AM — Progress in IMF talks, but disagreements remain, says Maait

Good morning, wonderful people, from the People’s Democratic Republic of Sahel, where the weather is gorgeous, the highway shockingly not horrible, and the beaches pleasantly not-packed. We wish safe drives to everyone headed this way today.

What is packed: This morning’s issue, with plenty of investment news, word from Finance Minister Mohamed Maait on our IMF talks, and an another super-sized Fed rate hike to digest.

UNPOPULAR SAHEL TRUTH #1- The new roadworks take a little bit of time getting used to, but once you do, it is clear that they’re infinitely better than the status quo ante bellum. The big problem: Idiots who mow down the temporary orange barriers to make illegal U-turns.

DATA POINT- Egypt’s roads were safer (and railways more dangerous) in 2021, according to data (pdf) from state statistics agency Capmas:

• Train crashes rose 9% to 978 in 2021
• The number of road accidents fell 9.3% to little over 51.5k.

UNPOPULAR SAHEL TRUTH #2– Instead of sponsoring stuff for our fellow shishifoofooeen (beach paraphernalia, drinks), we’d love to see an enterprising marketing boss out there tap their budget to produce umbrellas for the poor kids from the Traffic Police assigned to manage turning circles on the inside lanes. 12 hours under the sun (in full uniform) is not fun. So how about it: Slap your logos on the umbrellas for the marketing bennies and do a good thing.

HAPPENING TODAY-

The government’s public consultations on its state ownership policy continue today, with a workshop for representatives from the healthcare sector. Every Sunday, Tuesday, and Thursday see workshops on how privatization plans will affect specific industries. You can find more details on the schedule of the meetings here.

NEXT WEEK-

Ukraine could resume grain exports next week and reach 25 mn tons by December, Turkish President Recep Tayyip Erdogan’s spokesman told Bloomberg. His statements less than a week after Russia and Ukraine agreed to an arrangement allowing Kyiv to export mns of tons of stranded grain. Some analysts have played down Turkey’s optimism though, pointing out that Ukraine’s three main Black Sea ports have a combined maximum capacity of only 3.5 mn tons a month.

THE BIG STORY ABROAD-

The Federal Reserve delivered another super-sized interest rate hike yesterday, raising its key rate by 75 bps for the second consecutive meeting in a bid to curb inflation. The target range for the fed funds rate is now 2.25-2.50%, its highest level since 2019.

Where does it go from here? With a second 75-bps hike fully priced in ahead of the meeting, the question heading into the post-meeting presser is what Chairman Jay Powell would say about future policy moves. Abandoning forward guidance — Fed-speak for “telling us what they’re going to do in the future” — Powell was circumspect, telling reporters that another large hike “could be appropriate” but that it would depend on the data.

What’s for sure is that the Fed isn’t done tightening: Powell made clear that the central bank would need to see “compelling evidence” that inflation is receding before it begins reversing course, though the pace of the tightening will depend on both inflation data and the outlook for economy, which many (although not the Fed) are forecasting to enter recession in the coming months.

Markets are repeating a recent Fed day pattern: Surging after the meeting and falling back to the earth the following day. The Nasdaq enjoyed its biggest single-day gain since 2020 yesterday, rising 4.1%, while the S&P 500 gained 2.6% to close above 4,000 for the first time since early June. The reality of higher interest rates is dawning this morning though, with futures signaling losses in the US and Europe today. Asian markets, meanwhile, are in the green across the board.

How will the Central Bank of Egypt react to all of this? We’ll find out the next time the Monetary Policy Committee meets on Thursday, 18 August.

The announcement is front-page news everywhere: AP | Reuters | Bloomberg | FT | WSJ | NYT | Washington Post | CNBC.

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The Road to COP27: As the clock ticks down towards the all-important COP27 climate conference, Narrative PR is hosting a series of web talks with the organizers, leaders and policymakers shaping the agenda in Sharm El Sheikh this November. Following UN climate envoy and IMF executive director Mahmoud Mohieldin a few weeks ago, it’s Environment Minister Yasmine Fouad’s turn to spell out what COP27 means for Egypt and the global fight to cut emissions.

Showcasing Egypt: Hosting the global climate summit will give Egypt the chance to showcase national projects and its work to address climate climate change. It will also provide an opportunity for it to build partnerships in industries such as green hydrogen and sectors that will help it localize technology.

But Egypt isn’t just representing itself: By hosting the summit, Egypt is representing the entire continent, Fouad said. Egypt believes in Africa’s right to development, climate justice and its natural resources, the minister said.

Watch the full interview here (watch, runtime: 7:06).

SPEAKING OF CLIMATE-

Egypt is leading the renewables race among MENA countries, with 3.5 GW of generating assets, according to Global Energy Monitor’s report on MENA renewable development (pdf). It is the biggest generator of wind power in the region, producing 1.6 GW, and generates 1.9 GW of solar power. By 2030, Egypt is expected to have 6.8 GW of capacity, the report says.

But Egypt won’t be the regional leader by then: The report forecasts Morocco ⁠— which current generates 1.9 GW ⁠— to invest big in solar and wind and produce 16.3 GW by the end of the decade. Algeria and Oman will round out the top three biggest regional producers, with the three looking to bring a combined 39.7 GW of assets online.

MARKET WATCH-

Could Russia topple the Middle East as India’s biggest oil supplier? India imported almost a fifth of its oil from Eurasian producers between April and June, up from just 3% in the previous 12 months, as New Delhi capitalized on cheap Russian crude, according to official figures (pdf) from the country’s oil ministry. In turn, imports from the Middle East dropped to 61.9% for the quarter, from 63.9% during the FY prior.

Aramco could only accelerate the trend if it goes through with this price hike: Saudi Arabia is expected to raise the price of its oil to Asian markets for September deliveries to a record premium of USD 10.80/bbl, according to a Bloomberg survey of oil refiners. Saudi is trying to lock in higher prices in anticipation of weaker seasonal demand by Asian refiners in the fall.

CIRCLE YOUR CALENDAR-

The FRA will hold public hearings on its 2022-2026 strategy next Sunday, 31 July, the authority said in a press release (pdf). The dialogue will include representatives from the FRA’s capital markets advisory committee, the EGX, Misr for Central Clearing, Depository and Registry, the Investor Protection Fund, the Egyptian Capital Market Association, and the Fixed Income Association in Egypt. The strategy, which the authority released late May, aims to double the EGX’s market cap to EGP 1.6 tn by 2026.

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

Egypt is working to resolve differences with the IMF in talks for a fresh assistance program, Finance Minister Mohamed Maait said in a round of interviews yesterday. “Like any talks, there are two different perspectives, and we agreed on some points and disagreed on other points,” the minister told Al Arabiya TV (watch, runtime: 1:16).

Maait sounded a note of optimism: There is “very, very good progress and we are discussing the remaining points,” the minister told the broadcaster.

A message from the IMF: His statements come one day after the Fund’s executive board urged the government to take “decisive” steps on fiscal and structural reforms to reduce its exposure to external shocks. “Decisive progress on deeper structural reforms is needed to boost the economy’s competitiveness, improve governance, and strengthen its resilience against shocks,” it said Tuesday.

What’s the IMF really saying? While it surely has a laundry list, the lender’s statement this week is in line with its long standing view that we need more flexibility in the FX rate — that the EGP needs to be allowed to slide. More exchange-rate flexibility and an end to related import controls have been recurring themes of past IMF programs, and the Fund is likely to want Egypt to commit to floating the EGP for the long term. The board voiced its regret this week that Egypt had not allowed the FX rate to move more freely after the IMF provided funding in 2020 to help us get through the immediate fallout from covid-19. Since March, the central bank has allowed the currency to slide against the USD; it has eased more than 20% against the greenback over the past four months.

El Sisi wants an agreement in place, but is signaling that he wants to go slow on some reforms: At a press conference in Germany last month, President Abdel Fattah El Sisi called for European leaders to support Egypt’s bid for a fresh agreement with the Fund. “What we are asking for from our friends in Europe is to send a message to the IMF and World Bank that the reality in our country cannot tolerate the reforms until the end of the crisis,” the president said (watch, runtime: 22:07).

There’s agreement on the private sector: The IMF signposted this week its desire to see the Sisi administration reduce the state’s involvement in the economy and boost private sector development. It’s an idea that Maait said the two sides are aligned on: “There is an agreement that the private sector is given a bigger role in all sectors, allowing for sustainable growth,” the minister told CNBC Arabia (watch, runtime: 5:00).

The two sides have been engaged in talks since March but haven’t yet been able to come to an agreement. If given the greenlight, this will be Egypt’s third loan programme in six years after its USD 12 bn Extended Fund Facility in 2016 and the USD 5.2 bn stand-by arrangement in 2020. Egypt was forced to request fresh financing from the IMF earlier this year due to headwinds caused by the fallout from the Ukraine war and tightening global financial conditions. Egypt’s balance of payments has come under pressure from surging food and energy prices as well as a heavy sell-off from global emerging markets, while rising interest rates in the developed world are raising questions about the affordability of our large external debt load, which has more than doubled over the past five years. The central bank has had to dip into foreign reserves to cover a rising import bill and investor outflows. FX reserves had declined almost 20% since February to USD 33.4 bn as at the end of last month.

The government is still holding out hope that it could sell stakes in as many as 10 companies before the end of the year, Finance Minister Mohamed Maait told Al Arabiya yesterday (watch, runtime: 1:16), insisting that a state program to divest assets through IPOs and secondary sales of already-listed companies still has legs despite ongoing market turbulence. “We’re still committed to 10 sales this year,” the minister said, without getting into further details.

This was the plan before the world turned upside down in February: The government said at the beginning of the year that it wanted to pull the trigger on 10 primary and secondary offerings by state companies this year, only for the plans to be derailed by the economic crisis triggered by the war in Ukraine.

Two 2022 IPOs have been pulled in the past week: Banque du Caire (state owned) and Aman Holding (private sector) both delayed plans to debut on the EGX this year due to the tumult in the global markets. As of today, we’re not aware of a single would-be Egyptian issuer lining up to tap the equity markets this calendar year. The global investor pullback from EM, anemic volumes on the EGX (with foreign institutional buying flatlined), rising US interest rates, redemptions from equity funds around the world, and talk of recessions in developed economies make the IPO climate here at home inhospitable.

We expect the government has a good chance of lining up multiple sales to Emirati (and perhaps Saudi) investors given the GCC is riding a wave of high oil prices that has left sovereign funds and state-affiliated companies flush with cash. (See related story in Planet Finance, below.) Egyptian assets are very well priced right now, and Cairo can count on strategic support from Abu Dhabi and Riyadh — but through the sale of compelling assets, not straight-up assistance. It is possible that some of these transactions could include token domestic retail offerings or otherwise be executed via the EGX (for already-listed companies, for example).

KEEP IN MIND- GCC investors are not looking to buy stakes in moribund state-owned enterprises with zombie listings on the EGX. They want viable, interesting assets with plenty of potential to generate real ROIs — and to serve as springboards for growth. They’re not going to transact if that type of asset isn’t on the table.

The government’s new hotels company could be on the list: Public Enterprises Minister Hisham Tawfik told Bloomberg Asharq (watch, runtime: 4:00) the company could make its EGX debut in November. The state plans to sell 10-15% of the company to investors on the EGX and an additional stake will be sold to a strategic investor, he said. The Saudi sovereign wealth fund has previously expressed its interest in purchasing up to 20% of the company.

What new hotels company? The state is currently working on merging seven or eight state-owned hotels into a single entity to be offered up as part of the state’s privatization plans, which aims to attract USD 40 bn of fresh investment into the country over the next four years.

Remember: The resumption doesn’t necessarily need to feature share sales on the EGX but could be done via private sales to strategic investors, the latter of which is increasingly becoming the tool of choice for the state’s privatization push.

SEPARATELY-

The Madbouly government might opt for a local sale of its first-ever sukuk issuance due to volatility in the global markets, Finance Minister Mohamed Maait told Al Arabiya yesterday (watch, runtime: 1:16). “Global market [conditions] are very, very difficult. There might be a local sukuk issuance,” he said. The government had wanted to take the issuance to international markets, but will have to wait, Maait said.

Turning the issuance local isn’t much of a surprise: Maait’s statements come weeks after he said that Egypt’s maiden sovereign sukuk issuance was pushed to FY 2022-2023 amid see-sawing market conditions on the back of the crisis in Ukraine and rising interest rates. The issuance was originally expected to go to market before the end of the 20201-2022 fiscal year, which ended on 30 June, but markets were not ideal, he said. “There are estimates that the volatility could subside in 3-4 months, but nothing is certain right now,” he said at the time.

Maait did not specify how large the domestic offering would be. The Finance Ministry had guided last summer on an international offering in the USD 2 bn range.

Background: The sharia-compliant bonds could be issued on both the local and international stock exchanges.The issuance is part of FinMin’s strategy to reduce government debt and shift towards longer-term borrowing, which saw it issue its first green bonds in 2020. The Cabinet approved executive regulations of the Sovereign Sukuk Act in April, yet the content of the regulations remains undisclosed.

It’s official: CIRA’s future flow securitization program has gotten the nod from the Financial Regulatory Authority (FRA), which has given EFG Hermes the final go-ahead to take EGX-listed education provider CIRA’s planned EGP 800 mn issuance to market. The offering is Egypt’s first-ever future flow securitization, CIRA and the regulator said yesterday in separate statements here (pdf) and here (pdf). The first issuance should close before the end of August and will offer seven-year securities at EGP 100 each, CIRA CEO Mohamed El Kalla told Enterprise.

This is part of a EGP 2 bn securitization program which will take place over three years. The bonds will be backed by future tuition revenues. The FRA gave CIRA initial approval to begin regulatory procedures for the issuance in June.

SOUND SMART- 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. 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 GO DEEPER? Check out our explainer on future flow securitization here.

Advisors: EFG Hermes is the financial advisor on the transaction, Zulficar & Partners is providing legal counsel, and PwC is the auditor. MERIS is providing the credit rating, El Kalla said.

Egypt, India could establish a USD 8 bn green hydrogen plant: Egyptian government agencies signed an MoU with Indian renewables company ReNew Power to establish a green hydrogen plant in the Suez Canal Economic Zone (SCZone), according to a cabinet statement. The plant will crank out 220k tons of hydrogen and 1 mn tons of green ammonia a year at full capacity and cost USD 8 bn to build, it said.

In detail: The facility will initially produce 20k tons of green hydrogen and 100k tons of green ammonia annually, the statement said. It will be powered using 5.7 GW of renewable energy when running at maximum capacity.

Who’s involved? The Sovereign Fund of Egypt, the Egyptian Electricity Transmission Company (EETC), the General Authority for the Suez Canal Economic Zone and the New and Renewable Energy Authority (NREA) all signed the agreement with ReNew Power.

Nothing’s definite yet: The MoU isn’t a final agreement, but will see the participants conduct feasibility studies for the plant.

What they said: “This partnership reflects the interest of global developers in Egypt, seeing what it has to offer from strategic location and renewable resources, enabling it to become a regional hub for green energy,” Sovereign Fund of Egypt CEO Ayman Soliman said.

We’re becoming regional hub for green energy: The government is making moves to capitalize on investment momentum ahead of COP27 by establishing the SCZone as a regional green energy hub. Major global companies have signed USD 18 bn worth of preliminary agreements for green ammonia and hydrogen projects in Ain Sokhna this year. (That figure includes the USD 8 bn for this ReNew Power MoU.)

Indian companies have appetite for Egypt: Indian corporations have expressed interest this week in investing as much as USD 700 mn in Egypt, according to Indian Ambassador Ajit Gupte. Firms are interested in a number of sectors, including renewable energy, fertilizers, pharma and chemicals, he said.

The UK’s DFI is looking to up financing to Egypt: British International Investment, the UK government’s development finance arm, is planning to invest USD 6 bn in Africa over the next five years, with a substantial portion earmarked for debt and equity financing in “powerhouse markets” like Egypt, Nigeria, Kenya and Ethiopia, BII CEO Nick O’Donohoe told Bloomberg. This is part of a wider USD 10 bn program of investment that will be deployed around the world as well as an Africa strategy announced last year that will see it support climate finance and green infrastructure across the continent.

New Africa investment fund receives BII money: The BII has become an anchor investor in a USD 500 mn African infrastructure fund being raised by African Infrastructure Investment Managers (AIIM), it announced yesterday. The lender has contributed USD 76 mn to the fund, which will invest in infrastructure, with at least 20% being deployed to green projects. FMO and AIIM sponsor Old Mutual are also limited partners, while the European Investment Bank is considering a USD 75 mn ticket.

BII plans to open an Egyptian office: In another step towards cementing its presence in Egypt, the BII’s Nigeria head told Techcrunch last month that the DFI plans to open an office here. The group appointed a coverage director for Egypt in 2020 to spearhead investment here. (Read our interview with Sherine Shohdy here.)

BII has been an active investor in Egypt for years: Back when it was called CDC Group, British International Investment was a shareholder of CIB. It has been a limited partner in funds raised by our friends at Sawari Ventures and Ezdehar, acquired a big stake in pharma maker Adwia, and provided financing for some 800 MW of capacity in the Benban solar park. More recently, it participated in fintech Paymob’s USD 50 mn series B round, which was the largest ever on record for Egypt, and infrastructure management platform Pylon’s USD 19 mn seed round. CDC rebranded as BII this pas April.

Microfinance player Tamweely is rolling out green financing products geared towards eco-friendly projects in the agriculture sector, the company said yesterday (pdf). The products will focus on providing finance to farmers and owners of small factories to help them install solar panels as an alternative to diesel and other fossil fuels, said Saad Khaled, CEO of consultancy Ezdaher, which helped Tamweely introduce the green financing products.

More and more entities are getting in on green financing in Egypt: The European Bank for Reconstruction and Development (EBRD) recently signed off on a USD 100 mn facility to state-owned Banque Misr to finance local SMEs working on green projects last year. The institution has been committing more financing to green projects in Egypt and elsewhere in the developing world under its recently-announced Green Cities Compact scheme.

Upmarket real estate developer SODIC reported (pdf) 51% y-o-y growth in revenues to EGP 1.54 bn in 2Q2022 on the back of higher deliveries at its East Cairo projects. SODIC’s bottom line declined 46% in the same period due to deliveries from the first phases of SODIC East, which accounted for 39% of revenue delivered in the quarter. “Early phases of new projects generally carry lower margins, and margins gradually improve as we move on to deliver more advanced phases of our projects,” SODIC said. On a six-month basis, SODIC saw its net income rise 31% y-o-y to EGP 292 mn on the back of 46% revenue growth.

Gross contracted sales were up 54% to EGP 2.94 bn from the sale of 445 units during the April-June period, with the company’s June project on the North Coast accounting for 43% of units sold. Projects in East Cairo contributed 36% of sales on the back of strong performance of SODIC East, while West Cairo accounted for the remainder.

East Cairo projects topped SODIC’s total deliveries for the quarter, according to the release. SODIC delivered around 299 units, with 239 in East Cairo, 57 in West Cairo and three in North Coast projects.

REMEMBER- For real estate companies, sales ≠ revenues. They book a sale when you sign a contract to buy a home. But they only record (some or all) of the value of the unit it sold you when it (a) delivers the unit to you or (b) hits a percentage completion on a total project.

Fawry has appointed Ahmed Altanani (LinkedIn) and Aziz Moolji (LinkedIn) as board members representing Abu Dhabi sovereign wealth fund ADQ, which purchased an 11.8% stake in the company in April, Fawry announced in an EGX disclosure (pdf) following a meeting of its general assembly last week. Moolji serves as ADQ’s M&A and alternative investments director and was previously a vice president of investments and portfolio management at Dubai Holding. Altanani is ADQ’s M&A and alternative investments associate director.

Tax Authority welcomes new head: Finance Minister Mohamed Maait has promoted the deputy head of the Tax Authority, Mokhtar Tawfik, as its new head, according to a Finance Ministry decision seen by Al Masry Al Youm. He succeeds Reda Abdelkader, who was appointed assistant minister for tax affairs.

Kollena has launched its online resource directory for children with disabilities and special educational needs, it said in a statement (pdf). Kollena is a startup that aims to help link disabled children and their families to support services including special schools, associations and centers.

It was a notably quiet night on the airwaves last night: The big talking point last night continued to be the government’s package of social support measures announced on Tuesday.

Bread subsidies aren’t changing: Bread prices will not rise and the government is sticking to its plans in the budget, which will see it spend EGP 55 bn on bread subsidies this fiscal year, Supply Minister Ali El Moselhy told Ala Mas’ouleety’s Ahmed Moussa (watch, runtime: 5:12). The minister emphasized that the government remains committed to ensuring food security, especially to the most vulnerable people. The cost of a loaf of subsidized baladi bread has jumped from EGP 0.6 to EGP 0.75 this year but the state will continue to offer the loaf at EGP 0.5, he said.

Ration card holders will also benefit from the measures: Each one-family ration card will see an EGP 100 increase in credit for the purchase of food staples for the coming six months, costing the state EGP 5.5 bn, El Moselhy said (watch, runtime: 46:47).

More help on the way: The National Alliance for Civil Development Work announced that it will offer monthly aid to 400k families for a year at a total cost of EGP 2.4 bn, Al Hayah Al Youm reported (watch, runtime: 4:45).

More COP coverage: Al Hayah Al Youm sat with a number of climate experts, including Environment Minister Yasmine Fouad, to discuss the government’s plans for COP27 (watch, runtime: 44:21).

GASC cancels contracts for stranded Ukrainian wheat: The General Authority for Supply Commodities (GASC) has pulled the plug on contracts for 240k tons of stranded Ukrainian wheat booked earlier this year, sources told Reuters. The four cargoes were booked for February and March delivery but never set sail due to the Russian invasion in February. The newswire reported in May that around 300k tons of wheat booked by Egypt were stuck in Ukrainian ports. The state grains buyer has released the companies responsible from their contractual obligations, despite their contracts not including a force majeure (unforeseeable circumstances) clause.

Things could be looking up soon: Russia and Ukraine signed a landmark agreement to resume grain exports through the Black Sea last week in a move aimed at averting a global food crisis. Ukraine said that it could start exporting the grain as soon as this week.

Crypto cometh? Bahrain-based cryptocurrency trading platform CoinMENA has expanded service to Egypt and is now allowing residents to open accounts, link their bank accounts, and trade crypto. The CBE maintains a blanket ban on crypto in Egypt.

Rapprochement between Cairo and Ankara isn’t off the table: Egypt and Turkey could hold high-level talks, with talks between lower-level officials still ongoing, Turkish President Recep Tayyip Erdogan claimed in an interview with a Turkish broadcaster, according to Reuters. Turkey has been making an effort to mend ties with Egypt over the past two years after the two sides broke off diplomatic relations in 2013 after we got rid of the Ikhwan. Turkey’s push to kiss and make up with the UAE and Saudi Arabia is also seeing headway, Erdogan said.

Madbouly wants the love-in with Qatar to start bearing fruit: Prime Minister Moustafa Madbouly has told government officials to work on drawing Qatari investment into the country, cabinet said on Tuesday. Planning Minister Hala El Said said that Egyptian authorities have consulted a number of Qatari officials regarding investment in a number of sectors. Qatari officials held talks with the Egyptian government in June over investing USD 2-3 bn in Egypt’s real estate sector and equity stakes in companies.

Voters hand Tunisian president sweeping new powers: Tunisia’s president Kais Saied has been granted extensive power over the judiciary and government in a new constitution voted in by only 30.5% of eligible voters, according to Reuters. Some 95% of voters approved the constitution in a referendum that was boycotted by opposition parties, who say that it reverses many of the democratic achievements of the 2011 revolution.

Ukraine needs a huge IMF loan: Ukraine wants to secure a USD 15-20 bn IMF loan before the end of the year to shore up its economy amid the debilitating impacts of the war, the country’s central bank governor, Kyrylo Shevchenko, told Reuters.