurt their bottom lines. And even when successful — like when they force the sale of a dirty power plant or mine? Well, the point is that “selling off assets or shares by itself does nothing to save the planet, because someone else bought them. Just as much oil and coal is dug up and burned as before, under different ownership.”

While shareholder value continues to take priority, ESG will remain an investment trend that’s better for making investors feel good about themselves than it is for the planet, Mackintosh argues.

But Enterprise, don’t you like ESG investing? We think it’s very possible to make a buck and do good for the planet (and all of us who dwell on it) at the same time. But there are critiques that need to be heard and considered, and the WSJ is beating the drum loudly on this one: It sent out an alert to subscribers that Mackintosh’s column is the “first in a series” of pieces that will look critically at ESG.

Meanwhile, in Brussels: The European Commission could face a lawsuit over its designation of nuclear power and natural gas as “green investments,” the Financial Times reports. Austria and Luxembourg are threatening to pursue a lawsuit if the EU’s controversial green taxonomy is approved in its current form, while Spain could opt for its own framework that excludes nuclear and gas. Designed to reduce greenwashing in the financing industry, the rules have been received with controversy since coming out earlier this month. The taxonomy is currently under review and could become law by the summer unless a supermajority of EU countries or the bloc’s parliament moves to block it.

CIRCLE YOUR CALENDAR-

Startups have until next Sunday, 30 January to apply for the spring 2022 cycle of EGBank’s Mint Incubator. The incubator offers two tracks: A sector-agnostic track for startups at the MVP stage, and a fintech track that accepts early-stage startups both at the ideation and MVP stages. Main founders must be between 16-35 years old. You can apply here.

The Cairo International Book Fair starts on Thursday at the Egypt International Exhibition Center. Members of the public will be allowed to enter without providing proof of vaccination, the Culture Ministry said last week. The two-week event runs through to 7 February.

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

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed. Blackboard appears every Monday in Enterprise in the place of our traditional industry news roundups.

In today’s issue: We talk with British Council Egypt Country Director, Elizabeth White, British Council Egypt Head of Science, Shaimaa ElBanna, and British Council CEO, Scott McDonald, about the new climate change grants being awarded by British Council Egypt to promote partnerships between universities and higher education institutions in Egypt and the UK. 11 grants are being awarded, each worth GBP 35k. Applications are currently under review, with successful applicants due to be notified during the week beginning 13 February.

A draft of an overhauled Labor Act regulating practices in the private sector is currently still under discussion at the Senate, which has so far approved several articles in the legislation. Once the Senate gives it the all-clear, the bill will be passed back to the House of Representatives, where it will be put to a vote for final approval. If the House passes the Act, it would replace the current Labor Act of 2003. We had a chat with our friends at ALC Alieldean Weshahi & Partners to break down the key changes that you need to know about in the law as it stands.

Are the changes pro-employer or pro-employee? It’s complicated.

Wages + bonuses: The bill would set a minimum annual raise requirement equal to 3% of the employee’s wage amount covered by social ins., according to article 12 of the law. The current law sets minimum annual raises at 7% of an employee’s basic salary.

The new law would cut out a practice that some companies have used to avoid having staff with open-ended contracts. Under the current law, an employee’s fixed-term contract (typically lasting one year, but sometimes two years) is converted to an open-ended contract if they continue in their role beyond the contract’s term. The new law would, if passed, decree that any employee contracted to work with the same employer for four years (i.e. under four consecutive one-year contracts or two back-to-back two-year contracts) automatically enters an open-ended contract. Some employers today provide staff with new fixed-term contracts prior to the expiry date of the previous one rather than renewing existing contracts. The draft law would make that impossible by defining a contract as permanent after a four-year “employment relationship.”

Two months’ notice required if a fixed-term contract is terminated early: Employers who decide to end a fixed-term employment contract — and have legal grounds to justify doing so — must provide written notice to the other party at least two months in advance, according to article 131. They would also be required to provide a severance package equivalent to one month of pay for each year of service with the current employer. Employees must also give two months notice before leaving a fixed-term contract. This article would reduce the notice period from the three months required under the current law.

Want to quit an open-ended contract? You need to give three months’ notice. If an employer wants to dismiss an employee on an open-ended contract for cause, they would be required to give three months’ notice, as per article 133. Employees would also be required to give a three-month notice period before leaving an open-ended contract. The only way around the three-month notice requirement is if the employer provides a severance package equivalent to pay for the notice period.

Unlawful termination: Employees on open-ended contracts would be entitled to a compensation package equivalent to two months of pay for every year worked if they are dismissed without due cause, article 142 of the new law stipulates. Unlawful grounds for dismissal include the employee being active in a syndicate; filing a complaint or lawsuit against the employer for not meeting labor requirements; taking their allowed vacation time; or on the basis of gender, race, socioeconomic status, religion, or political opinion, or for being pregnant. We understand that employees on fixed-term contracts who are terminated without cause would need to be bought out of their contracts, i.e., the employer must give them the full pay that they would have received had they remained in the role to the end of the contract’s term.

Working hours: Employers would be required to cap each employee’s workday to eight hours per day, or 48 hours per week, not including breaks (which must be at least one hour). Employees are required to have at least one paid day off per week. The bill would also require companies to cut at least one hour from each working day for pregnant women in their third trimester, and would bar overtime for women from the beginning of their pregnancies until the end of the second trimester.

Annual leave for employees after completing one year of social ins.-covered employment remains unchanged (21 days per annum), but the bill would also set a 15-day minimum annual leave for employees who haven’t hit the one-year mark. Employees who have been covered by social ins. for 10 years or more would get 30 days off per year, and those aged 50 or above and persons with disabilities would get 45 days of annual leave each year.

SMART POLICY- Maternity leave: The new bill would increase paid maternity leave to four months from the current three months, including leave taken before giving birth. Article 50 stipulates that at least 45 days of the total leave must be taken after giving birth, and caps the number of maternity leaves per employee to three, up from the two currently allowed. The new bill would also scrap a requirement for women to pass the 10-month mark at their role to be granted maternity leave.

All companies with 25 employees or more would also be required to offer an extended two-year unpaid leave to new mothers, as per article 72. The current law sets that stipulation at businesses with 50+ employees.

BAD POLICY- The Senate struck down an article that would have granted new fathers a 7-day paternity leave during the six months after a baby’s birth.

The Financial Regulatory Authority (FRA) has given Macro Group the green light to publish the public subscription notice for its upcoming IPO, according to an FRA statement (pdf) dated 20 January. The group will sell up to 264.5 mn shares — or 45.8% of the company — at a maximum price of EGP 6.05 per share, making the IPO worth up to EGP 1.6 bn and valuing the company at as much as EGP 3.5 bn.

The approval comes after the bourse listing committee signed off on Macro listing its shares on the EGX earlier this month under the ticker MCRO.CA.

It’s presently unclear when trading will begin on Macro’s shares. The company would need to apply for an extension if it did not list before a late-January deadline, FRA head Mohamed Omran said in December, but the FRA has lately telegraphed that it could be flexible on the deadline to complete transactions for companies that have listed their shares but not executed sales. Macro plans to make its EGX debut sometime in the first quarter of 2022, a source familiar with the matter told Enterprise previously, adding that the exact timeline for the IPO has not yet been set. Market conditions are critical to the timing of any IPO. Enterprise reached out to a company representative but did not receive a response before dispatch time.

Background: Macro Group postponed its IPO plans in April 2021 despite strong appetite from international institutional investors, citing concern for the market’s capacity to absorb a packed offerings schedule on the EGX. The company was about to kick off retail subscription when the listing was postponed, with shares priced at between EGP 5.30-6.15 apiece, valuing the company at EGP 3.1-3.6 bn. Sources told us last month that the company would start the book building process from scratch following the holiday season.

Advisors: Our friends at EFG Hermes are quarterbacking the transaction as sole global coordinator. EFG Hermes and Renaissance Capital are acting as joint bookrunners, while White & Case is counsel to the issuer. Inktank is investor relations advisor to Macro.

OTHER IPO NEWS-

Ghazl El Mahalla FC will list on the EGX in early February, Al Mal reports club president Ali Al Abbasi as saying yesterday. The football club is offering a 67.5% stake in its IPO, which is expected to raise a total of EGP 135 mn after attracting EGP 37 mn from institutional investors during the private placement.

The club is planning to release the IPO prospectus before the end of the month, Al Borsa reports, quoting Mohamed Maher, head of bookrunner Prime Holding.

EDITOR’S NOTE- Dsquares founder Marwan Kenawy has denied Al Shorouk’s reporting on this story since it was published, as we noted in a follow-up story.

Dsquares is jumping on the SPAC train: Loyalty services provider Dsquares is looking to establish a special-purpose acquisition vehicle (SPAC) and is currently working on fulfilling the Financial Regulatory Authority’s (FRA) requirements for the listing of SPACs on the EGX, Al Shorouk reports, citing unnamed sources.

The target: Dsquares would look for its blank-check firm to merge with another company operating in customer offers and discounts, Al Shorouk reported the sources as saying, without providing any further details.

The company hasn’t decided on the form its offering will take, and is currently mulling whether it will be a public subscription or private offering, Al Shorkouk claims.

About Dsquares: The Cairo-based startup provides end-to-end loyalty, rewards and concierge services. Investors include Lorax Capital Partners, our friends at Algebra Ventures, the European Bank for Reconstruction and Development, the International Finance Corporation, Cisco, and the Egyptian-American Enterprise Fund.

Next steps: Investors that want to set up a SPAC first need to obtain a venture capital license. A board of directors is appointed next, with a chairman who complies with the FRA’s regulations and guidelines for private equity firms. The blank-check firm would then be publicly listed on the EGX and have one month in which to raise capital from investors via a share sale. The funds raised would be placed into an interest-bearing bank account for a maximum of two years while it looks for a company to acquire or merge with.

We’re expecting our first SPAC to be established soon: “At the end of this month or early next month, we will have the first blank check company,” FRA chief Mohamed Omran said. The SPAC would be the first to list on the EGX and would have initial capital — pre fundraising — of EGP 10 mn, which is the minimum requirement set by the FRA. The SPAC must have at least EGP 100 mn in capital to complete an acquisition or merger and at least 80% of the SPAC’s capital must be used to acquire a target company.

Is this the start of a SPAC rush in Egypt? The FRA late last year issued the rules and regulations for establishing local blank-check firms, after the regulator greenlit EGX boss Mohamed Farid’s proposal to allow SPACs in Egypt. The proposal was partly driven by an increased interest in SPACs in the MENA region, following Swvl’s move to merge with blank-check firm US Queen’s Gambit Growth Capital and list on the Nasdaq, as well as Anghami’s plans to hit the Nasdaq after a merger with Vistas Media Acquisition Company.

Fawry and Misr Capital are launching the MENA region’s first fintech-based money market fund, Fawry Yawmy, Fawry announced in a press release (pdf) yesterday. The money market fund, which is set to launch on 30 January, is being targeted at individual retail investors with an initial investment ticket of EGP 500. Would-be investors can buy in through any of Fawry’s 160 branches or 250k point-of-sale machines and, later this year, through the MyFawry app.

What’s a money market fund? It’s a type of mutual fund that invests in short-term, high-liquidity assets including currency, currency-equivalent securities, and debt-based securities, with the aim of offering a low-risk, highly liquid investment. Investopedia has lots more. Fawry Yawmy will “further facilitate retail investors’ entry to the Egyptian debt market,” said Fawry CEO and founder Ashraf Sabry.

This is the first co-sponsorship of a fund for Fawry, and the second for Misr Capital, which launched a USD 380 mn specialist fund with Elevate Private Equity last year. Misr Capital is one of the region’s largest mutual fund investment managers, CEO Khalil Bawab said in the release.

This comes as Fawry plans to expand its consumer financing and non-banking financial services offering, with a plan to raise its capital by EGP 800 mn through a rights issue to shareholders in 1H2022.

CORRECTION- We incorrectly said in yesterday’s edition of EnterpriseAM that Fawry’s most recent capital increase was in November 2020. The company most recently completed an EGP 400 mn capital increase through a rights issuance in June 2021. The story has been updated on our website.

Evolve Investment Holding plans to launch a gold-backed investment fund that will invest in precious metals, CEO Sameh El Torgoman told Al Mal in an interview (watch, runtime: 1:16:48). The fund will be set up with EGP 500 mn in initial capital and is geared towards investors who want to trade in gold through gold-backed securities that track its price. The company is in talks with three financial institutions over their potential participation in the fund.

Gold-backed fund? Exchange-traded gold-backed funds are regulated financial products, where each share corresponds to a specific amount of gold. Think of it as a way of getting exposure to gold without having to buy physical bars. The share price reflects the underlying gold price. The World Gold Council has lots more if you want to dive deeper.

About Evolve: The company, which opened its doors this year, plans to launch multiple precious-metals-focused funds. Evolve’s physical gold-trading arm, Gold Net Trading, began operations in October 2019. Torgoman says he holds a 51% stake in the company, while eight other “well-known” investors hold the rest, according to Al Mal.

This is all pending application for regulatory approval, El Torgoman said. There have as yet been no official proposals submitted to establish gold funds in Egypt, Al Arabiya reported Financial Regulatory Authority (FRA) head Mohamed Omran as saying last week.

Evolve isn’t the first company to tap the gold market: Banque Misr also announced plans to launch a gold investment fund last year.

German development bank KfW’s Green for Growth Fund (GGF) now has a license from the Central Bank of Egypt (CBE) to act as a “tier-two” lender in Egypt, the fund announced in a press release (pdf) yesterday. The license will see GGF provide loans to Egyptian banks to help finance energy efficiency, resource efficiency and renewable energy projects.

Background: The GGF is a public-private partnership fund initiated by the European Investment Bank and KfW that finances green projects in 19 countries, both directly and to financial institutions for on-lending. It has made EUR 99 mn in sub-loan investments in Egypt since its founding in 2009. It has previously provided National Bank of Egypt, Alexbank, and Banque du Caire with facilities of USD 10-30 mn to finance local green projects.

OTHER DEBT NEWS-

NBE, local banks to dish out another EGP 25 bn to Geico for Abu Qir Port: The National Bank of Egypt (NBE) will lead a banking syndicate offering an EGP 25 bn loan to construction firm Gharably Integrated Engineering Company (Geico) for the development of the New Abu Qir city and port, reports Al Shorouk, citing unnamed sources it says has knowledge of the matter. Enterprise reached out to NBE officials, who did not return a request for comment by dispatch time.

This is double the amount Geico secured last September. The construction outfit received a EGP 12.3 bn loan, through a consortium of local state-owned and private sector banks, to upgrade the Abu Qir port. NBE Chairman Hisham Okasha had said it was the largest joint loan of 2021 and the largest financing for a contracting operation in recent years. Geico had in January 2021 signed an EGP 3.8 bn syndicated loan agreement to upgrade the port.

Standard Chartered to open in Egypt: Kelma Akhira’s Lamees El Hadidi dropped the big business news of the night last night, reporting during her show that British bank Standard Chartered has received preliminary approval from the Central Bank of Egypt to open its first branch in Egypt in the next six months (watch, runtime: 2:34). The bank has repeatedly tried in recent years to expand into the Egyptian market by acquiring local banks. The bank’s entry has not yet been confirmed by an official source. EFG Hermes’ chief MENA economist Mohamed Abu Basha was on hand to provide the analysis (watch, runtime: 9:03).

The bank’s entry underscores that Egypt “is attractive to many foreign and regional banks,” Abu Basha said, adding that there is a wide space in the market for a newcomer to offer retail banking services including loans to individuals and SMEs.

About Standard Chartered: The emerging-markets focused lender operates in 59 markets and is listed on the London Stock Exchange and two Asian bourses. In November, the bank said it expected earnings to be flat in 2021 on the back of the “uneven recovery” in its main Asian, African and Middle East markets. The bank has been reducing its physical presence in recent years, last summer announcing plans to close half its branches and cut global office space by a third amid the pandemic.

It’s crickets on Egypt in the foreign press this morning. Take a moment to enjoy the silence.

Egypt to get USD 2.6 bn in financing from ITFC? The International Islamic Trade Finance Corporation (ITFC) has approved USD 2.6 bn in funding for “development projects” in Egypt, ITFC CEO Hani Sonbol said following a meeting with Trade Minister Nevine Gamea, according to a ministry statement. No further details were provided on where the money will be spent, nor when it will be disbursed. The ITFC provided the General Authority for Supply Commodities (GASC) and the Egyptian General Petroleum Corporation USD 2.3 bn in financing last year.

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

• The Central Bank of Egypt has granted Orascom Financial Holding subsidiary Dot Electronic Payments a license to operate its Klivvr app and payment card in partnership with the AAIB.
• Cleopatra Hospitals Group (CHG) and Hemocure Clinic have signed an agreement to establish a center of excellence for the treatment of anorectal diseases in CHG’s El Katib Hospital.
• Speed Medical will not be getting (pdf) a 50% stake in City Labs, after the planned EGP 27.4 mn acquisition did not get the necessary approvals from the Health Ministry and the Egyptian Competition Authority. Speed has completed its EGP 6.5 mn acquisition of Nour El Eslam labs and its EGP 2.5 mn purchase of El Sharq Labs.
• An Iraqi industrial delegation is in Egypt seeking the help of the Egyptian government and private sector to establish industrial zones and develop the country’s industries.

The Health Ministry reported 1,603 new covid-19 infections yesterday, up from 1,569 the day before, as case numbers saw a second day of highs not recorded since the peak of the first wave in June 2020. Egypt has now disclosed a total of 410,098 confirmed cases of covid-19. The ministry also reported 38 new deaths, bringing the country’s total death toll to 22,368.

We received another 1.8 mn Pfizer covid doses from the US as part of the Gavi / Covax program on Saturday evening, according to a Health Ministry statement.

Pfizer’s plan for the transition to endemic covid: an annual jab that would cover all variants. The pharma giant’s CEO Albert Bourla told Israel’s N12 News on Saturday that a catch-all annual shot would be “an ideal solution” and could help us go back to pre-covid normalcy soon, reported The Times of Israel, though he also predicted that “there will be more variants.”