AM — The EGX is courting state institutional investors in a bid to revive trading volumes

Good morning, wonderful people. It’s hump day, and your reward is a very busy morning on the news front, as our very stacked tl;dr above suggests. Let’s jump straight in:

WATCH THIS SPACE #1- Did Orascom Financial just agree to sell its stake in Beltone to our friends at Chimera? Local newspapers are reporting that Orascom Financial Holding (OFH) decided at a board meeting yesterday to sell its 56% stake in EGX-listed Beltone Financial to Chimera Investments. The report in Hapi Journal cites an unnamed source at OFH. The Abu Dhabi-based investment firm is bidding to acquire up to 90% of Beltone at EGP 1.485 per share, valuing the financial services firm at around EGP 690 mn. Chimera’s 10-day mandatory tender offer kicked off on Thursday and ends 3 August. We’ll have more for you on this in tomorrow’s EnterpriseAM.

Sound smart: Chimera is a unit of Abu Dhabi’s Royal Group. Led by CEO Seif Fikry, a veteran of regional capital markets, Chimera has in the past two years aggressively ramped up its investments in Egypt and beyond, including with a massive venture capital fund and other investments that span financial services to real estate. Parent company Royal Group has investments in some 60 entities with 20k employees spanning real estate to FMCG by way of healthcare and aviation.

WATCH THIS SPACE #2- Will the USD break the EGP 19.00 barrier today? The greenback continued its slow march toward EGP 19.00 yesterday, with 1 USD changing hands for EGP 18.97.

HAPPENING TODAY-

IT’S LOOKING UGLY OUT THERE- The IMF will release its updated World Economic Outlook this afternoon. The Fund has warned that it will “substantially” downgrade its 2022 global growth forecast as the war in Ukraine, surging global inflation and rising interest rates weigh on the global economy.

We’ll have full coverage of the report in tomorrow’s EnterpriseAM, but if you really can’t wait you’ll be able to read the report and tune into the IMF presser at 3pm CLT here.

MEANWHILE- Pharma players get their say as the government’s public consultations on its state ownership policy continue today. Representatives from the country’s healthcare industry discussed the government’s privatization plans on Sunday. Every Sunday, Tuesday, and Thursday see workshops on how privatization plans will affect specific industries.

The Egyptian-Indian Business Council will hold its first meeting since 2016 in Cairo today to discuss bilateral investment, Al Borsa reports.

SETTING THE GLOBAL AGENDA- The US Federal Reserve starts its two-day policy meeting today. While the consensus is that the Fed will go ahead with a second consecutive 75-bps rate hike to tamp down on inflation, some investors are hopeful that this marks the peak of its tightening cycle US inflation reached a fresh 40-year high in June, increasing pressure on the Fed to raise rates despite warnings that it could push the economy into recession. The Fed meets after the European Central Bank raised rates last week for the first time in 11 years.

Watch this space: The Central Bank of Egypt’s Monetary Policy Committee will have plenty of time to digest whatever the Fed does next when it next meets to review rates on Thursday, 18 August.

US stocks whipsawed in trading yesterday ahead of the Fed meeting and a spate of tech earnings landing this week. The S&P 500 closed marginally in the green while the Nasdaq ended lower as investors prepare for bad news when Amazon, Google, Facebook and Microsoft release their 2Q earnings later this week.

Asian markets are largely up in early trading this morning and futures suggest stocks in Europe (with the exception of France), the US and Canada will face selling pressure at the opening bell today.l

HAPPENING TOMORROW-

Egypt will host the annual general meetings of the African Reinsurance Corporation (Africa Re) tomorrow, marking the first time the meetings will be held in person since the pandemic broke out in early 2020, the Finance Ministry said yesterday. The meetings will discuss Africa Re’s performance and the impact of the ongoing global economic crisis on the continent’s ins. and reinsurance industries.

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

SOMETHING WE MISSED- Zamalek were crowned Egypt Cup champions last week after beating rivals Al Ahly 2-1 in the final. This is the 28th time the White Knights have got their hands on the cup. The victory sees the team achieve the domestic double for the fourth time after winning this year’s Egyptian Premier League.

THE BIG STORY ABROAD-

Russia is turning the screw on energy-starved Europe: Gazprom will further cut gas flows through the Nord Stream 1 pipeline this week, piling pressure on Germany, which was already struggling to secure enough gas to last it through the winter. In a statement yesterday, the Russian gas giant said it would reduce flows to just 20% of capacity, blaming an issue with another turbine. Gazprom had already reduced shipments by 60% in June, which it also claimed was due to a turbine. European gas futures surged almost 12% on the news. (Reuters | Bloomberg | FT | NYT | WSJ)

Rationing now may be the only option, according to Bloomberg commodities columnist Javier Blas, who wrote that the country will not have enough gas for the winter unless “major demand reductions” are made.

Things were already looking dire: Fresh data (pdf) out yesterday showed German business confidence fell to a two-year low in June as surging energy prices and uncertainty over gas supplies put the country “on the cusp of a recession.”

Ukraine could resume wheat exports via the Black Sea as soon as this week following last week’s agreement with Russia to unlock mns of tons of grain stranded in the country’s ports, the Financial Times reports. This comes despite Russia’s missile strike on the port of Odesa hours after the agreement was signed, an attack which Ukraine said was in breach of the agreement. Russia has claimed it fired on a military target and thus was not in breach of the accord.

MORNING MUST READ-

Is it time for investors to return to emerging markets? The bulls say yes, but El Erian says investors should still be selective: Considering the current global headwinds and unstable environment still looming over emerging markets, investors need to be selective in their EM investments, market guru Mohamed El Erian writes in a column for the Financial Times. Although EM assets are currently very attractively priced, that metric alone is not enough, he says. “Investors need to take into account both the dispersion of returns within the asset class and economic and financial influences that are yet to play out fully, such as the surge in global inflation forcing major central banks to tighten policies aggressively into a rapidly slowing global economy,” El Erian writes.

WORTH KNOWING-

• GAFI is looking to drum up interest from Indian investors in sectors including tech, engineering, textiles and green hydrogen / ammonia.
• Kuwait has a new prime minister — Ahmed Nawaf Al Sabah, the eldest son of the country’s emir. Al Sabah will now form a government and prepare for a fresh general election.
• PSA– Nilepreneurs has launched four new incubator programs with focuses on segments including B2B software, design, engineering (with an emphasis on climate) and women-led startups. Applicants have until the end of August to submit.

*** 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: Enterprise looks into Egypt’s updated Nationally Determined Contributions (NDC) (pdf), covering the period from 2015 until 2030. The report provides updated emissions targets for 2030, with a focus on the government’s climate action to lower emissions in heavily-polluted energy and transport sectors and others.

Egypt, Jordan + UAE choose projects for joint industrial partnership: Egypt, Jordan, the UAE, and now Bahrain, have identified USD 3.4 bn-worth of joint investment projects in the first phase of a USD 10 bn industrial partnership signed in May, according to a joint statement (pdf) yesterday. Three days of talks in Cairo this week have seen officials from the four countries choose 12 projects in the food, agriculture, pharma and fertilizers sectors. The next stage of the partnership will focus on the metals, chemicals, plastics and textiles industries, the statement said.

The UAE is bankrolling the agreement: The Emirates confirmed it will contribute USD 10 bn to the initiative, which will be managed by Abu Dhabi sovereign wealth fund ADQ. UAE’s Industry and Advanced Technology Minister Sultan Al Jaber — who has long helped shepherd the UAE’s relationship with Egypt — said that the country is keen to invest in the sectors covered by the partnership.

Three’s a crowd, four’s a party: Bahrain has officially signed on to the regional agreement, according to the statement. “Bahrain joining will be a great boost to the partnership and push forward its agenda of achieving sustained regional growth,” Jordan’s Industry, Trade and Supply Minister Yousef Al Shamali said.

What are they looking for? Hedging against supply chain disruptions is key. All four member countries affirmed that the partnership is hoped to link supply chains and integrate industrial and logistics networks to minimize supply chain disruptions. But more than that:

• Jordan wants to safeguard crucial supplies: Al Shamali stressed that the committee had focused on projects to secure steady supplies of food and meds.
• Ditto Egypt: Trade Minister Nevine Gamea said the partnership is necessary to guard against the disruptions caused by the global economic crisis — and that it will spur sustainable growth and job creation.
• Bahrain basically wants export markets: Bahrain wants to increase food and fertilizers, pharma, textiles, metals, and petrochemicals exports, Industry and Commerce Minister Zayed Al Zayani told Sky News Arabia yesterday.

We’re still waiting on a lot of details: It remains unclear which projects are in line for funding or how the money is being allocated. Al Shamali told CNBC Arabia yesterday (watch, runtime: 1:27) that Jordan will take part in 10 of the 12 projects, which will receive USD 3.2 bn in investment, though how Egypt, the UAE and Bahrain fit into the partnership is still to be announced.

A “matter of life or death”: Those were the words used by Prime Minister Moustafa Madbouly during a meeting with the officials yesterday. The PM used the occasion to call on all four countries to take the initiative seriously and deliver on the projects. He urged the group to set a timetable and pledged to cut any red tape slowing the process.

Private sector participation crucial: Al Jaber called on private sector companies to take part in the committee’s policy discussions so they can best benefit from the investments that are to come. The high committee will be holding meetings with companies interested in participating, the statement said.

The next steps: The committee has commissioned feasibility studies for the selected sectors, will then issue a detailed investor roadmap for the upcoming projects, according to the statement.

The news got plenty of coverage on the airwaves last night: El Hekaya (watch, runtime: 8:33) and Hadeeth El Kahera (watch, runtime:31:52) both had Trade Minister Nevine Gamea on to discuss the partnership, while Ala Mas’ouleety (watch, runtime: 8:08) dedicated some to time discussing what it means for Egypt.

The EGX wants state institutions to invest more in capital markets, with EGX officials having held recently a series of meetings with state-owned institutions in a bid to increase the amount of domestic institutional money in Egypt’s equity market and raise liquidity, a source with first-hand knowledge of the push told Enterprise.

Who’s involved: The EGX has in recent weeks been meeting with a number of government institutions, fund managers, and the Central Auditing Organization to discuss issues that are preventing them from investing in the market. Egypt Post, state-owned ins. companies including Misr Ins. Holding, the National Social Ins. Authority, and the General Authority for Health Ins., and the Egyptian Endowment Authority have all been involved, our source says.

What’s the driver? It’s all about liquidity. Trading volumes on the bourse have been anemic this year. Foreign institutions have pulled back from emerging markets in general (and Egypt, in particular) and state institutions have traditionally stayed away from equities (outside of units at major financial institutions such as Banque Misr and the National Bank of Egypt). That’s left retail investors fully in charge of the direction of the local market in 2022: Domestic institutions accounted for less than 4% of total trading volume in May, according to Enterprise calculations based on figures provided to us by the bourse. Local institutional appetite has picked up in recent weeks, but so far in July has still only made up 13% of trades. “It’s an ongoing process, and this is one of the most important issues we’ve been working on lately,” our source said of the talks. “The market currently needs an increase in liquidity, particularly institutional liquidity.”

2022 has been a bad year for the EGX: A general risk-off sentiment and the retreat of foreign institutional investors from emerging markets has driven the benchmark EGX 30 to lows not seen since November 2016. A litany of headwinds — including rampant global inflation, rising US interest rates and geopolitical worries thanks to Vladimir Putin’s invasion of Ukraine — have caused foreign money to exit the market, which is currently down nearly 23% year-to-date.

But the EGX is hoping a more flexible investing environment will draw local institutions back: The meetings kicked off after Prime Minister Moustafa Madbouly discussed the matter with EGX boss Mohamed Farid in April. By bringing all concerned parties to one table, the EGX wants to create more flexible investment frameworks that provide better returns to investors and enhance market liquidity. “We’re currently looking to raise the quality of the investment process more than we’re looking to raise the amount of investments,” an EGX official told us.

One problem: Ins. and pension funds don’t tend to get heavily involved in equities: Local ins. companies often focus their investments in debt (both sovereign and corporate). The social security and pensions law requires that public pension and social ins. funds invest no less than 75% of their capital in treasury bills and bonds, with the remainder divided among a range of asset classes. The state ins. fund for public-sector workers invested a mere 1% of its total funds in the EGX in 2019, according to the fund’s then-head Mohamed Seoudi.

The EGX thinks it has two potential solutions to the problem:

#1- Better asset managers: Following the series of meetings, state institutions identified the need to develop a criteria for selecting competent asset managers and make sure they’re qualified to make better investment decisions.

#2- Loosening the reins on asset managers: Current rules in place to limit losses and mitigate risk place strict limits on how managers of state assets can allocate capital. Participants in the meetings concluded that managers need to be given more flexibility when making investment decisions.

Allianz will hold a 40% stake in its new joint venture with South Africa’s Sanlam, an official at Allianz told Enterprise yesterday, confirming a report by Al Shorouk.

A blockbuster merger for the African ins. industry: The two companies agreed to merge their Africa operations in May, creating the largest pan-African non-banking financial services business on the continent. The JV will operate in 29 countries in Africa, and is expected to have an estimated value of ZAR 33 bn (c. USD 2.05 bn). South Africa is excluded from the agreement and Namibia will be included at a later date.

Allianz could up its stake: Allianz could later increase its share of the company to 49% and obtain management rights, the source told us yesterday, without disclosing further information.

The merger will see Sanlam enter Egypt for the first time. The South African insurer has been planning to enter the Egyptian market since 2019.

OTHER M&A NEWS-

Berlin-based corporate venture builder FoundersLane has launched operations in Egypt after its acquisition by Creative Dock, FoundersLane Egypt Managing Director Anas Rabah told Enterprise. The Czech firm bought FoundersLane earlier this month to create what the company said will be the largest independent corporate venture builder in the world. FoundersLane Egypt is part of its plans to expand in the MENA region.

SOUND SMART- Venture builders help build startups from scratch and position themselves as going beyond the provision of finance (an assertion, we note, that just about every venture capitalist will make). Their role usually lies in staffing a startup, testing its product, and preparing it before launching it into the market. Venture builders usually focus on a small handful of early-stage startups, rather than building large portfolios.

The firm is big on MENA: The acquisition has given Creative Dock a presence in several MENA countries including Saudi Arabia, the UAE and Kuwait, and it now plans to invest over EUR 100 mn in the region over the next five years. FoundersLane has MENA experience in financial services, healthcare, logistics, manufacturing and utilities, Rabah said.

The company is still studying the Egyptian market to sort out its focus and average ticket size will be, Rabah said. “The startup ecosystem is doing very well and is booming, but on the other hand, there’s a huge number of corporates and family businesses that operate very traditionally and do not have tech arms,” Rabah told us. “We want to enhance the business flow of these firms by building tech ventures and startups under their umbrella,” he explained.

Egyptian B2B e-commerce platform Cartona has raised USD 12 mn in a series A round led by VC firm Silicon Badia, the company said in a statement (pdf). KfW’s Sanad Fund, Arab Bank Accelerator and Sunny Side Ventures also participated in the round together with existing investors Global Ventures and Kepple Ventures, which invested in the company in its USD 4.5 mn pre-series A round last September.

How it works: Launched in August 2020, Cartona operates a digital marketplace allowing grocery retailers to purchase fast-moving consumer goods from sellers online while receiving real-time price comparisons and estimated delivery times. The platform currently works with 200 FMCG companies, including household names Henkel, Unilever, Bel and Mondelez, along with 1.5k distributors and wholesalers.

The platform has acquired over 60k users in 11 cities around Egypt and currently processes around 1 mn orders a year with a gross merchandise value of EGP 2.3 bn. It launched two years ago.

New locations, new verticals: “By the end of 2023 we hope to have a presence in each governorate, and we’re exploring the possibility of expanding our services to other verticals, for example pharma or electronics or light construction materials would suit the dynamics of our platform,” CEO Mahmoud Talaat told Enterprise.

valU has Walid Hassouna’s full attention: Walid Hassouna is leaving his position as CEO of EFG Hermes’ Non-Bank Financial Institutions (NBFI) platform to dedicate himself full-time to his role as CEO of its buy-now-pay-later (BNPL) platform valU, according to a press release (pdf). “The decision to appoint Hassouna as CEO of valU follows the remarkable success the brand has achieved in a short span of five years, becoming one of the fastest growing BNPL players in MENA,” our friends at EFG Hermes said. The move “comes at a vital stage in the growth life cycle of valU where it will certainly benefit from increased independence in its pursuit of growing its footprint and capitalizing on the numerous opportunities in Egypt and beyond,” Group CEO Karim Awad said.

Hassouna’s shift to focus entirely on valU comes amid rising investor interest: Amazon purchased in May USD 10 mn worth of EFG Hermes’ London-listed global depositary receipts (GDRs) with an option to convert the investment into an equity stake in valU within five years. The Amazon transaction was followed in June by Saudi Arabia’s Alhokair family acquiring a 4.99% stake in the company through a USD 12.4 mn capital increase, valuing the company at USD 247.4 mn.

It was a business / econ-heavy evening on the airwaves last night as PM Madbouly’s economic adviser Gihan Saleh phoned in to Kelma Akhira to discuss the IMF negotiations, privatization and the Egyptian economy (watch, runtime: 4:23 | 4:48 | 5:22).

The latest on the IMF negotiations isn’t hugely encouraging: Asked by show host Lamees El Hadidi for an update on the negotiations with the IMF, Saleh said that technical talks are ongoing, but the two sides have different perspectives. She denied that there was any conflict in the talks when asked by El Hadidi. Egypt has been in negotiations with the Fund since March for fresh financing that will help it mitigate the pressures on its external position caused by surging food and energy costs, and rising interest rates.

Where do the state’s privatization plans currently stand? The government could “possibly” approve fresh sales on the EGX later this year, Saleh said. She blamed market conditions for the decision earlier this month to delay Banque du Caire’s IPO.

What does the Fed’s expected 75-bps rate hike mean for Egypt? The Madbouly government already expects the Fed to raise rates in response to inflation, Saleh said. An increase in US rates doesn't necessarily mean that Egypt will follow with an equivalent hike of its own, although a US rate hike would increase pressure on state finances and make it necessary to increase GDP and avoid a rise in the debt-to-GDP ratio.

El Sisi met his Somali counterpart and GERD was on the agenda: President Abdel Fattah El Sisi and Somali President Hassan Sheikh Mohamud met yesterday in Cairo and the two discussed bilateral relations and the issue of the Grand Ethiopian Renaissance Dam (GERD), Al Hayah Al Youm reported (watch, runtime: 8:36). Ala Mas’ouleety (watch, runtime: 2:03) also had the story.

Leading the conversation in the foreign press this morning: An Egypt court is calling for the House of Representatives to pass legislation that would allow the public broadcast of the execution of the man found guilty of murdering university student Naira Ashraf earlier this summer. The BBC and AFP have picked up on the story, which is getting wide coverage in the domestic press, from Al Masry Al Youm to Masrawy and El Watan.

Broadcasting the execution (or otherwise carrying it out as a public spectacle) would simply be barbarous. Agree or disagree with capital punishment — and we here at Enterprise simply hate it — the notion of broadcasting it is in every circumstance wrong.

Egypt and other MENA countries are suffering the most from the impact of climate change: The effects of climate change have hit the Middle East region hard over the past years, with the looming threat of water scarcity and drought growing bigger each day, the Associated Press writes. Egypt has seen precipitation fall 22% over the past 30 years, according to the World Bank, while rising soil salinity in its Nile Delta is destroying crucial farmland. Hopes are now that the COP27 summit — which we’ll host in Sharm this November — will see developed nations offer climate financing to developing countries to help them adapt to these changes.

Also making headlines:

• Human rights lawyer Mohamed Ramadan has been released after four years in prison. Ramadan was arrested in 2018 after publicly showing his solidarity with the yellow vest protest movement occurring in France at the time. There’s still no word on whether Alaa Abdel Fattah is slated for pardon or release. (AFP)
• The beach in North Sinai’s Sheikh Zuwayd is open to residents and vacationers again, eight years after terrorist attacks prompted authorities to close it on security fears. (Al Monitor)
• A look inside the Alamein Art Festival: Chinese media is looking at the first edition of the festival, which features the works of seven recycling artists. (Xinhua | watch, runtime: 2:03)

CIB now has a mortgage finance + factoring arm: CIB has established Commercial International Finance after obtaining initial approval from the Central Bank of Egypt. The subsidiary is 99.8% owned by the bank and will reportedly provide mortgage finance and factoring services. (Earnings release, pdf | Al Borsa)

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

• EGAS is joining forces with Norway-based Kanfer Shipping and Leth Suez Transit to establish a LNG bunkering service at the Suez Canal. (Statement)
• Marcyrl Pharma plans to invest EGP 400 mn to expand its factories in Egypt over the coming two years as it launches a number of new products including syringes and eye drops. (Al Borsa)
• The UN High Commissioner for Human Rights wants to strengthen its presence in Egypt and establish a technical team on the ground in Cairo. (Statement)
• The Sovereign Fund of Egypt has tapped Colliers International to consult on the planned redevelopment of the Mogamma and the former National Democratic Party headquarters in downtown Cairo, Colliers’ country director for Egypt Karim Helal told Al Mal.