AM — House debate heats up over amendments to Competition Act regulating M&A

Good morning, lovely people. We’ve so nearly made it to the long weekend, and we hope you’re as excited about it as we are.

The EGX is closed tomorrow: Following the Madbouly Cabinet and central bank’s announcements that tomorrow is off for both public and private sector workers and banks, the EGX announced yesterday that it too will be closed in observance of the 30 June Revolution.

REMINDER- EnterprisePM is off today as we take a publication holiday to work on our upcoming editorial calendar. We’ll be back to our usual 6am / 3:30pm CLT publication schedule on Sunday.

That means that next time we write to you, it’s going to be a new month — and a new fiscal year. With the start of the new month come the usual suspects on our news calendar:

• PMI: Purchasing managers’ index figures for June will be released on Wednesday, 6 July. Data for Saudi Arabia and the UAE data will be out one day earlier, on Tuesday, 5 July;
• Foreign reserves figures for June should be announced sometime next week;
• Inflation figures for June are due out on Sunday, 10 July.
• The central bank won’t meet to discuss interest rates in July. Its next meeting is on Thursday, 18 August.

PSA- ATM and other banking fees could be back by the time we next land in your inbox. Covid-era measures waiving fees on inter-bank EGP transfers, ATM withdrawals, point-of-sale transactions, contactless payment cards, mobile wallets, e-payments, and more will lapse at the end of June, unless the Central Bank of Egypt decides to extend them once again, Masrawy reports. The measures were introduced during the first wave of the pandemic in March 2020 and have been periodically extended ever since, most recently at the end of 2021.

THE BIG STORY here at home is the shake-up in competition law currently making its way through the House. We’re taking advantage of a somewhat slower newsflow this morning to bring you the details so far on amendments to the Competition Act that would give the Egyptian Competition Authority (ECA) more power to regulate M&A.

Elsewhere, passenger car sales are down for a third month running; B Healthcare has closed its acquisition of Egyptian IVF Center; and BP has landed fresh gas exploration rights in the Med.

HAPPENING TODAY-

Deadlines for offers in state grain buyer GASC’s latest international tender close today. The General Authority for Supply Commodities (GASC) is seeking an unspecified amount of wheat on a free-on-board (FOB) basis to be shipped between August and October. If successful, this will be only GASC’s third purchase since war broke out in Ukraine, sending international wheat prices sky-high.

OPEC+ meets today and tomorrow — but don’t expect any changes to the schedule, as industry watchers expect the cartel to proceed with a pre-agreed modest production increase in August, Bloomberg reports. The August ramp-up would complete the two-year reversal of output cuts that were made during the onset of covid-19 in 2020.

The big question will be what happens after August: The alliance faces pressure to intervene and bring down soaring oil prices — which have breached USD 110 per barrel — by upping its supplies to fill the Russian-oil sized gap in the energy market, while still keeping in mind the effect on their dwindling reserves, Bloomberg notes.

Another big question: Does OPEC have the capacity to up supply? The cartel has supplied more than 500 mn fewer barrels of oil since its covid-era supply agreement began, Bloomberg reports, citing data from OPEC’s Joint Technical Committee. A lack of investment and ongoing supply chain snarls have had many members struggling to keep up with production increases.

Caught on camera: French President Emmanuel Macron telling US President Joe Biden at the G7 that Saudi Arabia and the UAE are approaching their maximum oil pumping capacity — which would contradict official data. Reuters TV picked up Macron’s comments without his knowledge, according to Bloomberg. UAE Energy Minister Suhail Al Mazrouei suggested in a tweet that Macron had been referring to OPEC production limits.

How did OPEC do in 2021? The cartel’s oil revenue surged 77% last year on the back of rising prices and post-covid demand to hit USD 561 bn, according to its annual statistical bulletin (pdf), which was released yesterday. That said, the number of active oil rigs rose by only a modest 11% to 489, while the number of completed new wells declined. “These figures are worrying and indicate a reduction in OPEC spare capacity in the near term,” an unnamed OPEC source told Reuters.

FOR TOMORROW-

NDP HQ revamp deadline: Tomorrow is the deadline for companies to submit bids for the redevelopment of the National Democratic Party headquarters.

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THE BIG STORY ABROAD is that Finland and Sweden have managed to assuage Turkish concerns over their bid to join Nato, bringing the two nations a step closer to being welcomed into the fold of the Western military alliance. They signed an agreement with Ankara yesterday agreeing “to address Turkey’s legitimate security concerns,” a statement by NATO read, paving the way for Nato members to invite the two countries to join. Ankara got pledges on sticking points including the two countries’ alleged support of Kurdish groups that Turkey deems terrorists. Finland and Sweden will still have to get the sign-off of all 30 NATO members to join. The Financial Times, Reuters, the Wall Street Journal, and the Associated Press all have coverage.

MEANWHILE- China takes another big step toward removing covid-19 restrictions. The country cut quarantine requirements for overseas travelers to seven days in centralized quarantine followed by three days of home isolation, down from 14-21 days in centralized quarantine, CNBC reports. China has been working to ease years-long restrictions that have taken a toll on its economy, exacerbated global supply bottlenecks, and curtailed citizens’ freedoms.

DATA POINT- US car sales are projected to plunge 17.3% this year to their lowest level in a decade amid supply chain constraints and component shortages, Bloomberg reported, citing data from researcher Cox Automotive. “We don’t think a recession is inevitable,” Cox Chief Economist Jonathan Smoke said. “We still have pent-up demand in retail. There are people who can’t get what they want.”

Sound familiar? Auto sales here at home have been dropping as economic headwinds and import restrictions continue to impact the sector. Sales of passenger vehicles dropped for a third consecutive month in May, down 22% y-o-y. Catch the full story in our Automotive section, below.

MARKET WATCH-

The ECB is going to get tough on inflation: The European Central Bank (ECB) will act in a “determined and sustained manner” to fight Eurozone inflation, ECB head Christine Lagarde said during the bank’s annual forum yesterday, the Financial Times reports. “Inflation in the euro area is undesirably high and it is projected to stay that way for some time to come,” she said. Earlier this month, the ECB held an emergency meeting, after which it signaled that it will begin raising interest rates in July to curb soaring inflation, triggering fresh concerns over debt levels in the euro area.

Soft landing is still possible, Fed insists: US Federal Reserve officials talked down recession worries for the economy even as they mull another aggressive 50 or 75 basis-point rate hike for July, Bloomberg reports. “I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,” said San Francisco’s Fed President Mary Daly at an online event, while New York Fed President John Williams told CNBC that “recession is not my base case right now.”Tht said, both predict an economic slowdown, with growth dipping below 2%.

CIRCLE YOUR CALENDAR-

The government’s fuel pricing committee will likely meet to review fuel prices as part of its quarterly review sometime next week.

The national dialogue to set Egypt’s political and economic roadmap will also kick off next week. President Abdel Fattah El Sisi had called for the dialogue in April. Check out our explainer on the dialogue, its agenda, participants, and targeted outcomes here.

Public consultations on the state’s privatization plans will resume next Sunday, 3 July. Every Sunday and Tuesday sees workshops on how privatization plans will affect specific industries. Sunday’s session will cover the transport sector, covering maritime, river, and land transport. You can find more details on the schedule of the meetings here.

WANT TO CATCH UP ON THE CONSULTATIONS? In this week’s Inside Industry, we talked to FMCG business leaders about what they think of the state’s plans to privatize the sector. They also discuss with us what else needs to happen in the food sector for the privatization push to play out well.

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

*** 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, and urban development, as well as social infrastructure such as health and education.

In today’s issue: Amid the government’s infrastructure diplomacy push, Egyptian contractors and construction companies are keen to export their services to African and Arab countries. They’re calling on local banks and international financial institutions to help them access financing, which industry players say is the biggest obstacle to their regional expansion ambitions.

WHAT’S GOING ON with amendments to the Competition Act? Debate of legislation that would give the Egyptian Competition Authority (ECA) more power to regulate M&A is ratcheting up in the House of Representatives. The Madbouly cabinet provided a little clarity earlier this week on what it hopes to achieve with the bill, and we got a glimpse of the articles of the existing law that could be changed.

The amendments, which have been up in the air since last year, would give the ECA the power to approve or block mergers and acquisitions before they are concluded if the regulator feels the transaction would be anti-competitive. As it stands today, the ECA can only raise red flags, typically after a sale is concluded. That hasn’t stopped the authority in recent years from loudly warning that it doesn’t want to see specific acquisitions go through.

The guiding philosophy behind the changes: If the amendments pass, the ECA would be allowed to intervene in M&A transactions if it believes competition could be “harmed or restricted.”

A “pro-consumer” set of changes? The amendments also suggest that the ECA would be inclined to greenlight transactions that it thinks could benefit consumers. That suggests the authority is more concerned about the impact of potential monopolies on individual consumers than on smaller businesses who could be squeezed out by a larger player.

Here’s what we know about the changes that MPs are now debating — and how the business community views them:

#1- How much time would the ECA have to review a transaction? Under a proposed amendment to the third clause of Article 19, a specialized committee at the ECA would have 30 business days to decide whether to a) approve the transaction as it stands, b) approve the transaction with conditions, or c) decide that the transaction falls outside the organization’s scope or jurisdiction. There would be an option to extend this initial review by a further 15 business days. The clock begins ticking once the parties submit the required documents.

If the ECA is prepared to claim that a transaction would harm or restrict competition, it gets another period of time in which to complete its investigation. That stage needs to wrap up within 60 business days of the parties to the transaction filing their initial paperwork. This extended review period is designed to give the authority some breathing room to complete its investigation rather than resorting to a “premature” rejection, Al Kamel Law Firm Partner Shahira Khaled tells Enterprise.

A transaction would automatically be considered approved if the 60 business days elapse before the ECA makes a decision.

This timeline isn’t sitting particularly well with several stakeholders: “The 30-day period should be 15 days only because the longer the investigation period, the more negative impact it causes,” EGX boss Mohamed Farid told MPs at the House Economic Committee.

Regulatory delays are already a persistent challenge to businesses that need to make decisions on whether or not to go ahead with an investment — including, most recently, the suggestion in some quarters that bureaucratic delays prompted the UAE’s FAB to drop its bid for EFG Hermes.

#2- When does the ECA want to be notified of a potential M&A? The bill originally proposed requiring parties to notify the ECA of a potential consolidation or takeover before they even sign an agreement or start due diligence. This would require the parties to pay fees to the ECA regardless of whether or not they decide to move forward with the agreement, Khaled explains.

What the business community wants to see instead: A counter-proposal that came up in discussion at the House Economic Committee would instead require the ECA be notified before an M&A is executed, according to Khaled. This would give businesses a chance to conduct due diligence and decide that they want to go ahead with the process before getting the green light from the authority, eliminating the need to pay fees prematurely, she said. The ECA has so far been relatively receptive to making this change, but nothing has been decided yet, according to Khaled.

#3- The ECA wants to be paid more: Today, the ECA can claim a fee of EGP 10k to look into requests from companies that want to exempt anticompetitive agreements from being subject to the law. In other words, if an agreement is proven to be anticompetitive, a company can argue that its benefits outweigh the potential harm to competition and that it should be allowed. The ECA now wants to collect fees for reviewing potential transactions, which it wants to set at 0.025% of the total transaction value (or of the total value of assets merged under the transaction, whichever is higher), with an EGP 1 mn cap. This amount would also cover publishing fees. The authority’s argument is that EGP 10k doesn’t fairly value the work it does.

After pushback from the business community, a new proposal now with MPs would cap the ECA’s fees at EGP 100k per transaction, Khaled told Enterprise. The proposal is not yet final, Khaled stressed. The bill also still needs to specify the exact “services” the ECA will provide in exchange for the fees, since it is unconstitutional to collect fees for an undefined service, she told us.

OTHER POINTS OF CONTENTION on the law so far include proposed penalties. The original bill stipulates that any breaches — including failing to notify the ECA of an M&A — would give the authority the right to block a sale entirely. Penalties and other consequences for violating the bill were the focus of discussions that continued at the House Economic Committee on Monday and Tuesday. Expect more of the same in the days ahead.

We’re also looking for clarity on (a) who is legally required to notify the ECA of a potential transaction; (b) who is on the hook for the ECA’s fees; and (c) what powers the ECA is looking for when it comes to mandatory tender offers (MTOs), which are presently regulated by the folks at the Financial Regulatory Authority.

Farid wants the process to be more streamlined: “Competition laws in many countries allow investors to get approval from the concerned regulatory authorities without being required to submit so many documents, statements, and information, and pay such huge sums in fees,” he said during debate in the House.

The ECA’s defense: “These procedures would not negatively impact the flow of investment and the ECA will not use its new powers arbitrarily or to create more bureaucracy,” ECA Chairman Mahmoud Momtaz told MPs.

WHAT’S NEXT- The committee is expected to resume its work on the bill next week before referring it, along with the committee report, to the House general assembly for further discussion and a final vote.

EDITOR’S NOTE- Corrected on 29 June, 2022

An earlier version of this story incorrectly stated that the ECA currently collects EGP 10k in fees to review M&A transactions post-closing.

Passenger car sales fell for the third consecutive month in May against a backdrop of continued economic headwinds and import restrictions, according to industry data. Passenger vehicle sales dropped by more than 22% y-o-y last month to record 11.8k vehicles, according to figures provided by the Automotive Information Council (AMIC), the industry association to which most distributors report sales.

Bus and truck sales staged a partial recovery: Truck sales were down 10.6% y-o-y to 3.5k and bus sales dipped 1.9% y-o-y to 1.8k — an improvement on April, when bus sales were down 40% on an annual basis while truck sales fell 38%. Total vehicle sales dropped 18.4% y-o-y last month.

Sales have been dropping since March: Total sales fell 9.4% y-o-y in March and 25% y-o-y in April. Challenges have been piling up for the industry since Russia’s invasion of Ukraine hit global trade. They include a lack of financing for imports and import restrictions, surging inflation, parts shortages, and the EGP devaluation.

The figures could have been worse: May’s figures could have been substantially worse than April’s, given that as many as 13 global car manufacturers have suspended sales here, after new import rules requiring distributors to use letters of credit (L/Cs) created challenges getting shipments through ports.

This could help: Prime Minister Moustafa Madbouly on Monday directed his ministers, the central bank, and the banking sector to coordinate on setting up “a mechanism for the orderly release of car shipments” from ports.

REMEMBER- Distributors now have to compensate consumers for being unable to deliver vehicles, per a decision by the Consumer Protection Agency last month. Buyers who made a down payment on a vehicle prior to 12 April are entitled to a refund from the dealer plus 18% interest if their car doesn’t materialize. Buyers also have the option of not taking a refund and instead working out a better arrangement with the distributor.

B Investments subsidiary B Healthcare Investments has completed the acquisition of a 51% stake in the Egyptian IVF Center in an EGP 126 mn transaction, according to a disclosure to the EGX (pdf). The acquisition wrapped after securing regulatory approvals, B Investments IR head Omar El Labban told Enterprise. Procedures began in December for the acquisition, which marked the first venture for B Investments’ 100%-owned healthcare company after it launched last year.

Advisors: Zaki Hashem & Partners was the buy-side counsel, while Bahaa-Eldin Law Office acted as sell-side counsel. Beltone Financial brokered the transaction, El Labban confirmed to us.

B Healthcare Investments is studying up to EGP 200 mn worth of new acquisitions in the fertility treatment sector, after its parent company committed the capital, El Labban said, without naming the firms under consideration.

BP lands new gas exploration rights in Mediterranean: Egypt awarded BP an offshore exploration block in the western Mediterranean’s King Mariout Offshore concession, giving it 100% of the exploration rights for the area, the company said in a statement (pdf). The 2.6k sq km area has potential for material gas discoveries that could be developed using existing infrastructure, BP said.

This is one of the blocks included in last year’s oil and gas exploration tender. The Oil Ministry had awarded eight of the 24 blocks from the tender to seven companies earlier this year. These blocks include Egy-Med-E5 in Port Said, which was awarded to Eni and BP on a 50-50 basis. It’s unclear so far what happened with the remaining blocks.

Our Med gas is hot right now: We haven’t had any updates on the government’s latest oil and gas bid round, which was set to be launched before June. But there’s been no shortage of announcements on fresh FDI to our Mediterranean gas industry. Firms including Chevron, Shell, and Eni have all recently signed agreements to help us up capacity, as Europe looks to new suppliers amid global shortages and the fresh rift with Russia over its war in Ukraine.

IN OTHER ENERGY NEWS- Prime Minister Moustafa Madbouly set the price of natural gas for electricity plants at USD 3 / MMBtu, down from the USD 3.25 / MMBtu set in 2020, according to a decree published in the official gazette (pdf).

Leading the airwaves yesterday: The preliminary death sentence handed to the killer of Naira Ashraf. The university student’s murder at the hands of a male classmate made local and international headlines this week and reignited the discussion on violence against women and girls. The ruling will now be sent to the Grand Mufti for approval.

Most talking heads praised the ruling. Kelma Akhira’s Lamis El Hadidi said it demonstrated “swift justice” (watch, runtime: 3:11). Ala Mas’ouleety’s Ahmed Mousa said the trial was one of the fastest ever (watch, runtime: 3:13), with the ruling coming only days after the prosecution referred the defendant to court.

Masa’a DMC (watch, runtime: 3:19), Yahduth Fe Masr (watch, runtime: 2:43) and Hadith El Qahera (watch, runtime: 4:28) also had coverage.

Taking note of the sentencing in the international press this morning were Al Arabiya and AFP.

TechCrunch reports that digital healthcare platform Vezeeta let go of around 10% of its 500-person staff last week. The news comes as the latest sign that it’s not only Silicon Valley startups bunkering down for tough times ahead (including a potential recession), after mass transport app Swvl said it would lay off up to a third of its staff. Born-in-Egypt Vezeeta moved its headquarters to Dubai in 2020.

Also making headlines this morning:

• The mother of imprisoned Egyptian-British activist Alaa Abd El Fattah shares concerns for the health of her son “despite some improvements in his prison conditions.” (Reuters)
• Ten people were handed death sentences over Muslim Brotherhood-linked attacks against security forces between 2013 and 2015. (Reuters)

Elsewedy Electric will use a USD 150 mn loan from the International Finance Corporation (IFC) to acquire renewable energy plants outside of Egypt, company VP and CFO Sherif Elzeiny told CNBC Arabia in an interview (watch, runtime: 4:00). “The funds will also be used to support projects related to sustainability… [and] new investments in Africa or GCC or Asian countries,” Elzeiny said. Elsewedy earlier this week disclosed the seven-year loan agreement to the EGX (pdf).

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

• EGX-listed e-Finance will set up money withdrawal and electronic payments at petrol stations by the end of July under a partnership with the Oil Ministry. (Statement, pdf)
• Uber has rebranded its Uber Bus service to Uber Shuttle under a “strategy to unify the service name internationally.” (Statement, pdf)

President Abdel Fattah El Sisi met with Omani businessmen yesterday in Muscat, where they discussed funneling new investments to Egypt, according to an Ittihadiya statement. Masa’a DMC (watch, runtime: 3:10) and Ala Mas’ouleety (watch, runtime: 2:45) also had coverage.

Getting ready for Biden: We’ve seen a wave of diplomacy in the region in recent days, in part spurred by the upcoming July summit hosted by Saudi Arabia between US President Joe Biden, GCC countries, Egypt, Jordan, and Iraq.

El Sisi arrived in Bahrain yesterday for the second leg of his GCC tour, a statement by Ittihadiya read.

ALSO WORTH NOTING- El Sisi yesterday called Jordan’s King Abdullah II to offer his condolences over a toxic chlorine gas leak in Jordan’s Aqaba Port that killed 13 and injured over 260 people, a statement by Ittihadiya read.