AM — Infinity + AFC buy Lekela in Africa’s largest-ever renewables acquisition

Good morning, friends, and welcome to another compact, business-focused issue as we celebrate the arrival of hump day. Do you now remember who you are, where you work, and what you were doing before the Eid break?

THE BIG STORY here at home is the latest sign that the boomlet in M&A activity we’ve seen in recent months has legs as our our friends at Infinity and AFC snap up Lekela in what’s being billed as the largest-ever renewables acquisition in Africa. We have chapter and verse on this and other transactions in this morning’s news well, below.

SIGNS OF THE TIMES-

#1- Major corporations are firing people… Goldman Sachs warned yesterday that it may cut staff and slow hiring, TikTok and Vimeo are slashing jobs, and Apple is slowing spending, including (likely) on new staff. They’re just the latest major corporations to announce jobs cuts or hiring slowdowns after HR pros at startups began swinging the axe in late spring.

#2- …at the same time as businesses in the West complain they can’t find qualified staff. And it’s not just in the service industry (restaurants in particular) or retail: Microsoft’s Brad Smith is warning that “US companies are facing a ‘new era’ in which fewer people are entering the workforce and pressure to pay higher salaries may become permanent.”

#3- Are fintech players falling from grace? Some USD 500 bn has been wiped off the value of US fintech startups in the recent equity sell-off, according to the Financial Times. The more than 30 fintechs that listed during the recent IPO boom have lost USD 460 bn and are down more than 50% on average since the start of this year (compared to 29% for the tech-heavy Nasdaq). Fintechs have been hit hard by tighter financial conditions, in which investors are less ready to sink funding into businesses whose earning ability is untested, the salmon-coloured paper says.

#4- It’s just not a great time to be a VC. 2Q 2022 was really bad for venture capital-backed IPOs, Axios Pro Rata reports, citing data from PitchBook. “The IPO window was virtually shut in 2Q 2022, and VC-backed public listings reached a 13-year quarterly low with eight completed.” Throw in a big fundraising slowdown and its shaping up to be somthing of an annus horribilis for VCs.

#5- Is the Gulf IPO boom losing steam? That’s what Bloomberg is wondering after Dubai’s Union Coop slumped 13% in its trading debut. Union followed Tecom Group (down 17% on the first day of trading this month), while the Dubai Electricity and Water Authority has recently given up almost all of the gains it posted since its debut in March.

#6- Armpit hair is back whether we like it or not, the Wall Street Journal kindly informs us all.

ONE RAY OF SUNSHINE- Haleon, GSK’s now-former consumer healthcare unit, just pulled off Europe’s largest listing in more than a decade despite particularly challenging market and macro conditions. With the spinoff, Haleon immediately became one of 20 largest companies in the FTSE with a market cap of about USD 36 bn. The world’s largest standalone healthcare business, Haleon controls brands including Advil, Voltaren and Otrivin. The company is led in North Africa by Nabil Besri. Haleon executed the demerger despite clear macro challenges including the erosion in consumer sentiment amid rising inflation. In parallel, the FTSE 100 is down about 3.8% year-to-date. You can catch the Haleon press release here (pdf) or check out coverage in the global business press: CNBC | Financial Times | Reuters.

WHAT’S HAPPENING TODAY-

The state’s national dialogue meetings resume today: The board overseeing the Sisi administration’s national dialogue will hold its second meeting today, during which it will set a schedule of debate, discuss the agenda and form subcommittees.

Need a refresher on the national dialogue? We’ve got you covered.

The government’s public consultations on its state ownership policy continue today with representatives from the wholesale and retail sectors having their say. Sunday’s session brought leather manufacturers together to discuss the state’s privatization plans. Every Sunday, Tuesday and Thursday sees workshops on how privatization plans will affect specific industries. You can find more details on the schedule of the meetings here.

Russian President Vladimir Putin is making a rare trip to the Middle East today, traveling to Tehran to attend a summit with Iranian President Ebrahim Raisi and Turkish President Recep Tayyip Erdogan.

On the agenda at the summit: An agreement to unlock Ukrainian grain via the Black Sea, according to a Kremlin spokesperson, according to Reuters. A Turkish official said that “small problems” remain but expressed optimism that Ukraine and Russia will sign an agreement this week.

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

THE BIG STORY ABROAD- Climate is dominating the international front pages this morning as ministers from 40 countries gathered in Berlin for the Petersberg Climate Dialogue amid expectations of record temperatures in Europe. With heat waves and wildfires sweeping countries on the continent, UN Secretary-General Antonio Guterrres said that humanity was on the verge of committing “collective suicide.” Temperatures in the UK are expected to reach record highs this week (prompting the declaration of a national emergency) while wildfires are raging in France, Spain, Portugal and Greece. (Reuters | AP | FT | Bloomberg | BBC | NYT | Washington Post)

Energy was at the top of the priority list in talks between German Chancellor Olaf Scholz and President Abdel Fattah El Sisi, who is co-chairing the summit as Egypt prepares to host COP27 this fall. We have more details on this in this morning’s Diplomacy section, below.

Germany’s energy situation is looking increasingly grim: Speculation is growing that Russia might not resume gas flows through the vital Nord Stream 1 pipeline next week after Gazprom yesterday told buyers in Europe that it could not guarantee shipments due to “extraordinary” circumstances, according to a letter seen by Reuters. The Russian gas giant has shut the pipeline for 10 days while it conducts annual maintenance and there are fears that it might not turn the gas back on when it finishes on Thursday as Moscow ratchets up the pressure on energy-starved Europe. Before last week, Gazprom had already cut flows through Nordsteam by 40%, leaving Germany’s largest gas provider on the verge of collapse and forcing cities to ration hot water and dim the lights.

Brussels could turn to emergency measures: The EU could move to force member states to cut gas consumption if the energy crisis intensifies in the coming weeks and months, the Financial Times reports.

*** 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: Our combined wind and solar power generation capacity is the highest of any Arabic-speaking country, according to a new report from nonprofit renewables researcher Global Energy Monitor. But as our once oil-reliant neighbors go all in on the energy transition with ambitious plans to ramp up renewables output, we could lose our edge on wind and solar by the time 2030 rolls around.

Infinity + AFC just sealed Africa’s largest-ever renewables acquisition: Our friends at renewables player Infinity Group and Africa Finance Corporation (AFC) have signed an agreement to acquire 100% of Lekela Power in what is Africa’s largest renewables acquisition, the companies involved said in separate statements (here, pdf and here). The acquisition will give Infinity and AFC a 2.8 GW portfolio of wind projects across Africa, making Infinity the largest renewables company on the continent. Representatives from Infinity declined to disclose the value of the transaction when we approached them yesterday, though Dow Jones suggests that it values Lekela at USD 1.5 bn.

The sellers: Private equity firm Actis is selling its 60% stake in Lekela alongside Irish wind / solar developer Mainstream Renewable Power, which owns the remaining 40% of the company. The two firms founded Lekela in 2015.

What they’re buying: Lekela is Africa’s largest independent power producer (IPP) and has >1 GW of installed capacity at projects located in Egypt, South Africa and Senegal. It has another 1.8 GW of projects in the pipeline that are expected to close “in the near future,” Infinity and AFC said. The company brought online its 250-MW wind farm in West Bakr last November.

Watch this space: The acquisition is expected to close in 4Q, subject to regulatory approvals and customary closing conditions, Infinity co-founder and chairman Mohamed Ismail Mansour told Enterprise.

What they said: “Our acquisition of Africa’s largest independent power producer in the renewables sector is a major milestone in our strategy for growth across the African continent,” Mansour said in the statement. Actis said the exit “reflects the successful culmination of Actis and Mainstream’s partnership strategy for Lekela.”

In the pipeline: Infinity and AFC plan to more than double the capacity of the company’s operating assets over the next four years.

What’s happening with management and operations? Nothing has been decided yet, but Infinity is keen on integrating Lekela into the company, Mansour told us. “We will assess with Lekela’s management how we structure this new integrated company to achieve our aggressive plans for future growth,” he said.

Lekela had plenty of suitors: Actis was reported earlier this year to be in negotiations to exit the firm. Pan-African financial services outfit Old Mutual to Chinese state fund CNIC were reported to be among the final bidders, while Mainstream had apparently also considered buying Actis out of the firm.

Masdar was originally in AFC’s shoes: Reports last month suggested that Emirati renewables player Masdar was in talks alongside Infinity to acquire Actis’ stake in Lekela.

It’s not only Lekela that Actis wants to exit: Actis is looking to sell its South African business BTE Renewables for around USD 1 bn and has hired Citigroup as advisors, Bloomberg reported last week, citing people familiar with the matter.

ADVISORS- Cantor Fitzgerald, ABSA and Norton Rose Fulbright advised Infinity and AFC on the acquisition, while Citi and Clifford Chance advised Actis and Mainstream.

Banque du Caire’s IPO may have been kicked down the road once more: State-owned Banque du Caire is postponing its long-awaited IPO due to unfavorable market conditions, Al Borsa reports, citing unnamed sources. The bank had been set to make its EGX debut by the end of the year, but the sources suggested that poor liquidity on the EGX had led the offering to be postponed “until market conditions improve.” Banque du Caire and EFG Hermes — which is managing the offering alongside HSBC — declined to comment when we reached out this week.

This shouldn’t come as a big shock: The EGX 30 has entered a bear market this year amid a tough time for equities markets globally, as war in Ukraine, inflationary pressure, rising interest rates and supply / demand imbalances spur risk-off sentiment among investors. The benchmark index is currently trading at lows not seen since November 2016 and has lost 26% from its recent peak in January.

And don’t be surprised if the state decides to privatize Banque du Caire through a trade sale. The Banque Misr-owned institution has attracted interest from strategics in the past. We think a one-and-done trade sale at a reasonable valuation would go a long way toward showing the state is serious about its plan to generate USD 10 bn per year through asset sales in each of the nexts four years. (Just don’t expect the transaction to hit the high-water-mark for valuation posted by the sale of Bank of Alexandria to Italy’s Intesa Sanpaolo in 2006…)

BdC is ready to make its debut and has major Gulf and foreign institutional players interested in subscribing to the offering, the sources told the newspaper. The bank underwent a restructuring in May ahead of the offering which saw its majority shareholder Banque Misr purchase nearly all of the remaining shares from its investment arm, Misr Capital, giving it direct ownership of 99.99% of its shares.

But flagging equity markets in Egypt and far beyond suggest IPOs are not likely to soon be on the menu. Public Enterprises Minister Hisham Tawfik said last month that when the government resumes offering shares on the EGX will depend on when demand picks up. The government began 2022 targeting as many as 10 stake sales through the year but the deterioration of market conditions has put its plans on hold.

The BdC sale has been a long time coming: The state has waned to sell a stake in the bank since 2016 but has pulled back multiple times, primarily due to poor market conditions. BdC, Egypt’s third largest state-owned bank, was hoping to raise some USD 500 mn from the sale back in 2020 — making it the country’s biggest sale of state assets since 2006 — before the covid-19 pandemic forced it to delay its plans. At the time, the European Bank for Reconstruction and Development, the Sovereign Fund of Egypt and Abu Dhabi Development Holding were reportedly considering purchasing a stake.

SODIC might have to up its offer 4x if it wants MNHD: Madinet Nasr for Housing and Development’s (MNHD) portfolio of undeveloped land is worth between 3-4 times more than what SODIC wants to pay for the company, the real estate developer’s managing director, Abdullah Salam, told CNBC Arabia yesterday (watch, runtime: 9:19). MNHD’s undeveloped land has “very promising potential to be developed and become residential and commercial projects,” Salam said, adding that this is what makes it so valuable.

SODIC earlier this month launched a takeover bid for MNHD and offered to pay EGP 3.20-3.40 per share, valuing the cross-town company at as much as EGP 6.36 bn.

But MNHD wants more: MNHD this week rejected the offer and called on SODIC to submit a new bid that reflects the fair value of the company.

What’s a fair value? Salam’s statements yesterday seem to suggest that the company might demand an offer as high as EGP 12.40 a share for it to agree to a sale, valuing it as much as EGP 25 bn.

Putting this in context: That’s more than three times greater than SODIC’s valuation priced by Aldar Properties and ADQ when they acquired the company last year.

MNHD’s shares closed at EGP 2.87 yesterday on the EGX (+7%). Its shares have gained about 17% since SODIC made its offer.

MNHD’s land bank: MNHD owns around 10 mn square meters of land, 5 mn of which are developed or under development, while 4.5 mn square meters are still undeveloped, mainly split between two main projects Taj City and Sarai, Salam said.

Sallam took the helm at MNHD and became a shareholder as the developer acquired his Minka Developments in a transaction announced late last fall. Sallam used MNHD’s 1Q 2022 earnings release (pdf) to signpost what he called “exciting times” for the developer, saying the company is entering “period of change and reinvention that will challenge our team to envision new ways for our business to grow sustainably and create value for stakeholders.” MNHD wants to double deliveries in 2022 and develop recurring revenue streams (including through a push into the commercial property market and through community management fees).

SODIC, meanwhile, is ramping up its competitive metabolism under new ownership. The company’s new Emirati owners are supporting CEO Magued Sherif and his team to think aggressively about growth opportunities. The high-end developer, now celebrating 25 years in the business, reported record 1Q gross contracted sales and profitability, it said in its first-quarter earnings release (pdf), setting up what Sherif said at the time would be a “record year for SODIC” despite a industry backdrop that is being marred by high inflation, rising interest rates and supply chain kinks.

Watch this space: MNHD will convene its general assembly on 16 August to decide whether to allow SODIC to go ahead with due diligence on its takeover bid, MNHD said in a disclosure (pdf) to the EGX yesterday.

MNHD and SODIC have been dancing (on and off) for years: With different shareholding structures on both sides and a different management team at MNHD at the time, the two started talking about combining their businesses in early 2018, which months later saw SODIC make an offer to acquire at least 51% of MNHD through a direct share swap that the two positioned as what would have been Egypt’s largest-ever M&A at the time. Talks fell through after they failed to reach an agreement on the share-swap ratio.

SDX shareholder to block planned merger with Tenaz: A planned merger between UK-based, Egypt-focused SDX Energy with Canadian firm Tenaz Energy has been thrown into doubt after a group of shareholders said they would vote to block the transaction. SDX was sent a letter by trading group Aleph Commodities informing it that Aleph holds some 25.65% of SDX and intends to vote against the transaction at a meeting of shareholders scheduled for 29 July, SDX said in a statement to the London Stock Exchange.

Aleph says no: Fully 75% of shareholders need to okay the merger for it to go through, giving Aleph the power to block it, Tenaz said in a response filed to the London bourse.

The story so far: SDX agreed to the all-share takeover with Tenaz in May in a transaction that would value the London-listed company at around GBP 21.4 mn. SDX shareholders would receive roughly 0.075 shares in Tenaz for each SDX share, handing them ownership of around 36% of the new company. Tenaz shareholders would hold the remaining 64%. At the end of June, the companies announced a cash alternative that would allow SDX shareholders to receive cash instead of shares.

Why do we care? SDX owns 36.9% of the South Disouq concession in Egypt’s Nile Delta, and 50% of the West Gharib concession in the Eastern Desert, where it first struck oil last month.

Aleph doesn’t want to dilute SDX: “[We welcome] the opportunity to engage with management and the board of directors to explore opportunities to provide financial, commercial and technical support to SDX to ensure the growth of the company and its production base, with minimal dilution,” SDX reported Aleph as saying in the letter.

What’s next? Both SDX and Tenaz will go ahead with their shareholder meetings on 29 July to vote on the merger, though it now seems unlikely to go through. Tenaz said it was exploring all its options with regard to the transaction.

A second local credit rating agency could be in the works: A group of investors led by MGM Banking and Financial Consultants Chairman Gamal Moharram is in talks with the Financial Regulatory Authority (FRA) for a license to operate a credit rating agency, Dreny and Partners Founding Partner Moataz Dreny told Enterprise. The investors are finalizing the company’s structure and plan to file a request for a license sometime this quarter, he said, without disclosing their identities. They will also hire an ex-Moody’s industry expert to head the firm, Dreny said.

The FRA wants more local rating agencies: The Financial Regulatory Authority (FRA) in February made it easier for credit rating companies to get operating licenses in Egypt by scrapping a requirement for them to be at least 10% owned by international firms.

Egypt currently only has one credit rating agency: Middle East Rating and Investors Service (MERIS), a joint venture between Moody’s and Finance and Banking Consultants International (FinBi).

The rationale: A single rating agency can only rate so many bonds, and with the growing popularity of asset-backed securities in Egypt more firms are needed to expand capacity.

IN OTHER CAPITAL MARKETS NEWS-

Egyptian Modern Education Systems has completed the move from small-cap index Nilex to the EGX, with an initial market cap of EGP 100.5 mn, it said in a disclosure (pdf) yesterday. Shares closed up 0.7% on Monday at EGP 0.14.

Diplomacy and sports dominated the airwaves last night with the nation’s talking heads focused on President Abdel Fattah El Sisi’s trip to Berlin and Egypt’s victory in African Handball Championship final.

El Sisi in Berlin: El Sisi co-chaired the Petersberg Climate Dialogue in Berlin and held talks with German Chancellor Olaf Scholz yesterday. The news received coverage from El Hekaya (watch, runtime: 2:25), Kelma Akhira (watch, runtime: 6:40, Masaa DMC (watch, runtime: 2:06) and Al Hayah Al Youm (watch, runtime: 2:08). We have more in this morning’s Diplomacy section, below.

Egypt was crowned African handball champion for the second year running last night, defeating first-time finalists Cape Verde 37-25. This is the eighth time the Pharaohs have taken home the trophy. Omar El Wakil was named the man of the match. Masaa DMC (watch, runtime: 0:53), Ala Mas’ouleety (watch, runtime: 1:33), El Hekaya (watch, runtime: 2:25) and Kelma Akhira (watch, runtime: 0:59) all had the story.

GEM delayed again: The Grand Egyptian Museum (GEM) is set to be completely finished before the end of the year, Tourism Minister Khaled El Enany told El Hekaya’s Amr Adib (watch, runtime: 2:32). The inauguration date would be determined by global conditions and other events the state is working on, he said. Secretary-general of the Supreme Council for Antiquities Mostafa Waziri said just a few weeks ago that the museum will be finished within three months.

ُEl Sisi’s meeting with German Chancellor Olaf Scholz is leading the conversation on Egypt in the foreign press this morning: President Abdel Fattah El Sisi held a meeting followed by a joint presser with German Chancellor Olaf Scholz on the sidelines of the Petersberg Climate Dialogue in Berlin yesterday. Reuters covers the chancellor's comments about Egypt’s nascent green hydrogen industry, and the National reports on El Sisi’s response to questions from German reporters on Egypt’s human rights record.

Also making headlines:

• Higher oil prices have been good for Swvl: More people are switching from driving to using Swvl for their commute in bigger markets such as Egypt and Pakistan amid rising inflation and surging oil prices. (Reuters)
• Luxor grounds hot air balloons after accident: Authorities have suspended hot air ballooning in Luxor while they investigate an incident that left two tourists with minor injuries. (Associated Press)
• Beau Rivage beach is being sacrificed for clearer streets: Alexandria locals are up in arms about the decision to build a bridge across the popular Beau Rivage beach, which they say will ruin the area. (The National)

It could be getting easier for foreign photographers + film crews to get permits: Ministers are planning to introduce new regulations that would see the photography permit process for foreign media outlets and film and TV producers streamlined, introducing a single-window system for applications and fee payments that could be accessed digitally, according to a cabinet statement. The decision would include rules obliging producers not to film children, adults without their consent, or scenes considered “offensive” to the country and its people, Tourism Minister Khaled El Enany said.

Energy dominated the conversation in El Sisi’s sit-down with German chancellor: Energy, COP27 and the Grand Ethiopian Renaissance Dam (GERD) were all up for discussion yesterday during talks between President Abdel Fattah El Sisi and German Chancellor Olaf Scholz in the German capital.

Egypt, Germany to cooperate on green hydrogen: El Sisi, who is in Berlin for the annual Petersberg Climate Dialogue, discussed cooperation over liquefied natural gas, clean energy and green hydrogen with the German leader, Ittihadiya said in a statement. In a joint presser following the meeting (watch, runtime: 22:16), Scholz told reporters that the two sides agreed to cooperate on developing Egypt’s green hydrogen industry in a bid to help Europe diversify its energy supplies away from Russia. Exporting hydrogen to Germany will be a “very big opportunity” for countries like Egypt, he said.

Egypt wants to help ease the current European gas crisis, El Sisi said during the press conference, adding that the country “could export all the natural gas that it can produce from the Eastern Mediterranean.” Egypt recently signed an agreement with Israel and the EU to increase gas exports to Europe as the continent looks to phase out its reliance on Russian fossil fuels. The agreement will see Israel send more gas to Egypt’s LNG facilities before exporting it on tankers to European shores.

El Sisi called on international financial institutions to help Egypt overcome the current crisis: “We’re asking our friends in Europe and international financial institutions, like the IMF and the World Bank, to help us until the current crisis is over.” Egypt and the IMF are currently in talks over a fresh assistance program to prevent a balance of payments crisis caused by soaring food and energy prices.

Also from Berlin: The president met the heads of major German industrial companies during a business roundtable, who expressed interest in expanding their activities in Egypt, according to Ittihadiya.

One step closer towards resolving the seven-year war in Yemen? The UN is pushing warring parties in Yemen to extend the current truce by another six months, sources familiar with the matter told Reuters. The truce would mark the most prominent step in the UN’s efforts towards resolving the ongoing conflict between the Yemeni government and the Houthi movement. The UN’s Yemen envoy, Hans Grundberg, will be heading to Oman soon to talk to the Houthis' chief negotiator, followed by a visit to the Yemeni southern city of Aden, where the Yemeni government is headquartered.

France, UAE boost energy cooperation: France and the UAE signed a strategic agreement to strengthen energy ties during UAE President Mohamed bin Zayed’s visit to the French capital yesterday, Reuters reports. The pact will see the two countries work together on investment projects in the hydrogen, renewable and nuclear energy sectors. Abu Dhabi National Oil Company (ADNOC) and the French TotalEnergies also signed a strategic partnership, according to Emirati state news agency WAM.