AM — SODIC launches takeover bid for Madinet Nasr

It’s not that bad of a slog heading into the weekend, ladies and gentlemen. Especially with the M&A news we have in store.

Countdown to the Big Eid — and it really is big this year: The central bank (pdf) and the Manpower Ministry brought us good news yesterday, announcing that banks and the private sector will be off from Sunday 10 July to Thursday 14 July in observance of Eid Al Adha. This follows the cabinet, which said on Monday that the public sector will take the full week off.

It’s official: This fiscal year’s state budget is the law of the land. President Abdel Fattah El Sisi has ratified the budget for the new fiscal year, which will see government spending rise 12% to EGP 2.07 tn. The budget was published in the Official Gazette.

The House is on its summer recess from today: MPs spent yesterday scrambling to get as many bills approved as possible before heading for their annual two-month break in Sahel. We have more on yesterday’s legislative business in the newswell, below.

THE BIG STORIES at home are led with news that Madinet Nasr Housing and Development is officially the target of a takeover bid launched by SODIC, whose new Emirati owners are eager to consolidate their new position in the Egyptian real estate market. The Aldar Properties / ADQ-owned company is offering to buy MNHD for EGP 3.20 – 3.40 a share in an all-cash transaction, valuing the company by as much as EGP 6.36 bn.

We also got good news on the macro front: The Egyptian economy grew by 6.2% last year, Planning Minister Hala El Said said yesterday, above the 5.4% target in the state budget and in line with recent forecasts.

Also on the econ front: Remittances from Egyptian expats rose 24% y-o-y in April to USD 3.1 bn, according to central bank figures (pdf) released yesterday. On a monthly basis, remittances saw a marginal decline from USD 3.3 bn in March. The bulk of remittances are sent from Egyptians working in the Gulf, making them sensitive to oil fluctuations. The rise in inflows in March and April coincided with a surge in oil prices, which reached their highest levels since 2008 on the back of Russia’s invasion of Ukraine. Remittances came in at USD 8 bn in 3Q2021-2022.

We’re on track to at least match last fiscal year’s record: Inflows reached a record USD 31.4 bn in FY 2020-2021. Egypt is one of the largest recipients of remittances in the world, and they have become an increasingly important source of foreign currency, particularly following the hit to tourist revenues caused by the covid-19 pandemic. The World Bank has forecast remittances to rise 8% in 2022, from USD 32.2 bn in the previous calendar year. This would put the figure at around USD 34.8 bn.

WHAT’S HAPPENING TODAY-

It’s PMI day: We’ll find out this morning how Egypt’s non-oil private sector performed in June when S&P Global drops the latest purchasing managers’ index (PMI). It seems like a distant memory the last time we reported growth in activity (for that, we’d need to go back to November 2020) but contraction in the sector has accelerated over the past three months on the back of the war in the Ukraine, which has fuelled a pick-up in inflation and undermined confidence in the direction of the economy. The PMI will be released at 6:15 CLT, just after we hit ‘send’ on this morning’s issue.

The Saudi + Emirati figures are in: Private sector activity in both countries continued to grow in June despite rising inflationary pressures. Higher prices failed to dent demand in Saudi, which saw its private sector grow at its fastest pace since September, while the UAE continued to see solid growth even as prices rose at their quickest rate in 11 years. Check out the releases here: Saudi Arabia (pdf) | UAE (pdf).

Flat6Labs is hosting its investor-startup mixer at the Four Seasons Hotel Cairo at The First Residence today. The event brings together Flat6Labs’ startups and prominent investors.

AFTER EID-

Egypt and the UAE will sign an agreement to establish a huge 10 GW wind plant following the Eid Al Adha holiday, cabinet said yesterday. The statement offered little information on the project but said that the details have already been worked out and a formal agreement will be signed after the break. This came during a visit to Cairo by UAE Industry and Advanced Technology Minister Sultan Al Jaber, who met President Abdel Fattah El Sisi and Prime Minister Moustafa Madbouly to discuss investment.

Officials from Egypt, the UAE and Jordan will hold talks in Cairo later this month to discuss the new industrial partnership agreed in May, cabinet said. Abu Dhabi sovereign wealth fund ADQ will invest USD 10 bn in industrial projects under the initiative, which will see the three countries collaborate to boost manufacturing and exports.

National Dialogue meetings to resume 19 July: The board overseeing the National Dialogue will hold its second meeting on 19 July, during which it will discuss the agenda and form subcommittees. Board members met for the first time yesterday: For more on this, head to Last Night’s Talk Shows.

Three stories are dominating the global front pages this morning:

• Oil whipsawed: The financial press are focused on yesterday’s events in the oil markets, which saw prices plunge on recession fears (more on that, below). (Bloomberg | WSJ)
• BoJo No-Go? British Prime Minister Boris Johnson is clinging to power after two senior cabinet ministers resigned yesterday following a string of scandals. (Reuters | AP | FT | Bloomberg)
• US Fourth July shooter charged: A gunman who killed seven people during an Independence Day parade in Chicago has been charged with seven counts of first-degree murder. (NYT | Washington Post | Reuters | AP | WSJ | Bloomberg)

MARKET WATCH-

Oil prices saw their biggest single-day drop in four months yesterday as fears of a global economic downturn fuelled a sell-off in commodities markets, according to the Financial Times. Brent crude fell 9.5% during the day to close at USD 102.77 a barrel — it’s lowest since early May — while US crude ended below USD 100 after falling 8.2%.

Prices rebounded this morning: US crude was back above USD 100 early this morning and Brent was up 1% as traders continued to weigh the impact of recession against the possibility of further supply shocks caused by the energy war between Russia and the West.

Saudi Arabia has hiked the price of its key crude to Asian markets to a near record amid tight supply and rising demand, Reuters and Bloomberg report. Aramco will sell a barrel of its Arab Light crude to Asia for USD 2.80 more than in June to put prices USD 9.30 above the benchmark — in line with analysts’ expectations. The record high premium of USD 9.35 a barrel was set in May.

Where does oil go from here? Forecasts are all over the place. Citigroup is now saying that crude could fall to as low as USD 65 a barrel by the end of the year and USD 45 by the end of 2023 if economies go into recession, Bloomberg reports. JPMorgan, on the other hand, warned earlier this week that prices could reach a “stratospheric” level of USD 380 if Russia slashes flows to Europe.

Recession fears in Europe helped send the EUR to a two-decade low against the greenback yesterday, Reuters reports. The currency fell almost 1.8% to USD 1.0236, on the back of fears of economic turmoil in the eurozone spurred by rising energy prices and sagging business confidence. The USD, conversely, continues to gain strength on the back of the US Fed’s rate hikes and the greenback’s reputation as a safe-haven currency.

In the UK, the economic outlook has “deteriorated materially.” That’s according to a report from the Bank of England, which places the blame for economic struggles on Moscow’s shoulders (though doesn’t mention Western sanctions that have fuelled volatility in the commodities markets). “Prices of essential goods such as food and energy have risen sharply in the UK and globally, and the outlook for growth has worsened. This is largely a result of Russia’s illegal invasion of Ukraine,” the report said.

CIRCLE YOUR CALENDAR-

The fuel pricing committee could meet this week to review fuel prices for the third quarter.

Other news triggers to keep an eye on this month:

• Foreign reserves: Foreign reserves figures will be out sometime this week.
• Inflation: Inflation data for June will likely land as early as this week.

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: Avid readers will know that we’ve all become supply chain experts in recent years. The pandemic marked the start of years-long logistics snarls that have stymied global trade and been partly responsible for a commodities crunch that has fed into high inflation worldwide. We take a look at a new World Bank and S&P Global port performance index to find out how global ports are faring with the change, including ours.

SODIC is bidding to acquire Madinet Nasr Housing and Development (MNHD) as the real estate developer’s new owners look to expand its footprint in the local market. The company said in a bourse filing (pdf) yesterday that it has submitted a non-binding offer to acquire up to 100% of the state-owned developer in a potential all-cash transaction that could value the company by as much as EGP 6.36 bn.

The details: SODIC said it will offer to pay EGP 3.20-3.40 per share to acquire the company, subject to due diligence and conditions in the offer. This is a 28-36% premium on its share price at Monday’s close. The median EGP 3.30 price would value the company at EGP 6.2 bn (USD 328 mn).

Madinet Nasr’s shares bounced on the news, rising 8.0% during trading to close at EGP 2.70, making it the EGX30’s top performer. SODIC gained 0.8% to EGP 11.10.

We saw this coming: Aldar Properties, which together with Abu Dhabi wealth fund ADQ acquired SODIC last year, was reported in June to be considering purchasing a majority stake in the company.

What they said: SODIC’s current strategy is to “grow its market share and continue to expand its development portfolio in Egypt,” the developer said in its statement. “The transaction, if consummated, would expand SODIC’s footprint in the East Cairo market, widen its customer base and leverage both developers’ strengths to achieve scale and create value through a combined undeveloped land bank of c. 11 mn sqm.” In a bourse filing (pdf) in Abu Dhabi, Aldar described the company as “one of Egypt’s premier urban community developers” and said that it has a “sizable land bank” for future expansion beyond its flagship Taj City and Saraj projects.

What’s next: The non-binding offer is pending regulatory approvals and due diligence, which SODIC plans to conduct as soon as possible, the Financial Regulatory Authority (FRA) said (pdf) yesterday. MNHD is convening a board meeting “as soon as possible” to discuss the offer, board member Salah Katamish told Enterprise. The board was “surprised” upon receiving the offer, he added, without adding further details. MNHD will likely hire a financial advisor to conduct a fair value study, he said.

Blast from the past: SODIC’s interest in MNHD goes way back to 2018, when it made an offer to acquire at least 51% of the developer through a direct share swap. Talks fell through after the two sides failed to reach an agreement on the share-swap ratio.

MNHD’s current owners: State-owned institutions collectively own the largest stake in MNHD, with the Holding Company for Construction and Development holding 15.2%, the National Investment Bank owning 3.7% and Banque Misr holding 3.5%. BIG Investment Group is the largest single shareholder with a 19.9% stake, B Investments owns 7.5% and 20.4% is held by foreign institutions.

The offer should not affect MNHD’s other acquisition plans, including its bid for real estate company Minka Development, Katamish said. MNHD’s board earlier this week gave preliminary approval to go ahead with the acquisition of Minka and related special purpose vehicle EgyCan for Real Estate Development for up to EGP 200 mn.

Advisors: CI Capital is acting as SODIC’s financial advisor, while MNHD has yet to tap an investment bank, Katamish said. Zaki Hashem & Partners will be MNHD’s legal counsel.

Economic growth accelerates in FY2021-2022: The Egyptian economy grew at a 6.2% clip in FY2021-2022, up from 3.3% the previous year, Planning Minister Hala El Said told CNBC Arabia yesterday.

This meets recent government forecasts…: The government had upped its growth forecast for the fiscal year to 6.2% in May on the back of a strong 3Q, after having trimmed it in March to 5.7% due to the anticipated economic impact of the war in Ukraine.

And is comfortably higher than the original forecast in the 2021-2022 budget, which penciled in 5.4% growth for the fiscal year.

Positive growth was recorded across all sectors, El Said said. We’ll have to wait for the full sectoral breakdown from the Planning Ministry for a clearer picture of how the economy performed.

The figure is slightly above the World Bank’s forecast, which had revised upwards its projection for Egypt’s GDP growth last month to 6.1%.

That’s the second piece of good macro news this week: Preliminary figures released Monday indicated that the government succeeded in narrowing the budget deficit to 6.1% of GDP during the fiscal year from 7.4% the year before. This is significantly smaller than the 6.7% target in the state budget, and comes despite surging food and energy prices adding bns of USD in unexpected costs during the second half of the year.

Expect growth to slow this year: The government recently trimmed its GDP forecast for FY2022-2023 by 0.2 percentage points, and is now projecting the economy to grow by 5.5%, thanks largely to the impact of the Ukraine conflict on global commodity markets and state finances. The government is targeting a 6.1% budget deficit and a 1.5% primary surplus this fiscal year.

CIRA shareholders greenlight future flow securitization: Shareholders of EGX-listed education provider CIRA have approved the company’s plans for a EGP 2 bn future flow securitization program, moving it a step closer to debuting the asset-backed securities in Egypt, it said in an EGX disclosure (pdf) on Monday. At a general assembly meeting on Sunday, shareholders gave the green light for the portfolio to be handed to the company’s financial advisor, EFG Hermes, and signed off on the value of the first issuance, which will see it sell EGP 800 mn worth of bonds to financial institutions and other institutional investors.

The program: CIRA plans to issue EGP 2 bn worth of securities backed by future tuition revenues over the course of three years. The Financial Regulatory Authority approved the program last month.

The first issuance will wrap within the coming two months, Al Borsa quotes Mostafa Gad, co-head of EFG’s investment banking division, as saying. Bonds in the three-tranche issuance will be sold at EGP 100 each, and will carry tenors of three, five and six years.

Advisors: EFG Hermes is the financial advisor on the transaction, Zulficar & Partners is providing legal counsel, and PwC is the auditor.

Future flow securitization? Future flow securitization differs from traditional securitization in that it allows the securitization of payments that aren’t yet on the company’s balance sheet, giving companies access to liquidity without needing a big portfolio of accounts receivables. Future income — whether from club memberships, phone bills, utility payments, tuition fees or rents — is packaged into securities and offered to investors to raise capital. This gives public- and private-sector companies such as utilities providers, healthcare companies, telecom players, and education outfits a new way to access liquidity.

Background: Amendments to the Capital Markets Act that introduce future flow securitization were signed into law in March, after the FRA approved the instruments for use last May.

WANT TO LEARN MORE? Check out our explainer on future flow securitization here.

IN OTHER DEBT NEWS-

The World Bank’s Multilateral Investment Guarantee Agency (MIGA) is backing USD 98.3 mn worth of Scatec’s USD 334.5 mn green bond issuance to refinance six solar plants in Benban, according to a MIGA statement yesterday.

Sawiris weighs selling stake in ItaliaOnline: Orascom TMT Investments — a company whose majority owner is Naguib Sawiris — is considering the sale of a stake in Italian web firm ItaliaOnline, sources familiar with the matter told Bloomberg. The company could sell a minority or a controlling stake in a transaction that could value the internet service provider at around EUR 400 mn (USD 418 mn), the people said. Orascom currently holds a 72.5% stake in the company.

A number of companies have expressed interest, including Netherlands-based digital advertiser Azerion Group, but Orascom TMT has not yet taken a final decision regarding the sale, according to Bloomberg’s sources.

Orascom recently agreed to purchase the rest of ItaliaOnline: The move comes weeks after Orascom agreed to purchase the remaining 27.5% stake in the company from Goldentree Asset Management and Avenue-Europe International. The transaction was supposed to be finalized before the end of June and the current status is unclear.

No one’s talking: Representatives for Orascom TMT, ItaliaOnline and Azerion all declined to comment when approached by the business newswire.

GB Auto is working on transforming a brownfield site in Sadat City into a passenger car and light commercial vehicle factory, Marina Kamal, GB Auto’s IR head, told Enterprise. The factory will assemble some 50k cars for Chinese brands Changan and Haval (which GB Auto added to its portfolio last year) every year and is expected to start operating in November 2023, Kamal said, adding that it is expected to create 1k jobs. Contractor Hassan Allam Construction has begun work at the site, she said, without disclosing how much is being invested in the project.

The case against imports: The automotive industry has seen better days, with car sales falling for three straight months from March to May. A large contributor to that had been Several foreign car manufacturers have suspended sales to Egypt after a change to how imports are paid for left local dealers incapable of purchasing vehicles, industry sources told Enterprise last month, with one estimating that some 29k vehicles are stranded at ports. This followed new rules handed down by the Central Bank of Egypt (CBE) in March requiring importers to use letters of credit (L/Cs) to purchase non-essential goods, instead of documentary collection.

A new day for the auto sector? Fortunately, a number of policy decisions have been made to get the sector out of its slump, starting with the adoption of the new automotive strategy and its incentives for domestic assembly. 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.

Another big wheat buy: Egypt purchased 444k tons of Russian, French and Romanian wheat directly from traders yesterday, traders said. State grains buyer GASC paid USD 416 a ton on a cost and freight basis (CFR), they said.

The breakdown: GASC reportedly bought 214k tons of Russian wheat, 170k tons of French wheat, and 60k tons of Romanian wheat for delivery in September and October. It booked nine shipments after receiving offers from 12 suppliers.

This time, no tender: GASC took the unusual step of booking the wheat directly from commodity traders. The authority typically purchases wheat via international tenders but in May the cabinet gave the go-ahead for the authority to buy directly from suppliers.

The purchases were made one day after GASC invited offers for Russian, French, Romanian, and Bulgarian wheat. All four are emerging as important suppliers for Egypt, which has booked shipments exclusively from them in the three successful international tenders since Russia’s war in Ukraine upended the global grain markets in February. Russian and Ukrainian wheat had accounted for around 80% of our imports before the war broke out.

That makes more than 1.2 mn tons in under a week: Yesterday’s purchase comes less than a week after GASC bought 815k tons for shipment in August, September and October in what is thought to have been the authority’s largest tender since at least 2012.

The House is out for summer: The House of Representatives held its final session before adjourning for the summer recess yesterday. Some 184 laws were passed by the House this legislative season, with economic bills leading the pack. Among the most important laws that made it through were the Unified Budget Act and Unified Planning Act and the Fintech Act.

Just in time: Before representatives clocked out, they gave their final approval to government-drafted amendments to the Consumer Finance Act, adding three new articles designed to offer consumer and SME borrowers and lenders better protection against fraud. Under the amendments, borrowers who fraudulently fail to meet the terms of a financing agreement or obtain finance will be met with fines as much as double the amount borrowed, and / or jail time.

The amendments also ban third parties from acting as mediators or paid sponsors between lenders, and SME and consumer borrowers without first registering with the Financial Regulatory Authority, with penalties of jail time and / or a fine of EGP 50-500k. Banks are exempt from the law as their activities fall under the central bank. Cabinet passed the amendments back in May.

Also passed yesterday were amendments to the Anti Money Laundering Act creating an independent anti-money laundering unit at the central bank to investigate money laundering and terrorism financing, with the power to fine perpetrators EGP 100-300k.

Kicked to the next legislative session:

• The Unified Ins. Act, which would make the Financial Regulatory Authority the primary regulator for the sector and make ins. compulsory for SMEs and freelancers, among other things. The Senate approved the proposed regulation in April.
• The Labor Act, which the Senate approved in February. The law would, if enacted, extend both maternity leave and notice periods, cap working hours, and change minimum raise increments. Catch our explainer here.
• Amendment to the Competition Act giving the Egyptian Competition Authority (ECA) sharper teeth to regulate M&As, which failed to make it through as negotiations between the ECA and other regulators remained in deadlock. You can catch our breakdown of the amendments here.

LOOK OUT FOR- A government-drafted bill was referred to the House that we expect to resurface during the next session that would establish a council for vehicle manufacturing and a fund to manage the financing of a local electric vehicle production industry. This is likely part of government plans to develop the local automotive industry with a focus on EVs, which saw it unveil its automotive strategy earlier this year.

The first meeting of the national dialogue board dominated the airwaves last night: The session saw the 19-member board of trustees agree on its bylaws, Diaa Rashwan, the general coordinator of the dialogue said, according to Masaa DMC (watch, runtime: 7:43). Rashwan clarified that there is no time frame nor an agenda set for the dialogue. And although the national dialogue prides itself on being all inclusive, it will not allow for the participation of “those who have blood on their hands, topped by the Muslim Brotherhood group and rejecters of Egypt's 2014 constitution,” he said. The dialogue received wide coverage from Al Hayah Al Youm (watch, runtime: 6:53), Yahduth Fi Masr, who interviewed MP Ahmed El Sharkawy (watch, runtime: 3:34) and Kelma Akhira, who had on board member Amr Hashim Rabea, (watch, runtime: 8:52). Board members will reconvene on 19 July after the Eid break.

Need a refresher on the national dialogue? You can read our explainer here.

Say Hello to polymer banknotes: The Central Bank of Egypt (CBE) yesterday released the new EGP 10 polymer banknotes and it got the talking heads talking. Yahduth Fi Masr (watch, runtime: 4:26) and Al Hayah Al Youm (watch, runtime: 3:29) gave coverage, explaining that their introduction of the new notes will not impact the use of paper EGP 10 notes. And you don’t have to worry about ATMs not accepting the new banknote: ATMs across the country are able to hand out and accept polymer notes, a central bank official told the Middle East News Agency.

Covid was back on the airwaves for the second consecutive night: Both Yahduth Fi Masr (watch, runtime: 3:33) and Al Hayah Al Youm (watch, runtime: 1:38) reminded us that the virus is still very much present and we need to take the virus more seriously. Recent figures showed that cases rose 7% last week, which the ministry attributed to the outbreak of omicron sub-variants, a decline in immunity, and lax adherence to precautionary measures.

It’s a mixed bag in the pages of the foreign press this morning: The Times has more reporting on the calls being made on the British government to secure the release of Alaa Abdel Fattah and get Karim Ennarah off the Egyptian government’s travel ban list. Meanwhile, The National reports on a rise in gender-based violence in Egypt, and AFP spotlights a family of Egyptian artisans responsible for producing the kiswa that adorns the Kaaba.

The government is preparing to launch more than 20 green projects during COP27, Youm7 writes, quoting Gamil Helmy, assistant planning minister for sustainability. The projects will cost a combined USD 120 bn and will span the electricity, renewable energy, transportation, agriculture, water and gas sectors.

Speaking of COP27, the government will host a pre-COP27 youth conference for young people to share their thoughts and suggestions for addressing the climate crisis, Mahmoud Mohieldin, UN Climate Change High Level Champion for Egypt, said (pdf) at a meeting with chief sustainability officers at AUC.

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

• Austrian steelmaker Voestalpine and Egyptian National Railways (ENR) are forming a JV to make railway tracks at ENR’s Cairo factory. (Statement).
• Contact Financial Holding signed an agreement with online dental marketplace Toothpick to offer dentists credit lines of up to EGP 100k for supplies, equipment, and training. (Hapi Journal)
• The government has extended a ban on the export of medical oxygen for another year. (Statement)
• Two Egyptian peacekeepers were killed and five seriously injured in northern Mali after their vehicle hit a landmine. (UN)

Shoukry and Truss attend the inaugural meeting of the UK-Egypt Association Council: Foreign Minister Sameh Shoukry was in London yesterday to kick off the first partnership council meeting between the two countries, along with his British counterpart Liz Truss, according to a joint statement. Shoukry also met with British Trade Policy Minister Penny Mordaunt, to talk cooperation on investment, trade, industry and green transformation. He also discussed combating terrorism with National Security Adviser Stephen Lovegrove.

Could Egypt’s aviation sector receive EIB money? International Cooperation Minister Rania Al Mashat and Civil Aviation Minister Mohamed Manar discussed financing options for the aviation sector yesterday with European Investment Bank (EIB) VP Gelsomina Vigliotti, who is currently on a four-day visit to Cairo, according to a cabinet statement.

ALSO FROM THE DIPLO-SPHERE:

• Egypt-Cyprus ties: President Abdel Fattah El Sisi discussed energy, economic and security ties with Cyprus during a phone call with his Cypriot counterpart Nicos Anastasiades. (Statement)
• Ethiopia-Sudan talks: Ethiopian Prime Minister Abiy Ahmed said that he had agreed with Sudan’s military leader General Abdel Fattah Al Burhan to resolve their issues, nearly one week after tensions flared over an alleged killing of Sudanese soldiers by Ethiopian forces. (Twitter)
• Egypt-US military drills: The Egyptian and the US air forces kicked off joint military exercises at an Egyptian air base yesterday. (Statement)