AM — EFG Hermes taps Goldman, White & Case to advise on First Abu Dhabi Bank’s acquisition offer

A raft of good business news here at home on this fine morning — 2022.02.22 for those of you keeping track — is overshadowed by news that Russia has ordered troops into Ukraine.

After months of saber rattling, Russian President Vladimir Putin last night ordered troops into Ukraine’s two separatist regions for a “peacekeeping” operation just hours after he signed a decree recognizing the two breakaway areas. It’s not clear as of dispatch whether Russian troops are already on the move or if Putin plans to order their advance beyond the self-proclaimed “people’s republics” of Donetsk and Luhansk. All indications are that this could be the start of the war that has been threatening to erupt for weeks now.

Stock markets don’t like war: Asian markets are solidly in the red this morning and futures suggest European markets, Wall Street and Bay street should brace for a selloff at the opening bell. Brent crude futures surged on the news and the only gainers in after-hours stock trading seem to be energy companies.

Now for the response from the West: The UK is set to impose sanctions on Russia as early as next Tuesday, while EU leaders have also vowed sanctions for Putin’s move and will meet imminently to discuss the details. The US is imposing sanctions on the separatist regions, but not Russia as a whole as of yet, the New York Times is reporting, citing White House officials.

That Putin-Biden summit that some were speculating about yesterday? Not happening, if you ask us.

The news is all over the world’s front pages: The Financial Times, Reuters, Bloomberg, Washington Post, Wall Street Journal and Associated Press have more.

War in Ukraine is something we need to keep careful tabs on. Russia and Ukraine are two of the most important markets for our resurgent tourism industry — and two of our top suppliers of wheat, together accounting for the vast majority of our imports (as we note in Egypt in the News, below). State wheat buyer GASC, the world’s largest purchaser of the commodity, was very careful a few days back in locking in April wheat from Romania even though Ukraine was offering a better price.

Russian wheat continues to fall on Ukraine tensions: Export prices of Russian wheat fell for a sixth consecutive week last week as tensions with Ukraine continued to rattle the market, Reuters reports. Russia and Ukraine are two of the world’s biggest wheat exporters, with Egypt as one of their main buyers. Around 50% of our wheat imports were shipped from Russia last year, while 30% came from Ukraine. Prices of Ukrainian wheat are also under pressure, falling 4% so far in February.

MARKET REAX- Russian stocks fell to their lowest since Russia’s annexation of Crimea in 2014 yesterday, while the country’s currency dropped the most since March 2020 on the back of the latest developments in Ukraine. (Bloomberg)

The soundtrack for this morning’s issue … is predictable.

MEANWHILE- There are now 103 mn of us: Egypt’s population should reach 103 mn today, statistics agency Capmas announced, according to Masrawy. We reached the 102-mn mark in July of last year — 232 days ago — meaning that on average, one baby was born every twenty seconds in the interim.

CIRCLE YOUR CALENDAR-

A call for tech startups: The Information Technology Industry Development Agency (ITIDA) and US-based VC firm Plug and Play have launched an incubator and accelerator program for digital transformation-focused startups in partnership with our friends at USAID. The newly launched “Smart Cities” innovation hub will select 20-30 Egypt-based companies for its inaugural three-month program, which starts in March. Startups can apply here before applications close on 28 February.

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: The transition to net-zero emissions by 2050 is extremely necessary — but it’s also going to be extremely expensive, according to a new report from McKinsey. Investments of as much as USD 275 tn — equivalent to 7.5% of global GDP — will be needed as the world looks to rebuild the global economy from the ground up, sans carbon. In today’s issue of Going Green, we take a closer look at what the report has to say about hoe the shift to sustainability might look on a macro level, and why it’s going to cost quite so much.

Goldman Sachs and law firm White & Case will advise EFG Hermes’ board of directors on a takeover bid by First Bank of Abu Dhabi (FAB), EFG said in a regulatory filing (pdf) that confirmed reports earlier this week that it was planning to tap the international investment bank.

The board also gave the go ahead for FAB to conduct due diligence on EFG, pending approval from regulatory bodies, the disclosure said.

EFG will also hire an independent financial advisor will be hired to prepare a fair value study if the UAE lender decides to submit a mandatory offer, EFG’s board agreed.

FAB’s advisors: Rothschild & Co is providing financial advice to FAB, while Matouk Bassiouny & Hennawy are its local counsel.

A recap of the offer: The Emirati lender announced in February its offer to buy at least 51% of EFG in a transaction valued approximately at EGP 18.5 bn, which would make it one of Egypt’s biggest acquisitions in recent years. FAB is reportedly considering raising its offer depending on the results of the due diligence process. The bid for EFG draws a clear line under the attractive fundamentals not just of the country’s leading financial services corporation, but of Egypt as a destination for foreign direct investment.

ALSO FROM EFG-

Transmar signs USD 25 mn financing agreement with EFG Hermes for new vessel: Transmar, an IACC subsidiary and Egypt’s home-grown container shipping line, has signed a USD 25 mn agreement with EFG Hermes Corp-Solutions to finance the purchase of a new cargo vessel, EFG said yesterday in a statement (pdf). Dubbed the Transmar Legacy, the new vessel will cost USD 33 mn, and it is set to operate primarily between Egypt and Saudi Arabia, according to the statement.

Elevate Private Equity (Linkedin) is investing at least EGP 500 mn to establish a dedicated cancer treatment facility in Egypt, a company spokesperson told Enterprise yesterday. This came on the same day that Elevate announced (pdf) the signing of an MoU with the France-based Gustave Roussy Institute, one of Europe’s leading cancer hospitals, to collaborate on the facility. Elevate was unable to provide an exact value for the MoU when we asked.

First services coming in 2H2022: The center will comprise a digital pathology platform, a cancer diagnostics center, and a cancer management hospital. Pathology and diagnostics services will be up and running within the next 6-9 months, while the completion date for the full hospital is still to be determined, the company told us.

Elevate is investing through its new Elevate Healthcare platform established with Misr Capital last year. The USD 380 mn fund aims to invest in healthcare in Egypt and sub-Saharan Africa and has been billed as the biggest specialist fund of its kind on the continent.

Elevate will also be leveraging a USD multi-mn agreement with Elekta to bring cutting-edge radiotherapy cancer treatment to Cairo, making it the first private sector institution to bring this nolvadex-tamoxifen.net to the Egyptian market, the spokesperson told us.

ALSO IN INVESTMENT-

CIRA + Al Ahly Capital to cover half of investments in applied tech university: Private sector education outfit CIRA and Al Ahly Capital, the National Bank of Egypt’s investment arm, will together finance half of CIRA’s EGP 2.1 bn applied tech university, CIRA Project Manager and Investments Officer Mohamed El Khouly told Al Mal. Of the EGP 1 bn that CIRA and Al Ahly Capital will pony up, CIRA will contribute 60% and Al Ahly Capital will provide the remaining 40%, a CIRA official confirmed to Enterprise.

Where’s the rest of the funding coming from? CIRA is still in talks with banks for a loan to cover the other half of the investment costs, El Khouly said. Last we heard, the company was reportedly negotiating with a syndicate of three international banks for a credit facility.

The plan for the university: The first phase of the project will see four colleges established for when the university opens its doors in the 2022-2023 academic year, at a cost of around EGP 1.4 bn, according to El Khouly. This amount includes EGP 700-800 mn that will be financed through bank loans, he said. The university will then introduce two new colleges every year until it reaches a total of 13.

EDITOR’S NOTE- This story was updated on 22 February, 2022 to amend Mohamed El Khouly’s title.

Egypt, US launch climate working group ahead of COP27: Foreign Minister Sameh Shoukry and US Presidential Climate Envoy John Kerry met for the inaugural session of a working group that will set priorities for COP27 in Sharm El Sheikh this November, according to a Foreign Ministry statement. The group will also work to advance Egypt’s green energy transition.

Kerry got the ball rolling on US involvement in our energy sector: The climate envoy and President Abdel Fattah El Sisi discussed ways for American companies and institutions to participate in Egypt’s efforts to become a regional energy hub, according to an Ittihadiya statement, which mentioned projects on green hydrogen, solar and wind energy, and low-carbon and electric transport.

Egypt will work to ensure developing countries get the funding they need from developed countries to fight climate change, El Sisi said during the meeting. El Sisi has been vocal about prioritizing finance for Africa’s green transition, which Bloomberg notes will be a key theme for this year’s summit. Kerry, meanwhile, came under fire from some quarters about his position on loss and damage financing for developing nations, a matter that he mentioned only in “passing reference” during yesterday’s visit, the Financial Times reports.

Notably absent from El Sisi + Kerry’s talks: natural gas. Kerry took aim at unnamed countries who are “turning to new, unabated natural gas as a transition fuel,” in a speech delivered at AUC yesterday. “Unless fully abated, new natural gas capacity will lock in decades of new emissions when we should all be focusing on deploying abundant and cheap clean energy,” he said.

Gas is key to our energy hub ambitions: Egypt became a net exporter of natgas and LNG in 2018 after the discovery of the supergiant Zohr gas field, and has been pushing to increase output as international gas prices rise. We’ve also been approached in recent weeks by the EU and, reportedly, the US, for talks on whether we could up exports to Europe in the event that Russian supply dries up due to the geopolitical crisis over Ukraine.

Kerry wants us to take our eyeballs off Ukraine and refocus on climate: “I am concerned in terms of the climate efforts that a war [in Ukraine] is the last thing you need with respect to a united effort to try to deal with the climate challenge,” he told Reuters. The Hill and Associated Press also had coverage of Kerry’s visit.

“Old rent” law takes another step forward: The House of Representatives gave preliminary approval to a draft law permitting landlords to evict organizations, government agencies, public and private companies, embassies, and other entities leasing properties under the old rent system, Masrawy reports. The bill would come into effect within five years of its being signed into law, while tenants would pay five times their current rent — with a 15% annual rent hike — in the meantime. It would not affect individuals who rent under the old rent system. The House Housing Committee signed off on the bill last month.

What’s next for the bill: It will be up for a final vote in a later plenary session. If passed, it will be sent to President Abdel Fattah El Sisi to be signed into law.

WATCH THIS SPACE- A wider overhaul of the old rent system could be next. House Speaker Hanafy El Gebaly asked representatives to prepare suggestions for a debate on amending the old rent law that governs individuals who rent under the old rent system, Al Mal reports. Gebaly stressed that public consultations and extensive debate would take place before the implementation of any changes that would have an impact on individual renters.

Legislators will be treading carefully: First introduced during our socialist interregnum, the old rent law still governs many contracts signed on a near-permanent basis eons ago. Landlords and others have called the law unfair, as it has kept rents at remarkably low levels for some amid a wider crisis of affordable housing. Legislators have been reluctant to make reforms, especially when it comes to individual renters, as any change could lead to widespread evictions of families from homes they’ve lived in for decades.

Schneider eyes EUR 500-600 mn contract for 10 control centers: Schneider Electric Systems is in talks with the Electricity Ministry for the contract to build 10 energy control centers, which are expected to cost EUR 500-600 mn, Managing Director Khaled Kamel was quoted as saying in Sunday’s print edition of Hapi Journal. The control centers will be located in Cairo, Alexandria, Sharm El Sheikh, Hurghada, Minya, Ismailia, and Nile Delta governorates.

The company hopes to ink the contract with the ministry before the summer, Schneider Electric Middle East and North Africa President Walid Sheta told Enterprise.

This is all part of a wider plan: The 10 centers Schneider is eyeing are part of the ministry’s plan to set up a total of 15 centers, four of which the company already snapped up at a cost of EGP 4.7 bn (c.EUR 253 mn). General Electric was awarded a contract to build a single center in Alexandria. The ministry is working on rolling out smart control centers across the country in a five-phase, 10-year strategy.

When should we expect Schneider’s four centers? The company had said last year it would complete the first four control centers — all in the Greater Cairo area — by mid-2022. Schneider now plans to deliver the four centers within the next two months, Sheta added.

Schneider will also install 8k smart ring main units (RMU) — an integrated electrical tool that helps reduce operational costs — in ten governorates as part of the project. The smart RMUs will help reduce energy losses through the national grid from a current 30% to 10%, Kamel said.

EV battery tech is also in the plans: Schneider is currently researching ways to generate and store electricity from solar energy to charge electric vehicle batteries, Sheta told us. Want to know the ins and outs of energy storage through batteries? Read our Hardhat on how it could be the solution to Egypt’s electricity oversupply problem.

Meanwhile: The company is separately looking to acquire an unnamed Egyptian digital transformation company in the near future, Kamel said, as it eyes investing more heavily in digital transformation over the next few years.

ALSO IN INFRASTRUCTURE-

The government has agreed to lend the country’s first green hydrogen plant electricity to help get it up and running, Al Borsa reports. Orascom Construction, Norway’s Scatec, Nassif Sawiris-backed Fertiglobe, and the Sovereign Fund of Egypt — the consortium building the 100 MW Ain Sokhna facility — requested the electricity last week to help expedite construction in time to showcase part of the project at COP27. The electricity will come from renewable sources connected to the national grid for a two-year period, and the plant will return the same amount to the grid once it starts operating. The plant is expected to be fully completed by 2024.

Fawry enters the delivery service space with Roaderz: E-payments giant Fawry is setting up Roaderz — a courier delivery platform — with founder and CEO of delivery service Mylerz Samer Gharaibeh, tech solutions firm Softec, and Confida Ventures Managing Partner Ammar Zawaideh, according to a statement from Fawry. Zawaideh will act as Roaderz CEO.

How Roaderz works: The company’s crowdsourcing platform will connect couriers and small delivery firms with e-commerce merchants. Roaderz allows sellers to request couriers on demand or schedule their services in advance. People using their personal vehicles and looking to pocket some extra income will also be able to work as couriers.

It’s a very crowded space: In the past few years, the Egyptian market has seen the introduction of a number of B2B and B2C delivery services. Yalla Fel Sekka and B2B e-commerce platform Talabeyah launched in early 2020, with ShipBlu following suit shortly thereafter. Courier startups such as Bosta, Dreevo, and Sprint have also entered the space in the past few years, while ridesharing giant Uber and its subsidiary Careem have also launched courier services.

EGX30 heavyweight CIB reported a 17% year-on-year rise in net income in 4Q2021, turning in an EGP 3.4 bn bottom line on revenues of EGP 7.0 bn (+5% y-o-y). Management said in commentary appended to the bank’s 4Q/FY2021 earnings release (pdf) that CIB continued to “lead the market … in both profitability and solvency” throughout 2021. CIB turned in net income of EGP 13.3 bn (+30% y-o-y) for the full year on revenues of EGP 26.7 bn (+3%).

What drove growth in profitability? The bottom line performance was “exceptionally strong” thanks to CIB’s “unique coverage and flexible balance sheet structure,” the statement said. Local currency lending grew a sharp 29% and foreign-currency loans also continued to grow. Profitability was also supported by an uptick in “contingent business and foreign exchange trading activities, generating a significant rebound in core fees and commissions.” Return on average equity came in at a strong 21.9%, but 255 basis points for the year.

Digital transformation takes hold: CIB said it finished the year ranked number one in “in governmental and commercial domestic E-payment transactions.” It had more than 1 mn users of its consumer online banking services at year’s end and posted a more than 100% increase in transaction value for the year, with customers transferring some EGP 861 bn across the bank’s digital channels.

Looking ahead: CIB’s management team said it would continue to push retail and corporate loan growth to “support the economy.”

Juhayna Food Industries (JUFO) has appointed Niels Thomsen (Linkedin) as group CEO, the company announced in a statement (pdf). Thomsen is a familiar face at JUFO, having previously worked as the dairy and juice giant’s factory director for seven years. He left Juhayna in 2013 to found his own firm in Denmark, and was most recently the director of production at Danish Crown China.

There was a fair amount of business news on the airwaves last night, triggered by new rules on non-bank acquisitions and FAB’s bid for EFG Hermes. First Abu Dhabi Bank’s acquisition offer was likely an incentive for the Financial Regulatory Authority to announce that approval from the authority would soon be required before conducting due diligence on non-banking financial institutions, head of industry lobby group the Egyptian Capital Market Association (ECMA) Mohamed Maher said in a phone-in with Kelma Akhira (watch, runtime: 4:37). Former head of the Egyptian Private Equity Association Hani Tawfik also called Kelma Akhira (watch, runtime: 2:35) to discuss EFG Hermes’ appointment of Goldman Sachs as lead advisor. We have more on the story in this morning’s M&A watch section, above.

The escalating conflict between Russia and Ukraine also weighed on the talking heads’ minds last night. Egypt has the capacity to step in to export natural gas to Europe in the event that Russian supply dries up due to the geopolitical crisis over Ukraine, former oil minister Ossama Kamal said in a call with El Hekaya (watch, runtime: 7:35). Political pundit Abdel Moneim Said also dropped in to Yahduth Fi Misr (watch, runtime: 1:34) to weigh in on the tensions.

Also on the airwaves last night:

• Changes to the “old rent” law governing individuals’ rent of residential properties will likely be addressed over multiple phases, Housing Committee Undersecretary Tarek Shoukry said. (Lamis El Hadidi on Kelma Akhira | watch, runtime: 2:48)
• US climate envoy John Kerry’s visit to Cairo reaffirms the US’ support of Egypt ahead of COP27. (Lobna Assal on Al Hayah Al Youm | watch, runtime: 1:43)

An escalation of the conflict between Russia and Ukraine could send already soaring food prices even higher, especially for countries — like Egypt — that heavily rely on the two countries’ grain imports, the New York Times reports. Higher prices would in turn impact food security for low income families in North Africa, the Telegraph reports. We imported around 50% of our wheat from Russia last year, while 30% came from Ukraine.

Also making headlines:

• The demolition of thousands of homes to make way for new construction threatens to alienate lower and middle class neighborhoods whose inhabitants are being displaced. (The Africa Report)
• EU backs Italy on Regeni investigation: The EU is requesting that Egyptian authorities cooperate with their Italian counterparts in the investigation into Giulio Regeni’s death. (Ansa Med)

Kazakhstan or Belgium could help upgrade Inshas nuclear reactor: The New and Renewable Energy Authority (NREA) is reportedly looking into upgrading the experimental nuclear reactor in Inshas in Sharqiya and is considering sending experts to Kazakhstan and Belgium for research purposes, Al Mal reported, quoting unidentified sources it claims have knowledge of the matter. The NREA reportedly rejected a bid from a Russian company to upgrade the reactor or inaugurate another one because the USD 450 mn price tag was said to be too high.

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

• Mastercard Market Trends expands to MEA: The business intelligence platform offers services including market assessment reports that cover a handful of MEA countries, including Egypt.
• El Garhy Steel and Ezz Steel were reportedly among the bidders for the Industrial Development Authority’s new steel licenses.
• Cabinet has approved a new pellet manufacturing license for state-owned Delta Steel to manufacture 500k tons of pellet annually instead of 70k tons, ending a dispute with the Industrial Development Authority after it refused to renew the company’s license.
• Gold and jewelry maker L’Azurde says it will invest over EGP 100 mn in Egypt in 2022.
• The General Authority for Land and Dry Ports is looking into setting up logistics zones in Sudan and Djibouti. Egyptian and Djiboutian officials also met yesterday to discuss the Djibouti logistics zone, which has been in the works for years.

The Health Ministry reported 2,003 new covid-19 infections yesterday, down fractionally from 2,009 the day before. Egypt has now disclosed a total of 471,460 confirmed cases of covid-19. The ministry also reported 54 new deaths, bringing the country’s total death toll to 23,806.

Our third pandemic Ramadan will look a lot like last year – with one small difference: Women’s prayer areas will be re-opened for the first time since the start of the pandemic, according to a Ministry of Religious Endowments statement. Mass prayers will be permitted in all mosques across the country during the holy month. All measures governing mass prayers announced last year — including limiting evening Taraweeh prayers to half an hour, wearing face masks, and maintaining social distancing when inside the mosques — will remain in effect this year.

Good news for the fully vaccinated: Your jabs could last you for years. Three doses of a covid-19 vaccine should be enough to protect against severe illness or death after contracting any covid-19 variant for years, a raft of recent studies cited by the New York Times suggest. While three doses provide more protection against highly contagious variants like Omicron, even just two doses could be enough considering the variety of antibodies that vaccines produce, including specialized immune cells like T cells and B cells, both of which are powerful at combating both old and new strains.

UK Prime Minister Boris Johnson is set to lift all covid-19 restrictions within days, as part of the country’s plan to “live with COVID,” which would make the UK the first country in Europe to scrap five-day isolation requirements for infected individuals, Reuters reports. But the timing of the announcement — just days after the Queen herself contracted covid-19 — drew backlash from critics, who said Johnson was calling off the cavalry before the battle was won.

Egypt, Jordan sign raft of cooperation agreements as Joint Higher Committee wraps up: Egypt and Jordan signed MoUs to cooperate on logistics zones, youth and higher education programs, agricultural quarantine, and media, according to a Cabinet statement. The Electricity Ministry had said on Sunday that an agreement would also be signed on efforts to double the capacity of the electricity link between the two countries to 1 GW, but we haven’t seen anything on that front.

Jordanian Prime Minister Bisher Al Khasawneh tested positive for covid-19 following the meeting, leading to the cancellation of scheduled talks between him and President Abdel Fattah El Sisi.

Egypt and France have kicked off joint air and naval drills in the Mediterranean, the Armed Forces spokesperson said in a statement.

True friends do more trade: Israel wants to nearly quadruple its annual trade volume with Morocco to USD 500 mn, Israeli Economy Minister Orna Barbivai told reporters during a visit to Rabat, according to Reuters. The two countries yesterday signed an agreement to increase trade and investment cooperation in aerospace, automobile, agri-food, textile and pharma industries, in the latest step following the normalization of relations that took place in late 2020.